The only way to protect your wealth or part of it is through a trust. It could be through an onshore discretionary trust or an offshore discretionary trust. A trust is an arrangement where a person (the settler) creates a trust and the trustees hold and manage assets (the trust fund) for the benefit of others (the beneficiaries). An offshore trust or overseas trust is a trust that is resident outside the "resident country" for tax purposes. The residence status of an overseas trust is important because it determines how the trust and the beneficiaries are taxed in your resident country for income tax and capital gains tax. The resident status of a trust does not directly affect the inheritance tax in most cases.

While the tax advantages of using offshore trusts are limited, they can still play a key role in estate and financial planning to help you preserve and enhance your wealth.

You may benefit from using an offshore trust if you are a Canadian resident and:

• You have assets in various locations throughout the world;


• You intend to distribute assets to individuals living outside Canada during your lifetime;


• You have recently immigrated to Canada; or


• You intend to leave Canada. If you are not a Canadian resident, an overseas trust can:


• help you distribute assets to Canadian residents tax effectively, either during your lifetime or through your will; or


• provide significant tax benefits if you plan to immigrate to Canada

An offshore trust is established under the laws of another country and is administered by a non-Canadian trustee, typically a financial institution. An overseas trust has a settler, a trustee and beneficiaries. If you are the settler of the trust, you will fund the trust either by giving or lending property to it. A trust is separate from you and your beneficiaries, and is governed by the laws of the country in which the trustee is resident.

The trustee becomes the legal owner of the trust property and is required to manage the property as directed in the trust deed. The trustee is also responsible for distributing trust assets to the beneficiaries you have named in the trust deed. The trustee has full decision-making powers over trust assets based on the provisions of the trust deed, and it is essential that you have complete confidence in your choice of trustee.

If you are planning to immigrate (or have recently immigrated) to Canada, the assets in an offshore immigration trust can earn income and capital gains from foreign sources free from Canadian income tax for up to the first 60 months of the immigrant’s Canadian residency. Because the duration of the Canadian tax holiday is based upon the time you are resident in Canada, setting up the trust prior to the move to Canada maximizes the benefits. However, setting up such a trust may generally still provide some benefits even if established within 60 months after immigration to Canada.

Because of the complexity of the rules governing overseas trusts, you should obtain expert advice from experienced Canadian tax specialist who is familiar with your particular situation. You will need tax, legal, and investment advice to ensure that the trust is structured for your maximum advantage. Your tax specialist will also need to consult with reputable advisors in the jurisdiction where the trust will be established to ensure familiarity and compliance with local laws as well as jurisdictions in which the beneficiaries reside.

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