Many expatriates living in Phuket have lived in quite a few countries before coming here. Often, these expats have acquired assets in several of these countries and have retained them as investments. Looking after such a geographically spread-out estate may be manageable during a man's lifetime, but what happens when the owner of such assets dies?
Without proper planning serious problems can arise for a widow, who may not have any understanding of business, or for offspring who are still minors. In many cases expatriates would be better off using an offshore trust to avoid complications.
But what is an offshore trust; indeed, what is a trust?
A trust is a legal entity that can hold and manage assets including: companies, property, bank accounts, stocks and shares and anything an individual may own. The trust is governed by trustees who may be individuals, banks. Accounting firms, legal firms, insurance companies, trust companies or any of a variety of other entities.
If a trustee is a professional corporate body, it has a legal obligation to manage assets professionally. If it does not, then it is liable for any costs or losses due to its negligence.
The advantage of a trust is that it is simple, because all the assets of the Settlor, (the person who sets up the trust) are already held in the trust's name and are not dispersed around the world.
Nearly all offshore trusts are situated in tax havens, for example the Channel Islands or the Isle of Man. For non-residents these are true tax havens and no death duties or tax is paid.
Choosing the right trustee is important. I recently heard a good tale that illustrates this point. A Thai lady with two young children lost her husband. The deceased husband was originally resident in Hong Kong, where he owned property and a business, although he also owned properties in Britain.
The husband left a will that put all his assets into a trust after his death. He had wanted all but one of this properties sold by his trustees and the capital invested in a trust that would provide sufficient income for his widow and children.
Although he was an attorney, he had made a terrible mistake. He gave absolute power over his estate to friends whom he had appointed as trustees. The dead man owned a nice house in Phuket, but with a large mortgage. The trustees decided his widow must rent out this house in Thailand and move to one of the houses in Britain. The trustees were deaf to her pleas the she had never been to Britain in her life, couldn't speak very good English, and that neither she nor her late husband had ever intended that she should stay in the UK.
The lesson here is that appointing individuals as trustees is dangerous - apart from anything else, there is a good possibility of fraud. If our attorney had appointed a corporate body as trustees his wishes would have been carried out faithfully.
Apart from any other consideration where individuals have been appointed as trustees, there is always the potential problem of death or severe illness interruption their ability to serve as trustees.
Some security may be found in the use of a Protector. The Protector has veto rights over the trustees who must obtain the Protector's signed confirmation of their every action.
The drawback is that this can add unnecessary delays. I dealt with one case where the trustees were unable to act for six weeks because the Protector was traveling in the US and nobody knew his itinerary!
One of the cheapest ways to form an offshore trust is by using the services of a trust company that is owned by an offshore insurance company. This reduces the cost of establishing and maintaining a trust by a very substantial amount. It also allows for smaller amounts to be placed into a trust. Most corporate trustees will otherwise refuse to accept assets worth less than about GBP 250,000 (about Baht 17 million). I recently came across a well known international bank who will not manage a trust unless the underlying assets exceed US $ 3 million (about 100 million Baht).
Apart from the advantages, trusts can be very useful instruments to protect assets in the case of divorce. With an offshore trust, you retain control of the assets, including the right to withdraw all the funds from the trust.
There are many different types of trusts. In most cases expats will select an offshore discretionary trust as it is the most flexible. However, as with all aspects of personal financial planning, it all depends on the individual situation. One of the advantages of an offshore discretionary trust is that the Trustees are guided by a letter of wishes. During the lifetime of the Settlor, this document can be changed at anytime, to include or exclude beneficiaries or the terms in which they can benefit. It is not necessary to have this document drafted in legal terminology. Trustees simply want clear instructions that are not ambiguous.