The provisions of a Model Offshore Trust work together to give you the safety and protection you want.
Participants in an Offshore Trust
- You, as Grantor, transfer money or investments to the Trustee you’ve selected.
- The Trustee takes on a legal obligation to use the transferred assets exclusively for the benefit of the persons you’ve included in your Beneficiary Class. You can be a member of the Beneficiary Class.
- You are also the initial Trust Protector, with authority to oversee the activities of the Trustee and to replace the Trustee if its performance is unsatisfactory.
- You as Protector may appoint one or more Supplemental Advisers as a source of information and advice for the Trustee.
The powers of the Protector and the Grantor (you are both), the duties and responsibilities of the Trustee and the rights of the members of the Beneficiary Class (you can be one of them) are set out in a legally binding Trust Instrument.
The Trust Fund starts with the first money you transfer to the Trustee. It also includes cash or investments you add during your lifetime or through your will, plus all investment earnings. Other persons, if they wish, may augment the Trust Fund through gifts or bequests.
The Trust Fund can encompass virtually any type of property you want it to — from mutual fund shares to foreign currencies to a family company or an investment account managed by you or by an adviser you recommend. And the Trust Fund can consist of a single limited liability company of which you are the Manager and which holds the assets you want to protect.
The Trustee is obligated to use the Trust Fund exclusively for the benefit of members of the Beneficiary Class.
You, the Grantor, determine who shall belong to the Beneficiary Class at the time you establish the Trust. You may name anyone you please.
Usually a Grantor names himself, his spouse and all his children and further descendants, so that the Beneficiary Class includes all succeeding generations. If you wish, you may name other relatives or friends. You can include some of your children and not others. You also may include charities in the Beneficiary Class.
As Grantor, you retain the power to remove any member from the Beneficiary Class at any time. And you have the power to instruct the Trustee to make distributions to any U.S. charity you have included in the Beneficiary Class. (For estate planning reasons, you may later find it advantageous to give up those powers with respect to a portion of the Trust Fund.)
Apportionment of Benefits
Being included in the Beneficiary Class does not give the Beneficiary any fixed claim on the Trust Fund, such as the right to receive one-half of the Trust’s income or one-quarter of the Trust’s principal.
Instead, inclusion in the Beneficiary Class allows the Trustee, at its discretion, to distribute cash or provide other benefits to the particular Beneficiary. Assuming you have included yourself or your spouse in the Beneficiary Class, the Trustee is authorized to give priority to your needs and/or the needs of your spouse.
You, as Protector, are authorized to consult with the Trustee on the apportionment of benefits among members of the Beneficiary Class. Your powers as Protector, which include the power to replace the Trustee, assure that your advice will be heard.
The Trustee’s discretion has important tax advantages and also protects the Trust Fund from potential future creditors of the Grantor and from all creditors of other members of the Beneficiary Class.
Manner of Benefits
The Trustee may apply the Trust Fund for the benefit of members of the Beneficiary Class simply by distributing money to them. Or the Trustee may use the Trust Fund to pay their expenses (such as tuition, medical expenses, travel costs or anything else) and pay their credit card or other bills.
The Trustee also may apply the Trust Fund indirectly for a member of the Beneficiary Class:
- by making loans to the member;
- by guaranteeing lines of credit for the member;
- by purchasing property from, or selling property to, the member on favorable terms;
- by investing in the member’s business; or
- by paying fees or salary to the member for services he performs.
The Trustee’s power to apply the Trust Fund by indirect means gives further protection from lawsuits and creditors and can have tax planning advantages as well.
In determining how best to apply the Trust Fund for the benefit of members of the Beneficiary Class, the Trustee will consult with you in your role as Protector.
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