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Investing in Trusts

NAIROBI, Kenya, Aug 19 – A trust is defined as a  legal arrangement in which an individual (the trustor) gives fiduciary control of property to a person or institution (the trustee) for the benefit of beneficiaries. Simply put, a trust allows you (the settlor) to entrust your assets to a group of people (trustees). The trustees are the legal owners of the assets and manage the assets for the benefit of your Trust’s beneficiaries.

A trust is one way to move money out of your estate in order to reduce your inheritance tax bill (if applicable as it is in the UK and other European countries). It avoids potentially lengthy delays so the people you want to benefit from your estate do so as quickly as possible.

You can write     all manner of assets in trust, including investments, life insurance     policies and death benefits. Certain trusts not only allow you to pass on your wealth when you die, but can also give you access to your ‘income’ while you are alive, in the form of withdrawals.

There are different types of trusts that have been designed to provide an income through regular withdrawals of capital.

There are several advantages of this type of trusts.  All growth on the trust fund is outside the settlor’s estate from day one and therefore free from inheritance tax. However, periodic exit charges may apply in the future.

As the interest –free loan is payable on demand, it is not treated as a gift although any outstanding sum due on death will form part of your estate.

Assuming loan repayments are spent, your taxable estate should gradually reduce.

Retained interest schemes

These schemes involve     investment in a unit-linked whole life assurance bond written in a trust. The trust is split so that you can retain access to part of the trust fund from which withdrawals can be taken.
Discounted Gift Schemes

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These schemes involve investment in a unit-linked whole life assurance or capital redemption bond. The trust allows you to a right to income in the form of withdrawals during your lifetime until the bond comes to an end.

Discretionary Trust

This is a trust where the beneficiaries to the trust are not fixed but are determined by the criteria set out in the trust instrument by the settler. It is common for the settler to leave a letter of wishes for the trustees to guide them as to his/her wishes in the exercise of their discretion.

There is a common misconception on trusts in the sense that people feel that they lose control over their assets.

Legally this is true because the ownership of the assets is transferred to the trustees and therefore they no longer belong to the original owner. It is however for this reason that the owner is able to gain the tax advantages and added value that trusts offer.

The letter of wishes gives the owner of the assets the opportunity to specify to the trustees how they would like the trust fund to be invested, the reason for which the trust was intended or how the trust fund should be distributed. Note however, that although the trustees are not legally bound by the letter, it ensures that they fully understand the intentions of the client.

How to set up an offshore trust

Step1 – Assess your financial situation to see if you can afford to set up an offshore trust. These trusts are expensive not only to invest in but also to manage and maintain. Fees are more manageable for people who put extremely large amounts of money or assets into offshore trusts.

Step 2 – Find an attorney who specializes in estate planning and offshore trusts. He should be familiar with all areas of domestic and international law surrounding these types of accounts, including how to avoid capital gains and inheritance taxes legally.

Step 3
– Select the place you wish to set up an offshore trust. The country should be one that is set up to handle this sort of banking, such as the Seychelles, Grand Cayman or Panama. These locations have tax shelters in place for offshore accounts.

Step 4
– Decide who your beneficiaries will be. By naming beneficiaries, this piece of your estate will bypass the probate court when you pass away. This will keep taxes to a minimum and ensure the beneficiaries are given their inheritances in a timely matter.

Step 5
– Choose a trustee for your trust. With offshore trusts, you must select a trust manager who is located in the country where you are investing. Your attorney should be able to help you locate someone who can fill this position for you.

Step 6
– Write a letter of wishes. A letter of wishes explains to the chosen trustee how you would manage the money if you were there yourself, in control over the money. Your attorney will communicate this letter to the trustee for your trust.

Advantages of Trusts

1.    Confidentiality
:  By putting your assets in a trust you are more or less guaranteed the privacy of your assets.
2.    Transfer of assets: Trusts allow for the ease of transfer of assets.

3.    Asset protection:
Offshore Trusts will give you complete protection from litigious such as malpractice claims, product liability, divorce proceeding, foreign judgments and creditors.

4.    Wealth Accumulation: Own companies, bank accounts, and invest in global markets through your offshore trust while accumulating wealth in a more tax friendly setting.

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5.    Secure your assets in an offshore Trust and guard against financial emergency in your home country.

6.    Flexibility of formation
– There is a great deal of flexibility in the way a trust can be established. For instance, the settlor of the trust can serve as beneficiary, and the trust will still be valid under local law. This allows the settlor to retain a substantially greater degree of enjoyment over trust assets than would be permitted under the laws of some countries.


1.    The owner often ceases some degree of control in the determination of the direction that their estate takes. In addition there is the feeling that there is no one around to supervise a trustee.

2.    Another disadvantage is to avoid probate you have to take the steps necessary to transfer your assets into your trust or change the beneficiary designations. Processing the paperwork is time consuming, and it will cost you some money to draft the trust agreement properly.

3.    A living trust is far more expensive to draft than a simple Will.

4.     With some trusts you have to forgo access to some of the original capital as well as any future growth.  


(Renaldo D’Souza is the Marketing and PR Coordinator at Winton Investment Services Ltd, an Offshore Investment Advisory Company based in Nairobi)

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