To structure onshore or offshore, one would have to study the different provisions of the applicable statutes which are both based on English common law but given that the offshore trust is newer a creature the statutes touch more on current concerns.
A few relevant elements to note are:-
(I) Protector
Offshore there is a statutory introduction of yet another player in the common tripartite structure of a trust, comprising a settlor, a trustee and a beneficiary known as a Protector. The Protector provides another layering of protection as the protector oversees the Trustee who/which would oversee the trust itself hence a double layering of fiduciary duty.
Onshore whilst not statutorily provided one can possibly also draft the role of a protector into the trust instrument but often this role is omitted in onshore drafting given the lack of statutory provisions.
(II) Rules against Perpetuity
The Rules against Perpetuity applies to onshore trusts wherein the vesting of properties/assets to beneficiaries cannot occur at too remote a time in the future and the base concern was the tying up of capital or accumulation of income for too long a period to the disbenefit of the beneficiaries wherein the intent of the trust is not served. The usual rule is that the maximum period within which the interest of a beneficiary is required to vest is:
- based on the lives in being at the time the trust is created + 21 years; or
- a fixed period of up to 80 years (the latter – fixed period) only applies if expressed in the trust.
Offshore, the Rule against Perpetuity does not apply. Again, it must be remembered that the offshore world caters if not specifically but largely for continuous succession planning. Moreover, the quantum of assets in play nowadays are significantly larger; we are no longer looking at limited capital or income meant for the beneficiaries’ day-to-day disbursements; we are looking at investable assets and much of the time the beneficiaries are already well provided for sans trust.
The intended beneficiaries are many folds and the intention is to last beyond a generation or two – a strive for a perpetual self-generating structure perpetuating not only monies but the legacy intended.
(III) Revocability
Whilst it is always possible to draft in an expressed revocation right for the settlor, it is common onshore take that the settlor would have thought long and hard before settling and once settled and completely constituted, the trust in place is not to be revoked.
The offshore statutes expressly provide:
- revocation rights to be reserved by the settlor
- revocation rights to be empowered to another
- (an additional power) the retention of certain rights by the settlor
(IV) Beneficiaries’ rights/powers
Onshore there is always a concern that beneficiaries armed with knowledge of their equitable rights and acting in concert can apply to set aside the trust ― Saunders v Vautier [1841] 4 Beav 115.
Under the terms of a Labuan trust, it may include pursuant to Section 22(4) of the Labuan Trusts Act 1996 inter alia:
the exclusion of a beneficiary from a benefit;
- the imposition on a beneficiary of an obligation as a condition for a benefit; or
- the power to declare that any person shall cease to be a beneficiary
- all of which are forms of curtailing the beneficiaries’ rights/powers.
(V) Confidentiality, disclosure & secrecy
Whilst the call of fiduciary duty and confidentiality bears strong on the trustee and the trust instrument can be safeguarded accordingly, however, should any of the players or the assets be corporate entities then onshore, it is quite easy to ascertain the people behind the same which may lead to ascertaining the existence of the trust itself bringing about the possibility of demands or actions.
Offshore, the confidentiality, disclosure & secrecy provisions, state inter alia that:
- all proceedings relating to a Labuan trust shall be heard in camera and no details of the proceedings shall be published by any person without leave of the court [Section 8A (2) of the Labuan Trusts Act 1996].
- when the Labuan trust is validly created the Court shall not recognise the validity of any claims against the trust property pursuant to the law of another jurisdiction [Section 10 of the Labuan Trusts Act 1996].
- all documents filed with the authority in relation to Labuan trusts shall not be open to the public for inspection [Section 15(3) of the Labuan Trusts Act, 1996].
5 FOUNDATION
Lastly, this is a civil law product which offers an alternative solution to the common law trust vehicle.
The Foundation:
- has features of both trusts (in that it is intended for beneficiaries) and companies (in that it is its own legal entity) but is neither a trust or a company or some say it is a hybrid or the ever popular word ‘fusion’.
- has no separation of legal & beneficial ownership i.e. the Foundation is both the legal & beneficial owner of the Foundation assets and no beneficiary has any equitable interest in the said assets until so given.
- like a company, the Foundation is in its own right a legal entity and can hold and be registered (over the assets) in its own name as well as contract or sue in its own name.
Onshore, we akin Foundations primarily to those of a charitable nature. Offshore, private family foundations have rapidly been coming into popularity as the go-to-vehicle given its basic makeup – the Foundation retains full control of the assets and the Founder can be very much involved in the Foundation on so many levels.
The Labuan Foundations Act which came into force in Year 2010 is 14 years newer than the Labuan Trusts Act of 1996 (although revised to a certain extent in year 2010). So by virtue of being a newer enactment the Foundation is a more sophisticated vehicle for structuring.