Introduction

When estate planning, setting up an offshore asset protection trust is a smart way to manage and protect your assets. But it’s not just about deciding to create a trust; where you establish it is equally important. Different places offer different benefits for trusts, and picking the right one can add a significant layer of protection to your international estate planning strategy.

It is also essential to recognise that the global landscape for offshore planning has fundamentally changed. International initiatives, such as the amended OECD Common Reporting Standard (CRS) and the Financial Action Task Force’s (FATF) updated guidance on legal arrangements, have created a new era of regulated transparency. The value of an offshore trust today is no longer in secrecy, but in the legal strength and procedural advantages a specific jurisdiction offers, making it vital to understand the best practices and common pitfalls in international asset protection.

This article explores the top reasons why choosing the right jurisdiction for your trust matters, from legal protections to tax benefits, and discusses the pros and cons of popular jurisdictions to form an offshore trust.

Why is it Important to Choose the Right Jurisdiction for Your Offshore Trust?

Selecting the right jurisdiction for your trust is crucial for several reasons, and understanding these can guide you towards making a well-informed decision. Here are five key reasons why the jurisdiction of your trust matters:

Legislative Framework for Asset Protection

The legal structure governing offshore trusts varies significantly from one jurisdiction to another. Some offer more flexible and robust trust laws that can be tailored to meet specific needs, protect assets more effectively, and adapt to changing circumstances. Jurisdictions like Jersey and the Cayman Islands, for instance, are known for their special provisions that allow for greater control and protection over the trust assets.

Stable Legal System for International Trusts

The continuity and security of a trust depend on the stability of the legal system in its jurisdiction. It’s essential to choose a jurisdiction with a reliable, transparent, and efficient legal system, rooted in a strong tradition, such as English common law. This ensures that the trust’s assets are managed and passed down through generations securely and in accordance with the settlor’s wishes.

Regulatory and Compliance Framework for Foreign Trusts

A jurisdiction’s approach to regulation and compliance, particularly in areas like anti-money laundering (AML) and know-your-client (KYC) procedures, is critical. A jurisdiction’s proactive adherence to international standards, such as the Financial Action Task Force’s (FATF) 2024 guidance on Recommendation 25, is now paramount. This ensures the trust operates within a compliant framework, safeguarding it from legal and reputational risks that could compromise its assets.  

Availability and Expertise of Professionals

The availability of experienced and skilled professionals in trust management, law, and related financial services is another vital factor. A jurisdiction with a deep pool of expertise ensures that the trust benefits from high-quality advice and management, facilitating connections with a broad network of ancillary services that can support the trust’s objectives.

Ease of Doing Business

Practical considerations, such as the language of business, time zones, and geographical location, can significantly affect the day-to-day management of a trust. Jurisdictions that offer convenience in communication, align with the client’s time zones or provide strategic access to key markets can make it easier to use an offshore trust. 

The choice of jurisdiction impacts not just the legal and regulatory environment in which a trust operates, but also its administration, effectiveness, and the level of protection and service it can provide to the settlor and beneficiaries. Careful consideration of these factors can help ensure that the trust achieves its intended purposes, both now and for future generations.

Where to Set Up an Offshore Trust for Asset Protection: Pros and Cons of Popular Jurisdictions to Form an Offshore Trust

Jurisdiction	Pros	Cons
Cayman Islands	– Highly regulated and compliant legal framework offering procedural certainty, political stability, and a deep pool of professional expertise, making it an ideal jurisdiction for specialised structures like the Cayman Islands STAR trusts. – No direct taxes on trusts, including income, capital gains, or inheritances, enhancing tax efficiency. – Politically and economically stable, offering long-term security for trust assets.	– High operational costs and significant regulatory burden due to proactive adherence to global transparency standards. – The perception as an offshore tax haven can be a reputational risk for some settlors.
Switzerland	– Historically stable and reputable financial centre with a long history of wealth management expertise, though facing significant upcoming political and fiscal uncertainty. – High level of confidentiality and privacy for trust arrangements, protected by Swiss law. – Access to a sophisticated financial infrastructure and a wide range of investment opportunities.	– Significant political and tax uncertainty pending the November 30, 2025 “Future Initiative” national referendum on a 50% federal inheritance and gift tax, which could fundamentally alter its attractiveness for wealth preservation. – Strict regulatory requirements can make the setup and ongoing compliance complex and costly. – The cost of living and operating costs are high, which can translate into higher trustee and administrative fees.
Singapore	– Robust legal system with specific provisions for strong asset protection trusts. – Offers a sophisticated tax regime, including a territorial system and an extensive network of tax treaties. However, new rules effective January 1, 2024, now treat certain gains from the sale of foreign assets as taxable income when received in Singapore. – Political stability and a growing reputation as a global wealth management hub. – Requires licensed trustee services, ensuring professionalism and compliance.	– While its trust regime is advanced, it’s relatively newer compared to jurisdictions like Switzerland or the Cayman Islands, which may affect perception. – Compliance with the Monetary Authority of Singapore (MAS) regulations, though ensuring trust integrity, can add to the administrative burden. – The cost of setting up and maintaining trusts can be high due to Singapore’s overall cost structure.
New Zealand	– Offers a distinct Foreign Trust regime that is tax-neutral, meaning foreign-sourced income is not taxed in New Zealand if the beneficiaries are non-residents. – Adherence to English common law provides a stable and predictable legal environment. – Politically stable and reputable jurisdiction.	– Foreign trusts must register with the tax authority (Inland Revenue Department) and file annual returns, providing details of the settlor, trustees, and beneficiaries. – Information disclosed to the government is subject to automatic exchange with other countries under international tax agreements, offering regulated transparency, not privacy.
Isle of Man	– Modern and flexible trust laws, updated by the Trusts and Trustees Act 2023, which provides a statutory mechanism for courts to correct trustee mistakes (known as “Hastings-Bass” relief) and shortens the time limit for beneficiaries to bring a breach of trust claim to three years. – Offers significant tax advantages, such as no capital gains tax, no inheritance tax, and no stamp duties. – Strong privacy laws, with protections against unwarranted scrutiny and legal judgments.	– Perceived as an offshore tax haven, which might attract negative attention under increasing global transparency initiatives. – The requirement for professional trustee services, while ensuring expertise, can add to the cost of trust administration. – Some international clients may prefer jurisdictions with larger financial centres for access to a broader range of financial services.
Delaware (USA)	– A leader in modern trust law, with the Delaware Trust Act 2024 introducing pioneering statutes that formally recognise non-binding “letters of wishes” from a settlor and authorise “beneficiary well-being programs” to fund beneficiary education and personal development. – Favourable tax policies for trusts, including no state income tax for certain trusts. – A well-developed and sophisticated legal system provides strong protections for trust assets and beneficiaries.	– Benefits are most pronounced for U.S. residents due to the integration with U.S. legal and tax systems; non-residents might face complications, especially with FATCA compliance. – Potential exposure to U.S. federal estate taxes for non-resident aliens, which can diminish the benefits for international clients. – Delaware’s popularity means high demand for professional trustees, which can lead to higher costs.
Samoa	– Offers a favourable legal environment for international trusts, with strong privacy laws and asset protection features. – No income tax, capital gains tax, or estate tax on international trusts, enhancing tax efficiency. – Political stability and a legal system based on English common law contribute to a reliable trust framework. – Flexibility in trust structure and operation, accommodating a wide range of estate planning needs.	– Less well-known compared to other jurisdictions, which might affect perceptions of credibility and expertise. – Remote location and smaller financial services sector can limit access to certain types of investment and banking services. – Regulatory changes globally could impact Samoa’s attractiveness as pressures increase for transparency and information sharing.
Panama	– Strong asset protection laws, including the protection of trust assets from future creditors and legal judgments. – Offers confidentiality for settlors and beneficiaries, with trusts not required to be registered publicly. – No taxation on trust income that is generated outside of Panama, appealing for international estate planning.	– New regulations (Executive Decree 177 of December 30, 2024) require all Panamanian entities, including foundations, to maintain and submit annual accounting records to their resident agent, a critical update for those utilising Panama trusts and foundations. – Panama’s reputation has been affected by past scandals related to financial transparency, though new compliance rules are a step toward addressing these concerns. – Spanish as the official language and legal system differences may pose challenges for those unfamiliar with the jurisdiction.
Cook Islands	– Renowned for its asset protection trusts, offering one of the strongest protections against creditors globally. – Trusts in the Cook Islands enjoy significant privacy protections and are exempt from local taxes on foreign-sourced income. – The legal framework is specifically designed to attract international clients, with statutes that favour the protection of trust assets. – Political and economic stability, underpinned by a legal system based on New Zealand law, provides a secure environment for trusts.	– The Cook Islands’ reputation as an asset protection haven may attract scrutiny under international regulatory standards. – Geographic remoteness can make it difficult to access and manage investments, although this can be mitigated through digital communication and management tools. – Higher costs of setup and administration compared to some other jurisdictions, reflecting the specialised legal and financial services provided.

Select the Offshore Jurisdiction that is Right for You

Choosing the right place to set up your trust can significantly impact its effectiveness in asset protection, tax savings, and ease of management. With so many factors to consider, from legal stability to professional support available, it’s clear that a trust must be established after carefully consideration. If you’re looking to create an offshore trust and need guidance on selecting the best jurisdiction, our law firm can help. Reach out to PBL Law Group’s international estate planning lawyers for personalised advice that aligns with your estate planning goals.

Frequently Asked Questions (FAQ)