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FREQUENTLY ASKED QUESTIONS

Why do Individuals Establish a Trust or Foundation?
Trusts and Foundations form an integral part of the financial and estate plans of those who want certainty of outcome in their financial affairs while living and for future generations.

  1. Ongoing estate planning – Trusts and Foundations are an ownership vehicle that will serve the settlor now and provide for the beneficiaries after the settlor’s death in accordance with the wishes expressed by the settlor. Many trusts include the settlor as a beneficiary during their lifetime.
  2. Simplify asset management – Trusts and Foundations provide a simple structure to consolidate assets and minimize the administration while the settlor is alive and for subsequent generations.
  3. Wealth succession – Trusts and Foundations serve as a vehicle to pass along assets, or the income and benefits, from the trust assets to future generations and to charities.
  4. Asset protection – Trusts and Foundations protect assets from creditors during the settlor’s lifetime and for generations to follow. International trusts are more effective in protecting assets from creditors than domestic trusts in many jurisdiction.
  5. Assets in multiple jurisdictions – Trusts and Foundations can own and administer assets in other countries (real estate, art, yachts, aircraft, investment portfolios etc.).
  6. Family members in multiple jurisdictions – Trusts and Foundations are a central vehicle in a neutral jurisdiction which manage family assets and provide for distributions to beneficiaries in different countries .
  7. Confidentiality – Trusts and Foundations provide greater confidentiality than might be available through personal ownership of assets and rights. (A will becomes a public document at death in many countries).
  8. Reduce succession costs – as a settlor you separate yourself from the legal ownership of the assets which no longer form part of your personal estate but are the assets of your trust. This may offer the opportunity to avoid the probate and estate administration process along with the associated fees and costs at death.
  9. Avoidance of forced heirship – in some cases, the assets owned by the trust will not be subject to forced heirship regimes.
  10. Tax Planning – Trusts and Foundations may achieve certain tax advantages, including the reduction or elimination of estate taxes.
  11. Post-Mortem planning – it is difficult to predict the future when creating an estate plan. The assets may change, the domicile of the Settlor and Beneficiaries may change, the marital status of beneficiaries may change and it is likely that the laws of the domicile of all parties will change. The trust provides certainty that these changes can be effectively managed by the trustees.
  12. Business succession – Trusts and Foundations can facilitate the orderly transfer of business assets to future generations or a central vehicle to hold multiple business assets for generations to build upon and benefit from.
  13. Corporate governance – Trusts and Foundations provide a structured holding vehicle for business assets and coordinated oversight of corporate goals, vision and management.
  14. Protection of family wealth in marriage breakdown – Trusts and Foundations may be used as part of or in lieu of a pre-nuptial agreement, transfer of family assets along heritage lines and as an asset protection vehicle for family members living in jurisdictions with varying family property rules.
What is a Trust?
A trust is a fiduciary relationship in which one party, known as a Settlor, gives another party, the Trustee, the right to hold title to property or assets for the benefit of a third party, the Beneficiary. The trustee performs its duties in accordance with the terms of a Trust Settlement or the Trust Declaration (these documents are often referred to as a Trust Deed), under which the trustees gets their authority and direction, while adhering to a standard of care in the exercise of these duties imposed by law. The Trust Settlement is executed by the Trustee and Settlor, while the Trustee is the sole signatory to the Trust Declaration. In certain cases the Settlor may be referred to as the Donor or Contributor. It should be noted that a Settlor can also be a Beneficiary.

The law of trusts first developed in the 12th century from the time of the crusades under the jurisdiction of the King of England. The Knights would entrust their property to a trusted friend to hold for his family. The concept was founded in “Common Law” which regarded property as an indivisible entity, as it had been done through Roman Law and the continental version of Civil Law.

What is a Foundation?
A Foundation is defined as an independent legal entity with a constitution and board of directors. Control over the Foundation resides with the board, and may be impacted by an agreement between you (as the Founder) and the board. It is by taking assets outside your personal estate and transferring legal title to the Foundation that delivers many of the same benefits as trusts.
Selecting a Jurisdiction for a Trust or Foundation
When selecting a jurisdiction in which to establish a Trust or Foundation, you should consider the following factors:

  • That it is a Common Law country
  • There is excellent Trust and Foundation legislation, including no rules against perpetuity
  • There is an established and reputable legal system with accessibility to competent legal counsel and the Court system
  • There is established case law with favorable court decisions supporting the goals of the Trust or Foundation (for example, asset protection, confidentiality, beneficiaries’ rights, creditor and beneficiary challenges etc.)
Selecting a Trustee or Foundation Manager
Some of the duties of the Trustee or Foundation Manager are:

  • exercising all duties, responsibilities and powers as set out in the documentation governing their appointment;
  • attend to all day to day administrative issues affecting the structure including due diligence management, monitoring cash balances and investment portfolios with extensive reviews of performance ensuring assets are managed in accordance with the terms of the governing documents and established goals, and attending to all necessary record-keeping, including maintaining proper accounts;
  • considering all requests for distributions and ensuring that all distributions are in keeping with the governing documentation in order to maintain the integrity of the structure;
  • maintaining open and regular communication with all parties to the Trust or Foundation, investment advisors, custodians, accounting and legal advisors, and other intermediaries;
  • continually review the risk profile of the structure and ensure that the risk level is maintained at a satisfactory level;
  • diligently collect any debts owed and/or income earned in respect of the property comprised within the structure; and
  • comply with domestic and international regulatory, legislative and administrative practices.

When choosing a Trustee or Foundation Manager, you should keep in mind the above list and the extensive expertise required in order to carry out these and other duties.

Your Trustee and Foundation Manager should:

  • Recognize their responsibility to act in the best interest of all of the parties associated with the Trust or Foundation with knowledge and empathy.
  • Be available to the Settlor, Founder, Beneficiaries and their advisors.
  • Be experienced and knowledgeable while demonstrating integrity and good judgment in administering Trusts and Foundations
  • Have access to a network of legal and accounting professionals around the world
  • Have professional qualifications – For example, they should be Members of the Society of Trust and Estate Practitioners (STEP)
  • Be tax aware with a range of professional contacts in multiple jurisdictions
  • Offer and understand the investment management process including the possible need of multicurrency capabilities
  • Have access to a range of global custodians for the safekeeping of Trust and Foundation assets
  • Provide continuity of service over multiple generations
  • Provide regular and comprehensive record keeping and tax reporting
Due Diligence Process
Most nations will have some form of Anti-Money Laundering legislation, which generally includes strict penalties (and often incarceration) for being in possession of proceeds of crime, aiding and/or financing terrorism and/or engaging in tax evasion. In order to combat these crimes, financial and some non-financial institutions are required to gather financial and other information from their clients. This process may be referred to as a KYC (Know Your Client) collection process. Each jurisdiction will determine what information must be collected and verified. Some organizations may request additional information depending on the institutions risk profile. If a client is or is related to or connected with a Politically Exposed Person (PEP), more KYC/Due diligence will most likely be required.

Included in the Due Diligence process, a client will be required to confirm and verify their source of funds and wealth, as well as which jurisdictions they are required to file tax returns based upon either their citizenship or residence or both.

Double Taxation Agreements
Double Taxation Agreements, often referred to as Tax Treaties, are agreements between two nations, or in some cases a group of nations, to govern the taxation of income and potentially capital gains. The benefits of the Agreements are:

  •  Provides certainty of tax treatment with respect to income and gains derived from cross border investments
  • There is reduced withholding taxes in the source country for certain types of income
  • An elimination of the occurrence of double taxation on income
  • In some cases, a corporation can repatriate net income to the parent company at a very low or zero tax rate

Almost all Double Taxation Agreements are based on the OECD model which includes an exchange of taxation information section. Many earlier drafts Agreements are being amended to include this provision.

Bilateral Investment Treaties
Bilateral Investment Treaties are agreements between two nations which establish the terms and conditions for private investment by nationals and companies of one state in another state (ie Foreign direct investment).  All signatory nations are members of the International Centre for Settlement of Investment Disputes (ICSID) Convention established by the World Bank.  An ICSID Arbitration ruling can be enforced through the courts in any country in which the liable party has assets, as long as that country is a member of the ICSID Convention.
Tax Information Exchange Agreements
These agreements grew out of the work undertaken by the Organisation for Economic Co-operation and Development (OECD) to address harmful tax practices.  The lack of effective exchange of information is one of the key criteria in determining such practices.  In April 2002, the OECD issued the Agreement negotiated by the member nations which included two models for bilateral agreements –now known as Tax Information Exchange Agreements (TIEAs)
CRS
In June 2015, the OECD Committee on Fiscal Affairs approved a Model Protocol to the Agreement, which precipitated the TIEAs.  This Protocol may be used by jurisdictions, in case they want to extend the scope of the existing TIEAs to also cover the automatic and/or spontaneous exchange of information.

In doing so, jurisdictions are then able to base a bilateral competent authority agreement for the purpose of putting in place the automatic exchange of information in accordance with the Common Reporting Standard (CRS) or the automatic exchange of Country-by-Country Reports on a TIEA.

FATCA
The Foreign Account Tax Compliance Act (FATCA) was passed as part of the HIRE Act in 2010, to target non-compliance by U.S. taxpayers using foreign accounts. In general, FATCA requires foreign financial institutions and certain other non-financial foreign entities (FFIs)  to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. The penalty for non-compliance may lead to substantial withholding tax on payments normally subject to withholding tax.

FFIs are encouraged to either directly register with the IRS to comply with the FATCA regulations or comply with the FATCA Intergovernmental Agreements (IGA) in effect in their jurisdictions.

Barbados
Barbados is 166 square miles and is the most easterly of the Caribbean Islands. The Island was settled in 1627 by the British and remained a British colony until its independence fifty years agoThere are about 276,900 (2014) people living in Barbados, with a literacy rate of 99.7%.

Residents and guests have access to the most modern telecommunications infrastructure in the Eastern Caribbean, including the latest digital technology and fibre optic systems, international direct dialing and satellite telecommunications.

The parliament, legislation, court and school systems are based upon the British systems.  Modern legislation has been enacted with respect to trusts, asset protection, companies, insurance, foundations, investment vehicles, private trust companies and non-domicile residency for high net worth individuals.

There are excellent law firms on the Island which often belong to one or more global networks of independent law firms located around the world. In addition, alLfour large international accounting firms have a presence in Barbados, which are supplemented by independent firms.

Barbados is considered a “clean jurisdiction” with a strong network of Regulators and world class Anti-Money Laundering legislation.

Barbados requires extensive due diligence on all entities established, which include trusts, companies and bank accounts, and are subject to the Barbados Money Laundering and Financing of Terrorism (Prevention and Control) Act 2011. This legislation meets the highest of international standards, including those of the OECD Global Forum and Financial Action Task Force (FATF).

Eticas International Ltd., in Barbados, is licensed to provide services under the Corporate and Trust Services Provider Act 2015 and subject to the supervision of The International Business and Financial Services Unit.

In addition to strict regulation and excellent legislation, Barbados is a leader in the Caribbean with an enviable and ever-expanding number of Double Taxation Agreements (DTAs), Bilateral Investment Treaties (BITs) and Tax Information Exchange Agreements (TIEAs).  For further information about these agreements and treaties, see the FAQs on these topics.

Barbados has signed a Model 1 Intergovernmental Agreement (IGA) with the US in respect of the Foreign Account Tax Compliance Act (FATCA). See the FATCA FAQ.

Barbados signed onto the Organization for Economic Cooperation and Development’s (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters (The Convention) in October 2015. The Convention requires that all countries are required to exchange information on tax matters with all of the other countries in which the Convention is in force. At present, more than 70 countries have signed the Convention. See the CRS FAQ.

The Barbados dollar is pegged to the US dollar at BDS$2.00 = US$1.00 and the Island has had its own stock exchange (BSE) wince 2001.

There are direct flights to the Island from many major cities – Toronto, New York, London, Miami, Atlanta, Frankfurt, Bogota and Sao Paulo.

Barbados International Trusts are not subject to income or capital gains tax in Barbados.  International Business Companies (IBCs), Regular Business Companies (RBCs) and Societies with Restricted Liability (SRLs) are subject to income tax, but not capital gains tax.  The percentage of tax payable is often quite advantageous due to lower rates and/or business deductions.

Hong Kong
Eticas International Limited (Hong Kong) is a Hong Kong audited holding company.

7.4 million people live in Hong Kong, a nation which is 78.59 square kiiometers or 30.34 square miles.

Hong Kong’s appeal is built on its political stability, the rule of law, the free flow of information and the use of English as the language of business. It offers a strong pool of local well-qualified talent, while business-friendly immigration policies make it simple to recruit professionals from overseas.

In addition to being a major financial and commercial centre in its own right, Hong Kong serves as a regional headquarters and business hub for the Asia Pacific region. It also acts as a gateway for companies looking to do business in Mainland China and mainland enterprises seeking access to global markets.

The Hong Kong tax system is territorial. Profits from a Hong Kong business are subject to profits tax (currently at a rate of 16.5%) but foreign-source income is not taxable even if remitted to Hong Kong. There is no capital gains tax, no sales tax, no withholding tax on dividends or interest and no inheritance tax.  Hong Kong has an IGA with the USA, is a member of the OECD Convention for common reporting (CRS), and a number of DTAs, TIEAs and BITs. See the relevant FAQs for these agreements and treaties.

The legislature is a semi-democratically elected body comprising 70 members, with 84 seats 35 of whom are directly elected through five geographical constituencies. It is fundamental to the Hong Kong legal system that members of the judiciary are independent of the executive and legislative branches.

Under the principle of ‘one country, two systems’, Hong Kong has its own legal system, distinct from the Law of the People’s Republic of China, and based on the combination of English common law (developed in local cases) and local legislation codified in the Laws of Hong Kong. Hong Kong has a common law system, whereas the PRC has a civil law system with socialist roots.

New Zealand
Eticas Trustees New Zealand Limited is a FATCA registered New Zealand company and is regulated by, and is in good standing with, the Ministry of Finance.

New Zealand is a country in the southwestern Pacific Ocean consisting of 2 main islands, both marked by volcanoes and glaciation.  The population is 4.7 million and their currency is the New Zealand dollar.

As a former British colony, the New Zealand legal system is heavily based on the English law, and remains similar in many respects.

The New Zealand judiciary have generally been seen as independent and non-corrupt, although not always non-biased. Until recent years they have played a very minor role in developing the law, and as late as 1966 it was said that they usually follow English decisions scrupulously.

New Zealand has an IGA with the USA, is a member of the OECD Convention for common reporting (CRS), and has a number of DTAs, TIEAs and BITs (with its trading partners – China and Hong). See the relevant FAQs for these agreements and treaties.

The fundamentals of New Zealand trust law have been in place and have gradually evolved since NZ was first colonized by Great Britain in 1840.

If the Settlor of the trust is a non-resident of New Zealand, the trust will be exempt from assessment in respect of New Zealand tax on income and capital gains arising outside of New Zealand. Accordingly, the Trustee may make distributions out of the Trust without any withholding on New Zealand income or capital gains tax. There are no inheritance, wealth or capital gains taxes levied in New Zealand nor is there any gift duty, stamp duty, value added tax or equivalent forms of indirect taxation charged on the creation or transfer of assets to a trust by a non-resident of New Zealand.

Samoa
Eticas International SA was incorporated in 1984, is registered under the Samoan International Companies Act 1987 and is regulated by the Samoan International Finance Authority (SIFA).

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