As a Suitable Trust Jurisdiction
Trust Formation in Gibraltar
Gibraltar’s legal system is based on the common law and statute law of England and therefore embodies the advantages and security of English company and trust law.
Gibraltar lawyers are well versed in trust law being UK trained and qualified. Furthermore, the trust concept is fully recognised by the Gibraltar Supreme Court. If you are dissatisfied with the decision of the Supreme Court in Gibraltar, you may appeal to the Gibraltar Court of Appeal which is made up of UK judges which visit Gibraltar on a biannual basis. The final Court of Appeal is the Privy Council, effectively the House of Lords in England.
Appointment and Regulation of Trustees
An individual or a trust corporation may be appointed as trustee.
For a trust corporation to act as a trustee, it must have a licence to operate as a professional trustee granted by the Financial Services Commission pursuant to the Financial Services Ordinance.
Underlying International Company
It is not unusual for an underlying company to be utilised as a vehicle to hold assets of the trust. The company acquires assets such as real estate, marketable securities, (a pleasure yacht) or other suitable investments and it is the shares in the company that are entirely owned by the Trust. This does tend to maximise the flexibility and may enable the client to exercise a greater degree of control over the administration of the assets.
Why Establish a Trust?
The trust is a highly flexible instrument which can be tailored to meet a client’s specific requirements and apart from confidentiality may provide the following advantages:-
- Protection and administration of assets for family and future generations
- No need for probate which simplifies the distribution of assets to family members
- Minimising income and other taxes payable
- Avoiding inheritance taxes or estate duties which may otherwise be payable
- Avoiding forced heirship provisions whereby the Laws of a particular Country determine the inheritance of assets in a manner which may be contrary to the wishes of the client.
How does a Trust arise ?
The Settlor and the trustee execute the trust document (or settlement as it is also known) which contains the first settlement usually 100 pounds or shares in an offshore company.
Assets such as property, marketable securities, and bank accounts would need to be conveyed, transferred or gifted to the trustees in accordance with the laws of the country in which the asset is situate.
The trustees hold and manage those assets for the benefit of certain persons who are usually named in the trust and are known as beneficiaries.
Which are the advantages of a Gibraltar Trust?
No stamp duty is payable on the transfer of assets
No capital gains tax, inheritance tax, gift, wealth or income taxes are payable in Gibraltar
Confidentiality both as to administration and distribution of assets
No requirements to file accounts nor to register a trust (other than an asset protection trust)
The assets of such a trust can be held in any currency. There are no exchange controls.
Who is the Settlor?
The person who transfers assets to the trustee, usually the client, is known as the Settlor because he settles his property on the trustees. Once the property is settled the property no longer forms part of the Settlor’s net wealth. The assets can now be held, administered and distributed confidentially. There is no need for a Will, the property will be administered and distributed taking account of the Settlor’s wishes as expressed to the trustees from time to time.
Letter of Wishes
The settlor/client normally provides the trustees with a Letter of Wishes in which he sets out how he would like his trustees to deal with the assets of the trust during his lifetime and in particular on his death. The trustees can have regard to the wishes of the client at any time and any matter set out in the Letter of Wishes can be amended from time to time during his lifetime.
Protector (sometimes referred to as a Counsellor)
A Protector may be appointed to supervise the Trustees. Where a Protector is appointed the trustees may not exercise certain of the powers contained in the trust deed without the written consent of the Protector. It is not unusual to also give the Protector the power to remove and appoint new trustees.
The Protector is usually the settlor’s adviser or close friend.
Bankers, Stockbrokers and Investment Advisers
In cases where the trust assets need management and the trustees themselves do not have the necessary expertise they may appoint bankers, stockbrokers or investment advisers to advise them. However, the trustees themselves will take the main policy and investment decisions after due consideration of the professional advise given.
The trustees are required to prepare accounts for trusts under administration. Where the trust is a short form trust and only owns an underlying offshore company then accounts are prepared every three years, otherwise the trustees will prepare accounts on an annual basis.
General Matters Relating to
Gibraltar’s trust law is similar to the United Kingdom. The Trustee Ordinance is based on the Trustee Act of 1893 of the United Kingdom. Amendments have been made from time to time so that Gibraltar remains abreast of favourable changes which occur in the United Kingdom as regards trust law whilst at the same time ensuring Gibraltar’s attractiveness as a trust jurisdiction is maintained and where possible enhanced.
The Trustee Ordinance creates the framework. Whilst outlining the powers and duties of trustees, the investment of trust funds and the powers of the court, it is to the trust deed itself which one must look as on the whole the statutory framework is there to fill any voids which the trust deed may leave.
The perpetuity period is 100 years.
Variation of trusts and powers of Investment
The UK Trustee Act of 1925 has not been implemented in Gibraltar however, certain amendments to our laws have been made so that trusts may now be varied and wider powers of investment made available to trustees.
Gibraltar’s trust law now allows the variation of trusts by applying the UK Variation of Trusts Act 1958.
Extensive investment powers similar to those contained in the UK Trustee Investment Act 1961 were introduced by the Trustee Investment Ordinance. The powers of delegation conferred on trustees by the UK Trustee Act 1925 and the Powers of Attorney Act 1971 are now contained within our Trustee Ordinance.
Effectively the Anglo-Saxon trust is fully embedded in Gibraltar’s laws.
Forms of trust
A variety of trusts can be established in Gibraltar, however, the most extensively used form of trust is the Discretionary Trust with the Settlor (usually the client) providing a Letter of Wishes to the trustees which may be varied from time to time.
Recognition of trusts
The Courts will apply the proper law of the trust to determine its nature and validity. The Trusts (Recognition) Ordinance applies the provision of the Hague Convention whereby a trust is governed by the chosen law of the settlor. Usually Gibraltar trustees, be they individuals or a trust corporation, are appointed and the trust specifically refers to the proper law of the trust as being Gibraltar law.
Emigration of trusts
Gibraltar trust law allows the trust to include a clause enabling a change of the proper law of the trust and of its place of administration. There are no exchange controls in Gibraltar.
Setting aside a trust
In certain instances a trust may be set aside. If a trust is set up for an illegal or immoral purpose or is contrary to public policy it will be declared void. A trust set up to defraud creditors will be set aside by the courts. A trust, not being a trust created before and in consideration of marriage, or made in good faith and for valuable consideration is, if the Settlor becomes bankrupt within two years after creating the trust, void against his or her trustee in bankruptcy. If he or she becomes bankrupt at any subsequent time within ten years from the creation of the trust, it is void against the trustee in bankruptcy unless the parties claiming under the trust can prove that at the time of creating the trust he or she was able to pay all his or her debts without the aid of the trust property.
Asset protection trusts are treated differently.
Other Forms of Trusts
Asset Protection Trust
An amendment to the Bankruptcy Ordinance made in 1990 now enables Asset Protection Trusts to be established. The amendment to the Bankruptcy Ordinance means that certain dispositions shall not be voidable at the instance of or upon an application by any creditor or settlor provided certain conditions are complied with.
The settlement of assets will not be voidable by any creditor to the settlor provided that:
The settlor is an individual.
The settlor is not insolvent at the date of the settlement.
The settlor does not become insolvent in consequence of the settlement before the settlement is registered.
An application for registration of the settlor must specify:
The name and address of the trustee.
The name of the settlement.
The date of the settlement and it duration.
The settlor’s country of residence.
The application must also be accompanied by undertakings from the trustees that:
The settlor has completed forms of enquiry administered by the trustee.
The trustee has completed all reasonable enquiries necessary to substantiate the information provided by the settlor.
The settlor has sworn an affidavit confirming that he or she is not insolvent.
Applications to register are made by the trustee, which must be a company with a permanent place of business in Gibraltar and authorised by the Financial Services Commission to act as trustee of protective settlements.
With regard to the taxation of such a trust, the income of a trust created in Gibraltar by and on behalf of a non resident of Gibraltar, is exempt from Gibraltar tax even if the trustees are resident in Gibraltar. This particular provision requires that, under the provisions of the trustee, no Gibraltarian or resident of Gibraltar is or may be a beneficiary under the trust and that the income of the trust either accrues or derives outside Gibraltar.
Enforcement of US Judgements in Gibraltar
The only way in which a judgement can be enforced in Gibraltar is under the Judgements (Reciprocal Enforcement) Ordinance. Whilst this Ordinance includes Australia and the UK it does not include the USA. Therefore a US judgement cannot be enforced in Gibraltar.
It is interesting to note that unlike other asset protection areas Gibraltar’s law is contained in our Bankruptcy Ordinance. Provided that the assets are settled by an individual who is not on the date of making the disposition insolvent or would not become insolvent as a consequence thereof, such a disposition will not be voidable at the instance of, or upon application by, any creditor of the settlor. It would therefore seem that Gibraltar does offer substantial protection to settlors.
Presumably however, if property assets are settled into the trust which remain in the USA then the USA will find a means within their own laws of making such dispositions voidable. Bank deposits are therefore secure assets for an asset protection trust when deposited in Gibraltar with a bank whose head office has no arrangement with the USA. Although Gibraltar is a separate jurisdiction we would not advise the disposition of assets into a bank which is established in the USA.
Other areas of concern regarding asset protection trusts would revolve around fraud or drug trafficking. However, such cases are usually brought to trace money and repatriate the proceeds of fraud. With Gibraltar having amended its bankruptcy laws to enable asset protection trusts to be effected, we would believe that the courts would need to be satisfied that the settlor was insolvent at the time of making the disposition. The requirement of the settlor at the time of making the disposition remains applicable throughout the time of the trust. Therefore it would remain open to the US Government to allege that at the date on which the asset protection trust was established the settlor was insolvent. If this was the case then the trust would be set aside.
Should you have any further question regarding Gibraltar Trust, please do not hesitate to contact one of our Consultants.