Offshore Trusts
General information
The history of trusts begins in Medieval England whereby landowners wished to avoid the crippling inheritance taxes and death duties so they formulated a way that a trustee holds the asset for a beneficiary whilst the person having transferred the asset [the settlor] controls the asset through the trustee but does not own it.
This clever mechanism has become a major part of New Zealand law whereby family trusts and trusts generally are used by many New Zealanders.
The nature of trust can be explained by way of an example.
Joseph has 1 million in savings and wants to put this somewhere safe for his family and children but at the same time he needs to use this money in the meantime for his business.
Joseph puts the money into a trust and opens an account for the trust he calls this trust the Joseph Family Trust. Joseph is named the settlor of the trust because he created the trust.
Joseph needs a trustee to run and administer the trust on his behalf. For this he can appoint a lawyer, accountant or professional trustee company. The document establishing the trust and containing its terms the trust deed will indicate what the trustees can or cannot do, and the trustees (if they are a professional company) can be insured for any problems. A trustee may be held personally liable for certain problems which arise with the trust. For example, if a trustee does not properly invest trust monies to expand the trust fund, he or she may be liable for the difference.
Joseph thus legally controls his money but in law the money belongs to the trust and not to Joseph. So, if anybody (e.g. former spouse or a creditor) makes a claim against Joseph the money is safe because it does not belong to Joseph but to the trust. The trust property is especially protected when a secret trust is established which keeps the names of the settlor and/or beneficiaries secret.
Joseph can name anyone he wishes (e.g. his children or even himself) as beneficiaries i.e. persons who receive benefit from the trust. The property only goes to the beneficiaries when the trust terminates. Joseph can designate when the trust terminates by naming a period of time or indicating a certain event, e.g. Josephs death.
For example, if Joseph has children who are not yet able to properly handle the familys assets, the trust can help him to secure the familys financial future by establishing, for example, that the trust pays a child beneficiary an annual stipend, but the actual property can become their only when they reach a certain age, or marry, or finish university. Even when the property passes to Josephs child, trust may ensure that the childs partner or spouse does not get half of the property after the couple separates.
Because the trust can perform all the functions of a company, Joseph can direct that the money be lent to him or to his businesses for trade (he can then repay with interest thus minimizing his tax), or direct that the trust invest the money in shares or other securities, or he can direct that the trust buys property.
Finally, a trust can be established to pool the wealth of a settlor or several settlors, invest it in a business or asset, and have a fixed date when that asset (e.g. property) is to be sold and distributed equally to the trustees.
Characteristics
New Zealand parliament has carefully legislated for the protection of foreign or non resident trusts and their assets. The New Zealand Foreign Trust regime is considered to be one of the best if not the best offshore trust regimes in the world today.
Trusts are considered sacred cows in New Zealand law and if properly structured cannot be set aside by a court, by a government, by a wife, by a creditor or by any inheritance disputes. They are the legal fort Knox of asset protection.
Trusts can trade, invest in assets of any kind, hold or sell property, invest overseas and even play on the stock exchange.
In 2007 by the Income Tax Act 2007 the New Zealand government legislated that any non resident that establishes a trust in New Zealand can utilise the trust to hold assets or invest in transactions or even trade and pay ZERO TAX IN NEW ZEALAND provided that the settlor is a non-New Zealand resident and the trust does not conduct any taxable activities in New Zealand.
In other words, a New Zealand trust will be a foreign trust if none of its settlors have been resident in New Zealand since the date the trust was first settled. New Zealand Foreign trusts are also known as New Zealand Offshore Trusts or New Zealand Non-Resident Trusts. A trust will cease to be a foreign trust if it makes any distribution after a settlor becomes a New Zealand resident, or if a New Zealand resident makes a settlement on the trust.
Requirements to structure:
- Non New Zealand settlor(s), normally individual,
- At least one New Zealand resident Trustee, individual or New Zealand company. In addition, a trust can have unlimited (reasonable though) number of non-resident trustees,
- At least one Beneficiary.
The method of establishing a trust is that a New Zealand company or individual can act as corporate trustee, the trust is then established via deed or document setting out the obligations of the trustee and beneficiaries. The corporate trustee can trade or enter into transactions in the name of the trust and the monies then can be paid into the trusts account.
The trust can open accounts anywhere in the world and of course in New Zealand, New Zealand will not tax these monies if they are foreign sourced.
The Trustee company can belong to the settlor, i.e. the person establishing the trust can also control it through the company.
Advantages & Tax regulation
New Zealand is one of the few jurisdictions that provides the added protection of trusts. That means creditors, spouses, governments and other claimants cannot get at your assets because these are owned by a trust, in New Zealand law a properly structured trust is unbreakable which makes New Zealand at a par with jurisdictions like the Cook Islands but without the stigma of offshore. In other words, if you put your assets into a trust structure then if properly structured no any party whatsoever can take your money. This is the secret that wealthy families have been using for years to protect the family money, and no New Zealand court will ever interfere or disturb this arrangement.
- Your own corporate trustee can trade and then place the income into the trusts, the structure gives maximum flexibility and little accounting or compliance issues.
- Under the New Zealands income tax law, when a non-resident settlor establishes a trust with a New Zealand resident trustee which does not derive New Zealand sourced income, that trust, its trustees, and the non-resident beneficiaries are not liable for New Zealand taxation.
- If the beneficiary receiving the taxable distribution from a foreign trust is not a New Zealand resident, they will only have to pay New Zealand income tax on any part of the taxable distribution that came from a source in New Zealand. If the funds are invested into a non-resident trust outside of New Zealand no tax is payable on that income in New Zealand.
- There is no capital gains tax in New Zealand. Any capital increase in the value of the trusts assets is therefore not taxable.
- Recognized by other countries and jurisdictions.
- No audit of the accounts of the Foreign Trust is required.
- No Government registration of the Foreign Trust is required.
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