Using Trusts to Protect International Wealth

Trusts have been a cornerstone of wealth planning for centuries. For internationally mobile families with assets spread across multiple jurisdictions, they can serve multiple purposes simultaneously: protecting wealth from creditors and political risk, facilitating efficient succession across borders, deferring or reducing tax, and maintaining family control across generations. Yet trusts are widely misunderstood, and a poorly structured arrangement can be costly, inflexible, or counterproductive.

This guide explains what trusts are, why internationally mobile families use them, and the key considerations in selecting and establishing an appropriate structure. It does not constitute legal or tax advice — individual circumstances vary widely and professional guidance from qualified advisers in each relevant jurisdiction is essential before any trust is established.

What Is a Trust?

A trust is a legal arrangement under which one party (the settlor) transfers legal ownership of assets to another party (the trustee) to hold for the benefit of specified persons (the beneficiaries). The trustee holds the assets not for their own benefit but on behalf of the beneficiaries, subject to the terms of the trust deed.

The essential parties are:

• Settlor: the person who creates and funds the trust. The settlor defines the terms under which the trust operates.
• Trustees: the legal owners of the trust assets. They have fiduciary duties to act in the best interests of the beneficiaries and in accordance with the trust deed.
• Beneficiaries: those who are entitled to benefit from the trust — either income, capital, or both.
• Protector (optional but common in offshore trusts): an independent party with powers to oversee or constrain the trustees, often able to add or remove beneficiaries or replace trustees.

Trusts are a common law concept; they are recognised in England, Wales, Scotland, Ireland, and most common law jurisdictions including many offshore financial centres. Civil law countries (France, Germany, Spain, many others) do not natively recognise trusts, though the Hague Convention on the Law Applicable to Trusts provides a degree of recognition in signatory states.

Why Internationally Mobile Families Use Trusts

Asset Protection

Placing assets into a properly structured trust removes them from the settlor's personal estate. This can protect the assets from:

• Future creditors of the settlor (subject to fraudulent transfer rules — a trust established to defeat known creditors will not be upheld).
• Professional liability claims.
• Divorce proceedings (assets held in trust before marriage are generally not matrimonial assets, though this varies by jurisdiction).
• Political risk and asset seizure in certain jurisdictions.
• Reckless spending or incapacity by beneficiaries.

The level of protection available depends on when the trust was established, the governing law, and the specific circumstances. Asset protection trusts established in jurisdictions with robust statutory protections — the Cook Islands, Nevis, and some other offshore centres — are specifically designed to maximise this function, but they carry their own complexity and cost.

Succession and Estate Planning

For families with assets in multiple countries, succession can be legally complex. Each jurisdiction generally applies its own rules to assets situated there, which may conflict with the wishes set out in a will. A trust can hold assets from multiple jurisdictions, allowing them to pass according to the trust deed rather than the intestacy or forced heirship laws of each individual country.

Many civil law countries have forced heirship rules that reserve a proportion of the estate for specified relatives (typically children) regardless of what the will says. France, Spain, Italy, and many Middle Eastern and Asian jurisdictions operate forced heirship to varying degrees. Holding assets in a trust may sidestep local forced heirship provisions, though local advisers should confirm the position in each relevant jurisdiction — some countries attempt to apply forced heirship to trust assets.

For UK nationals, a trust can remove assets from the UK IHT net, subject to the rules on settlor-interested trusts, the relevant property regime, and the exit/anniversary charges that apply to discretionary trusts.

Tax Deferral and Efficiency

An offshore trust — one governed by a non-UK law and administered by non-UK trustees — can legitimately defer UK income tax and capital gains tax on non-UK-sourced income and gains, provided the settlor and beneficiaries are non-UK resident. For UK resident settlors or beneficiaries, the UK's "settlor-interested trust" and "transfer of assets abroad" provisions bring the trust's income and gains back into the UK tax net in most circumstances.

Tax efficiency through trusts requires careful structuring. Trusts are not a mechanism for evasion — HMRC has robust anti-avoidance provisions targeting trust structures, and the OECD's Common Reporting Standard (CRS) requires financial institutions globally to report trust account information to tax authorities. Transparency has increased significantly; trusts should be established and maintained with full regulatory compliance in mind.

Family Governance

For multi-generational wealth, a trust provides a framework for controlled succession. The trust deed can include provisions about:

• When and how beneficiaries receive distributions.
• Conditions beneficiaries must meet (age, education, sobriety, employment).
• How the trust is managed in the event of trustee disagreement.
• How new generations are added to the class of beneficiaries.

A family trust can also be paired with a Family Constitution or Letter of Wishes — a non-binding statement from the settlor to the trustees explaining the family's values, history, and long-term intentions. This helps trustees exercise their discretion wisely as family circumstances evolve across decades.

Types of Trust

Discretionary Trust

The most flexible type. The trustees have complete discretion over who benefits, when, and how much. No beneficiary has an automatic right to income or capital. This flexibility makes discretionary trusts popular for:

• IHT planning (assets are outside the estate).
• Asset protection (no beneficiary can be forced by their creditors to demand a distribution).
• Long-term family wealth preservation.

The trade-off is complexity: UK discretionary trusts are subject to the "relevant property" regime, meaning a 20% entry charge on transfers above the nil rate band (£325,000 as of 2026), a 10-yearly anniversary charge of up to 6%, and exit charges when assets leave the trust. Offshore discretionary trusts may have a different tax profile depending on the residency of the settlor and beneficiaries.

Fixed Interest Trust (Interest in Possession)

Beneficiaries have a defined right to trust income — typically, the right to receive all income as it arises. The capital will pass to another class of beneficiaries (often children) on a future event. These trusts are less flexible than discretionary trusts but simpler to administer and have different IHT treatment in certain circumstances.

Bare Trust

The simplest structure: the trustee holds assets as a nominee for the named beneficiary, who has an absolute entitlement to them. Often used to hold assets for minors until they reach adulthood. There is no ongoing discretion for trustees. Assets in a bare trust are treated as belonging to the beneficiary for tax purposes.

Charitable Trust

Assets transferred to a qualifying charitable trust are exempt from IHT and attract income tax and CGT reliefs. Charitable giving vehicles are addressed in a separate article.

Purpose Trust

Used in some offshore jurisdictions for specific commercial or planning purposes (for example, holding shares in a company where no individual beneficiary is named). Purpose trusts require careful legal structuring and are not common in mainstream wealth planning.

Offshore vs Onshore Trusts

An onshore (UK) trust is governed by English law, administered by UK-resident trustees, and subject to UK trust taxation. It is fully transparent to HMRC and suitable for some planning purposes.

An offshore trust is governed by a non-UK law (often Jersey, Guernsey, Isle of Man, Cayman Islands, or BVI law) and administered by non-UK resident trustees. For non-UK resident settlors and beneficiaries, this can create a more tax-efficient structure. For UK resident individuals, the anti-avoidance rules — particularly the provisions of the UK Tax Transfer of Assets Abroad legislation and the "benefits received" rules — mean that offshore trusts rarely provide income tax savings for UK residents.

The choice between offshore and onshore depends on:

• The residence and domicile of the settlor and beneficiaries.
• The types of assets to be held.
• The planning objectives (succession, asset protection, tax efficiency).
• The administrative costs and governance requirements.

Key Risks and Pitfalls

Reservation of Benefit

For a trust to be effective for UK IHT planning, the settlor must genuinely give up the assets. If the settlor continues to benefit from the assets — living in a property held by the trust, receiving loans from the trust, or retaining any practical control — HMRC may argue that there has been a "reservation of benefit" and bring the assets back into the settlor's estate.

Sham Trusts

A trust must be genuine. If the settlor in practice retains full control and the trustees act purely on instruction, HMRC (or a court) may conclude the trust is a sham and disregard it entirely.

Compliance Costs

Offshore trusts are subject to HMRC reporting requirements (UK settlors must register UK trusts on the Trust Registration Service; offshore trusts may also have obligations), annual accounts, trustee fees, and legal review. For smaller estates, the costs can outweigh the benefits. Trusts are typically most cost-effective for estates of several million pounds or more.

Changing Family Circumstances

Trust deeds are difficult to change once established. Careful drafting at the outset — with experienced trust lawyers — is essential to ensure the deed is flexible enough to accommodate future developments (divorce, emigration of beneficiaries, death of the settlor).

Choosing a Trustee

Trustees carry significant legal and fiduciary responsibilities. For internationally mobile families, professional trustees — typically a licensed trust company in a reputable jurisdiction — are often preferable to family members or friends, who may:

• Lack the expertise to manage complex investment portfolios.
• Have conflicts of interest.
• Predecease the trust or become incapacitated.
• Create practical difficulties if they move jurisdiction.

A protector — an independent individual with the power to oversee or remove trustees — provides an additional layer of governance and is common in offshore structures.

The Trust Registration Service

In the UK, most trusts (including offshore trusts with UK tax consequences) must be registered on HMRC's Trust Registration Service (TRS). The TRS is not a public register: beneficial ownership information is accessible to HMRC and law enforcement, and only in limited circumstances to a third party who can demonstrate a legitimate interest. It nonetheless represents a meaningful reduction in trust privacy. Similar beneficial ownership registers exist in many offshore jurisdictions following international anti-money laundering initiatives.

How Global Investments Can Help

At Global Investments, we help internationally mobile families design trust structures that reflect their specific objectives, the jurisdictions in which they hold assets, and the regulatory environment in which they operate. We work alongside specialist trust lawyers and tax advisers in each relevant jurisdiction to ensure that structures are:

• Properly documented and legally robust.
• Fully compliant with UK and international reporting obligations.
• Integrated with the family's investment strategy and wider estate plan.
• Reviewed and updated as circumstances change.

Trusts can be powerful tools — but only when established correctly, administered professionally, and reviewed regularly. Tax treatment depends on individual circumstances and legislation may change; all information in this guide reflects the position as of 2026. Please seek tailored professional advice before establishing any trust structure.