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Trusts have many Special Features that, when Properly Planned and Structured, make them Particularly Valuable for the International Investor.
Since a trust can be created without registration formalities, it can be as private as any contract. There need be no public record that the trust exists. Trusts carry out their activities through the trustee. When a trust buys or sells something, all that the records show is the fact that the trustee bought or sold. The records look as if the trustee was acting for himself. Trusts allow trustees and beneficiaries to avoid yearly filings of vast amounts of information that governments require of chartered corporations.
While the modern corporation is a creature of the state, a trust is a traditional form of organization that is literally private. It is pure contract. Those who believe their affairs should be arranged for maximum privacy would do well to use a private entity like a trust in preference to a public entity like a corporation.
Trusts involve relativity few formalities. They are simple to create and use and they involve much less paperwork in many jurisdictions. This simplicity means that trust can be created inexpensively and therefore, used more casually than more complex organizational forms. A trust can be created by a one page document and usually without filling papers and paying fees. There are no annual government registration fees either.
A trust is not restricted by any charter. It can hold property in any form and do anything that an individual can do. It can change its activities at any time as simply as an individual changes his mind. In the fast-paced world of international investing, this can be of vital importance. The flexibility of trust extends to changes in beneficiary.
The rich have long used trusts as an estate planning tool because the current beneficiary merely directs the trustee to pay the beneficiary's assets upon his death to whomever is named as inheritor. These provisions can be in the trust document itself or they can be added later. The transfer occurs automatically without any formality or delay.
Trusts do have one major disadvantage when compared with corporations. The corporation is granted limited liability by the state that charters it. Before there were corporations, the organizers of a business were fully liable personally for the contracts entered into by the business. The corporate limitation of liability to the amount invested in the business has always been one of the corporate form's selling points. In other words, having observed all the formalities of creating and maintaining a corporation, the creator's liability will probably be limited to his investment.
However, some courts have been whittling away at the concept of limited liability in recent years. They have been willing to "pierce the corporate veil" and hold the corporate owners liable for the debts of the corporation - particularly with closely held corporations, which are often held to be the extension of their owners and not independent entities subject to limited liability. Unless corporate formalities are strictly followed some courts are increasingly holding that corporate acts by these small corporations are actually individual acts which give rise to individual liability for the owner in tort. However, even if the owner of a small corporation wins in court, there are still the lawyers' fees to pay. In these days of activist judges, it is usually better to avoid litigation by preserving privacy than by counting on the protection of what can be a transitory grant of government immunity.
The benefits of trusts mean that they can be used as a single substitute for holding companies and foreign corporations in multi-entity international transactions and are among the most useful pieces in the international money game.
This document was excerpted, modified & otherwise prepared by the 'Lectric Law Library ('LLL) from materials supplied by Baltic Banking Group - www.BalticBankingGroup.com Copyright 1998 - 2002 'LLL & BBG, all rights reserved.