Isle of Man Trusts – registration
A settlor is not required to be a resident to set up a trust in the Isle of Man. This holds true for trust beneficiaries as well. It is only the duly licensed trustee who must be a local resident. Isle of Man trusts can be used to reach many objectives, including:
Family provision and wealth preservation;
Business succession planning;
Protecting assets against personal liability;
Charity and philanthropy;
Pensions and employee benefit schemes; and
Orphan ownership vehicles in the context of financing transactions, securitisation or private trust company structures.
What assets can be held by a trust?
- Shares and stocks in both quoted and unquoted companies
- Investment portfolios
- Real and intellectual property
- Bank deposits
- Life assurance policies issued on the life of the Settlor
- Most other types of asset
Advantages of an offshore trust
Private relationship, for example, in the Isle of Man offshore trust deeds are not publicly registered.
Tailored to specific family requirements.
Recognised in all common Law jurisdictions.
Increasing recognition in important civil law jurisdictions.
An important tool in international income, capital gains and estate tax planning.
Used by corporations for employee benefit plans, retirement and stock option schemes, insurance plans and special financing arrangements.
Isle of Man Trusts (Amendment) Act 2015 is now in force
1) abolition of the “Two Trustees Rule”;
2) abolition of the Perpetuity Period going forward; and
3) certain matters to be determined by governing law under the Trusts Act 1995.
General info relating to Isle of Man Trusts
Definition of a Trust
A trust relies on the distinction between the legal ownership in property and the equitable interest in that property.
The trustee is given the legal ownership interest, which enables him to deal with those assets as if they were his own property, subject to the terms of the trust deed. The beneficiaries have an equitable interest in the property which represents the rights to enjoy the benefit of the property subject to the terms of the trust deed. The beneficiaries can enforce the trust against the trustee and can, if necessary, take legal action against the trustees.
Also commonly referred to as a “Grantor”, the Settlor establishes the trust by transferring the trust property to the trustee(s) to hold under the terms of the trust. The settlor may also be a beneficiary of the Trust or act as the Protector.
A Trustee is obliged to manage and dispose of trust property in accordance with the term of the trust instrument. A trustee can be either an individual or a body corporate.
Prior to the new Act, there was a requirement for an Isle of Man trust (in certain circumstances) to have either a trust corporation or two individuals acting as trustee(s). This old rule originated from the Settled Land Act 1892 and was seen as prohibiting the effective administration of trusts.
The abolition of the two individuals requirement acknowledges that there is a well-regulated professional trust industry in the Isle of Man and that one trustee especially in the case of a corporate trustee is sufficient to carry out the role effectively.
Those persons who are able to provide trust services are:
- Fiduciary service providers licensed by the Financial Supervision Commission of the Isle of Man to conduct trust services under Class 5.
- Manx Advocates.
- Manx Accountants.
The trustees have a duty to ensure that the administration and management of the trust is done in the best interest of the beneficiaries and to act fairly and impartially towards the beneficiaries at all times.
The Trustee Act 2001 imposes a statutory “duty of care” in certain circumstances. It requires a trustee to exercise such care and skill as is reasonable in the circumstances, having particular regard to:
- Any special knowledge or experience that he has or holds himself out as having; and
- If he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind or business or profession.
The beneficiaries are those people for whose benefit the trust is established. They can either be named or described by reference to a class of person in the trust instrument. Beneficiaries have the right to enforce the trust against the trustees but may also enforce their equitable ownership interest against others as necessary.
The role of “protector” is optional, but they are frequently appointed. The role of the protector is:
- To provide guidance to the trustees.
- To provide comfort to the settlor that the trust is being administered in accordance with his/her wishes and intentions.
The role can be undertaken by a qualified professional in the course of normal business activity or by a person who is acquainted with the particular circumstances surrounding the trust e.g. Settlor or relative. The protector does have a fiduciary duty to the beneficiaries.
Termination of trusts
Unless specifically provided for in the trust deed, the deed as executed is binding and cannot be changed. However it is possible to include a specific power of revocation in the trust instrument, thereby making the trust revocable.
Types of trusts used in the Isle of Man
- Discretionary Trusts
- Life Interest Trusts
- Purpose Trusts
- Charitable Trusts
- Employee Benefit Trusts and Pension Trusts
Traditionally, a trustee has been unable to hold settled land in a trust indefinitely. The Act removes the requirement that a beneficiaries interest in a trust must vest with a specific time frame. A Settlor can, if they wish, still include a defined period within the trust deed.
Isle of Man trust taxation
It is established for beneficiaries who are not residents of the Isle of Man;
The capital used in setting up the Trust did not originate from the Isle of Man; and
The Trust derives income from a source outside of the Isle of Man.
Please note, however, that certain countries (such as the U.S.) tax their citizens no matter where in the world they earn their income. So, depending on the laws of your home country, you may still need to report any income earned from an Isle of Man Trust. But the country itself will not touch a dime of any interest or revenue that arises from the Trust providing the set-forth conditions are met.
Taxation is a dynamic area and the latest information can be obtained from the Income Tax Division’s website. Click HERE for more information.
Financial statements required
The duties of the Trustee(s) include providing the beneficiaries with a full and proper explanation of the dealings of the trust. There is no statutory provision covering the format that the trust accounts must take, accounts need not be audited but if an audit is deemed appropriate the trustees can arrange for an audit which will be paid for out of the trust assets.
Main benefits of a Private Trust Companies (PTC)
A PTC can be tailored to the needs of a family and can also hold both personal and business assets in the same structure (although both asset classes can be segregated in separate trusts with the PTC acting a sole trustee, if preferred).
It provides the Settlor and/or family greater control of the assets to that of a usual trust structure, with the maximum degree of control sitting with them when it comes to trustee decision making.
It can be a useful structure for the purpose of wealth protection and succession planning as it avoids probate and local inheritance law. It can also afford the ability to introduce younger family members to the running of the family office.
It can be a useful tool for asset protection, acting as a shield for some core assets and providing protection against political risk and potential creditors. In the event of liquidation or attack by creditors, the assets held by a Private Trust Company are not part of that company’s own general funds. The trust company holds any assets in a fiduciary capacity for the beneficiaries of the trust and as a result has no direct financial interest in the trust assets.
There are no registration or disclosure requirements under Isle of Man law.
TBA has a large specialist trust and private client team consisting of three directors, a senior associate, two associates and a trainee. Our specialist team has extensive experience of advising clients in relation to the establishment and structuring of trusts and foundations, estate planning, trust and estate litigation, international tax investigations and TIEA requests.
Further information on these alternative structures is available on request.
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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.