A Nevis Offshore Trust for Asset Protection Overview

A Nevis Offshore Trust

When it comes to offshore trust protection, there are only a few countries that provide Offshore Asset Protection Trusts. The Nevis International trust has been around for several years — and the rules involving the preparation and protection of Nevis international trust have evolved. Most recently, the Nevis International Exempt Trust Ordinance 2017 (Revised Edition) provides information regarding the treatment of Nevis trusts. While having a trust offshore can be of benefit to some taxpayers, it is not a one size fits all trust that automatically protects a US taxpayer’s worldwide assets from Creditors.  Let’s take a brief look at 10 important facts about the Nevis Trust.

The Island of Nevis

St. Kitts and Nevis is an island in the West Indies. It is home to one of the more popular citizenship by investment opportunities as well as one of the originators of the offshore asset protection trust and a generally neutral country.

As provided by Wikipedia:

• • • Saint Kitts and Nevis has no major international disputes. Saint Kitts and Nevis is a full and participating member of the Caribbean Community (CARICOM), the Organisation of Eastern Caribbean States (OECS), and the Organisation of American States (OAS).

What is the Nevis International Exempt Trust Ordinance?

Nevis international exam trust ordinance is the Nevis law designed to oversee trusts and Nevis. The ordinance has been revised and updated multiple times over the past 25+ years, and the most recent is the 2017 ordinance (Nevis International Exempt Trust Ordinance 2017 (Revised Edition).

The original Ordinance has been amended by:

• • • Ordinance 2 of 1995

    • Ordinance 2 of 2000

    • Ordinance 4 of 2009

    • Ordinance 1 of 2011

    • Ordinance 2 of 2015

10 Important  Nevis Offshore Trust Facts 

There are many important aspects to a Nevis trust.  While we cannot cover all the different aspects of the Nevis trust in a single article, we will focus on 10 important aspects of the nervous trust that you should be aware of if you are considering one of these types of asset protection vehicles.

Validity of the Trust

• • • (1) An international trust registered under this Ordinance shall be valid and enforceable notwithstanding that it may be invalid according to the law of the settlor’s domicile or residence or place of current incorporation, formation or establishment.

    • (2) An international trust shall be invalid and unenforceable to the extent that—

      • (a) it purports to do anything contrary to the laws of St. Christopher and Nevis;

      • (b) it purports to confer any right or power or impose any obligation the exercise of which or the carrying out of which is contrary to the laws of St. Christopher and Nevis; or

      • (c) the property of the trust, or any part thereof.

What Does This Mean?

It is important to note, that even if a foreign jurisdiction outside of Nevis determines that the trust is invalid under its own law, that does not mean that the trust would be invalid under Nevis law – in fact, if the trust is registered in Nevis then it will be considered valid and enforceable unless it is contrary to Nevis law.

Unlimited Duration of International Trusts and Accumulation of Income.

• • • No rule of law against perpetuities or suspension of the power of alienation of the title to property, any other existing law against perpetuities or any law restricting or limiting the duration of an international trust shall apply with respect to any interest in real or personal property held in trust if the terms of an international trust specifically state that the trustee of the trust has the unlimited power to sell all trust assets or if one or more persons, one (1) of whom may be the trustee, has the unlimited power to terminate the entire trust.

    • The rule of law known as the rule against perpetuities shall not apply to an international trust and unless otherwise provided in its terms, an international trust shall have an unlimited duration.

    • Notwithstanding any rule of law or equity to the contrary, where a trust instrument empowers a trustee to accumulate income, or to refrain from making any distribution of capital or income until a specified date or event, or where any provision of the instrument otherwise prevents the making of any distribution of capital or income, notwithstanding that a beneficiary may, but for this section, otherwise be entitled to that accumulation or distribution, the trustee may, in his absolute discretion, subject to any other terms of the instrument, give effect to that direction as he thinks fit notwithstanding that a beneficiary shall request the trustee to immediately distribute the accumulation or distribution and will give a valid discharge to the trustee for such distribution.

    • The income arising from any international trust may be accumulated in accordance with the terms of the trust for as long a time as is necessary to accomplish the purposes for which the trust was created, notwithstanding any law limiting the period during which trust income may be accumulated.

What Does This Mean?

This is very important and refers to the rule against perpetuities which can limit the duration of a trust that there is no provide for any duration. In a valid Nevis trust, there is no rule against perpetuities so the trust can go on for an unlimited duration.

Spendthrift Trusts

(In pertinent part)

• • • (1) The terms of an international trust may make the interest of a beneficiary—

      • (a) subject to termination;

      • (b) subject to diminution or termination in the event of the beneficiary becoming insolvent or any of his or her property becoming liable to seizure or sequestration for the benefit of his or her creditors; or

      • c) subject to a restriction on alienation of or dealing in the interest or any part of that interest and such a trust shall be known as a protective or spendthrift trust.

What Does This Mean?

In general, a spendthrift trust works to prevent the beneficiary from accessing the assets of the trust and instead receives them over a period of time. 

Discretionary Interests in International Trusts

• • • (1) This section applies to a creditor’s claim with respect to a discretionary interest of any beneficiary (including a settlor) in an international trust unless the trust deed provides explicitly otherwise.

    • (2) A discretionary interest in an international trust is not a property interest or an enforceable right rather is a mere expectancy that a creditor of a beneficiary (including the settlor) may not attach, garnish or otherwise reach.

    • (3) A creditor of a beneficiary (including the settlor) may not compel or force a distribution with regard to a discretionary interest in an international trust, nor compel or force a trustee to exercise the trustee’s discretion to make a distribution with regard to a discretionary interest in an international trust.

    • (4) A creditor of a beneficiary (including the settlor) may not compel or force a protector to exercise a power to direct a trustee to make a distribution to any beneficiary of an international trust.

    • (5) In the case of a discretionary interest in an international trust, a trustee who has the authority to pay income or principal to a beneficiary (including the settlor) may pay it to a third party if the payment is for the benefit of the beneficiary (including the settlor), and the trustee of an international trust shall not be liable to any creditor of a beneficiary (including the settlor) for paying income or principal on behalf of such beneficiary.

    • (6) A creditor of a beneficiary (including the settlor) may not maintain an action or a proceeding in Court that interferes with the trustee’s discretion to apply income or principal on behalf of the beneficiary of an international trust.

    • (7) A creditor of a beneficiary (including the settlor) may not obtain an order of attachment, garnishment or similar relief that would prevent a trustee from making a discretionary payment to a third party on behalf of the beneficiary (including the settlor) of an international trust.

    • (8) In this section, a beneficiary’s entitlement (or lack thereof) to a distribution is within the discretion of a trustee, whether or not the trust deed states the purposes for the distribution, is expressed in the form of a standard of distribution or uses the terms ‘may’, ‘shall’, ‘sole and absolute’, ‘uncontrolled’, ‘unfettered’, or similar words and whether or not the trustee has abused the discretion.

    • (9) Regardless of whether a beneficiary of an international trust has any outstanding creditor, a trustee of a discretionary interest may directly pay any expense on behalf of such beneficiary and may exhaust the income and principal of the trust for the benefit of such beneficiary. No trustee is liable to any creditor for paying the expenses of a beneficiary (including the settlor) who holds a discretionary interest.

    • (10)

      • (a) In this section, “discretionary interest” means a beneficiary’s interest in an international trust if the beneficiary’s entitlement to a distribution is within the discretion of the trustee.

      • (b) This section shall not prevent a creditor from obtaining relief from under section 26 of this Ordinance that is not inconsistent with this section.

What Does This Mean?

This aspect of international Nevis trust law can be complicated. It impacts discretionary interests and how they may be impacted by outside factors. It basically provides that discretionary interest is not an enforceable right, but rather is an expectation. Thus, a creditor of a beneficiary cannot compel the distribution with regard to a discretionary interest of an international trust. Stated another way, since a discretionary interest is only an expectation, if the beneficiary has a creditor, the creditor cannot force the distribution of a discretionary interest to the beneficiary in order to satisfy the creditor. And, a creditor may not be able to obtain an attachment or garnishment or maintain an action on the discretionary interest.

Protector of a Trust

• • • (1) The terms of an international trust may provide for the office of protector of the trust. Where a person is given authority by the terms of an international trust to direct, consent to or disapprove a trustee’s actual or proposed investment decisions, distribution decisions or other decision of the trustee, such person shall be considered to be a protector when exercising such authority (unless the terms of the trust shall otherwise provide).

    • (2) The protector of an international trust shall have the power to—

      • (a) (unless the terms of the trust shall otherwise provide) remove a trustee and appoint a new or additional trustee; and

      • (b) exercise such further powers as are conferred on the protector by the terms of the international trust or by the provisions of this Ordinance.

    • (3) The terms of an international trust may grant the protector the power to—

      • (a) direct the trustee to make distributions from the trust;

      • (b) consent to or approve any distributions made by the trustee from the trust; and

      • (c) direct the trustee regarding any or all investment decisions of the trust, which includes the power to direct a trustee to retain, purchase, sell or exchange property held in the trust or to engage in any other transaction affecting the ownership or rights over such property.

    • (4) If the terms of an international trust provide that a trustee shall follow the direction of the protector and the trustee acts in accordance with such a direction, then except in cases of willful misconduct on the part of the trustee so directed, the trustee shall not be liable for any loss resulting directly or indirectly from any such act.

    • (5) If the terms of an international trust provide that a trustee shall make decisions with the consent of the protector, then except in cases of willful misconduct or gross negligence on the part of the trustee, the trustee shall not be liable for any loss resulting directly or indirectly from any act taken or omitted as a result of such protector’s failure to provide such consent after having been requested to do so by the trustee.

    • (6) Whenever the terms of an international trust provide that a trustee shall follow the direction of the protector with respect to investment decisions of the trustee, then, except to the extent that the international trust provides otherwise, the trustee shall have no duty to—

      • (a) monitor the conduct of the protector;

      • (b) provide advice to the protector or consult with the protector; or

      • (c) communicate with or warn or apprise any beneficiary or third party concerning instances in which the trustee would or might have exercised the trustee’s own discretion in a manner different from the manner directed by the protector, and absent clear and convincing evidence to the contrary, the actions of the trustee pertaining to matters within the scope of the protector’s authority (such as confirming that the protector’s directions have been carried out and recording and reporting actions taken at the protector’s direction), shall be presumed to be administrative actions taken by the trustee solely to allow the trustee to perform those duties assigned to the trustee under the governing instrument and such administrative actions shall not be deemed to constitute an undertaking by the trustee to monitor the protector or otherwise participate in actions within the scope of the protector’s authority.

    • (7) Unless the terms of the trust shall otherwise provide the protector of an international trust may also be a settlor or a beneficiary of the trust.

    • (8) Subject to the terms of the international trust, in the exercise of his office a protector shall owe a fiduciary duty to the beneficiaries of the trust or to the purpose for which the trust is created.

    • (9) Where there is more than one (1) protector of a trust then, subject to the terms of the trust, any functions conferred on the protectors may be exercised if a majority of the protectors for the time being agree on its exercise.

    • (10) A protector who dissents from a decision of the majority of protectors may require his dissent to be recorded in writing.

    • (11) (a) A protector may delegate duties and powers with regard to investment decisions. The protector shall exercise reasonable care, skills and caution in—

      • • (i) selecting an agent such as an investment advisor;

        • (ii) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and

        • (iii) reviewing the agent’s actions periodically to monitor the agent’s performance and compliance with the terms of the delegation.

      • (b) In performing a delegated function, an agent owes a duty to the protector/trustee/beneficiary or purpose for which the trust was created to exercise reasonable care to comply with the terms of the delegation.

      • (c) A protector who complies with paragraph (a) and, when investment functions are delegated, is not liable to the beneficiaries or to the trust for an action of the agent to whom the function was delegated.

What Does This Mean?

One benefit of the Nevis Trust is the extensive power that a trust protector has. A Trust Protector, as the name connotes, is a position designed to protect the trust, the assets in the trust, and how the trust is administrated. In accordance with Nevis Trust Law, the protector has significant power to oversee, consent, or disapprove various proposed investment decisions and other aspects of the trust. Likewise, the Nevis International Trust Ordinance allows the Settlor of the trust or a beneficiary of the trust to be the protector of the trust.

General Power of Appointment Granted to a Beneficiary

• • • A creditor shall have no right against the interest of a beneficiary of an international trust or against the beneficiary or trustee of the trust with respect to such interest unless—

      • (a) the beneficiary (other than the settlor) has a power to appoint all or part of the trust property to the beneficiary, the beneficiary’s estate, the beneficiary’s creditors, or the creditors of the beneficiary’s estate by will or other instrument such that the appointment would take effect only upon the beneficiary’s death and the beneficiary actually exercises such power in favor of the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate but then only to the extent of such exercise;

      • (b) the beneficiary (other than the settlor) has a power, including a power of withdrawal, to appoint all or part of the trust property to the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate during the beneficiary’s lifetime and the beneficiary actually exercises such power in favour of the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate but then only to the extent of such exercise

What Does This Mean?

The beneficiary of a trust is afforded certain protections under the law. In general, the creditor will have no access to the rights of an interest by the beneficiary unless the beneficiary other than the settlor has certain powers of appointment.

Power to Relieve Trustee from Personal Liability

• • • The Court may relieve a trustee wholly or partly of liability for a breach of trust where it appears to the Court that the trustee has acted honestly and reasonably and ought fairly to be excused for the breach of trust or for omitting to obtain the directions of the Court in the matter in respect of which the breach arose.

What Does This Mean? 

Another important aspect of the Nevis Trust Law is that it provides that a court they will relieve a Trustee wholly or partly for a breach of the trust if the court believes that the trustee acted honestly and reasonably. It is important to note, that oftentimes the trustee will be located in Nevis and the Settlor and beneficiaries are not located in Nevis.

Power to Make Beneficiaries Indemnify

• • • Where a trustee commits a breach of trust at the instigation, at the request or with the concurrence of a beneficiary, the Court (whether or not the beneficiary is a minor or a person under a legal disability) may impound all or part of his interest by way of indemnity to the trustee or a person claiming through him.

What Does This Mean?

If the trustee violates the trust and commits a breach in conjunction with directions from a beneficiary, the court has the opportunity and the power to impound the interest by way of indemnity to the trustee or other third party through him.

Retention of Control by Settlor

• • • An international trust shall not be declared invalid or otherwise be affected in any manner if the settlor, and if more than one (1), any of them either retains, possesses or acquires—

      • (a) the power to revoke the trust;

      • (b) the power to veto a distribution of income or principal by the trustee;

      • (c) the power to amend the trust;

      • (d) any benefit, interest or property from the trust, including, but not limited to the following—

        • (i) the settlor’s potential or actual receipt of income or principal from the trust, including rights to such income or principal retained in the trust deed;

        • (ii) the settlor’s potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust and the settlor’s right, at any time and from time to time by written instrument delivered to the trustee, to release such settlor’s retained interest in such a trust, in whole or in part, in favor of a charity that has or charities that have a succeeding beneficial interest in such trust;

        • (iii) the settlor’s potential or actual receipt of income or principal from a grantor retained annuity trust or grantor retained unitrust;

        • (iv) the settlor’s receipt each year of a percentage (as specified in the trust deed) of the initial value of the trust assets (which may be described either as a percentage or a fixed amount) or the value determined from time to time pursuant to the trust deed;

        • (v) the settlor’s potential or actual receipt or use of principal if such potential or actual receipt or use of principal would be the result of a trustee acting—

          • • (A) in such trustee’s discretion;

            • (B) pursuant to a standard that governs the distribution of principal and does not confer upon the settlor a substantially unfettered right to the receipt or use of the principal; or

            • (C) at the direction of a protector who is acting—

        • in such protector’s discretion; or

        • pursuant to a standard that governs the distribution of principal and does not confer upon the settlor a substantially unfettered right to the receipt of or use of principal;

      • (vi) a settlor’s potential or actual use of real property, chattels or tangible assets held either directly or indirectly in the trust;

      • (vii) the settlor’s potential or actual receipt of income or principal to pay, in whole or in part, income taxes or other levies due on income or principal of the trust to any taxing authority located in any jurisdiction if such potential or actual receipt of income or principal is pursuant to a provision in the trust deed that expressly provides for the payment of such taxes and if such potential or actual receipt of income or principal would be the result of a trustee acting in such trustee’s discretion or pursuant to a mandatory direction in the trust deed; or at the direction of a protector who is acting in such protector’s discretion. Distributions to pay income taxes made under a discretionary or mandatory provision included in a settlement establishing an international trust may be made by direct payment to taxing authorities;

    • (e) the power to remove or appoint a trustee or protector;

    • (f) the power to direct a trustee or protector on any matter;

    • (g) except as provided in subsection (1)(h) an inter vivos or testamentary power of appointment (other than a power to appoint to the settlor, the settlor’s creditors, the settlor’s estate or the creditors of the settlor’s estate) exercisable by will or other written instrument of the settlor;

    • (h) the ability, whether pursuant to discretion granted to the trustee, a direction in the trust deed or the settlor’s exercise of a testamentary power of appointment, of a trustee to pay, after the death of the settlor, all or any part of the debts of the settlor outstanding at the settlor’s death, the expenses of administering the settlor’s estate, or any estate or inheritance tax or other levies imposed on or with respect to the settlor’s estate; and (i) the ability to serve as investment adviser to the trust.

    • (2) An international trust is not invalid even though the settlor may be the only beneficiary of the trust or the settlor is one of multiple beneficiaries. Except as provided in this section, a settlor shall have no other rights or authority with respect to property held in an international trust or the income therefrom, and any agreement or understanding purporting to grant or permit the retention of any greater rights or authority shall be void and of no effect.

What Does This Mean?

It means that if the settlor decides to retain certain powers such as the power to revoke the trust, power to veto a distribution, or power to amend the trust, this in and of itself or not render the trust invalid. Subject to certain exceptions and exclusions, most US trusts do not permit this type of control by the settlor in an irrevocable trust. And, for asset protection, the trust should be irrevocable as opposed to revocable, the latter in which the seller still is deemed the owner of the assets and subject to more personal liability.

Bond

• • • Every creditor before bringing any action or proceeding against any trust property governed by this Ordinance shall first deposit with the Permanent Secretary in the Ministry of Finance a bond in the sum of $270,000.00 from a financial institution in Nevis, for securing the payment of all costs as may become payable by the creditor in the event of his not succeeding in such action or proceeding against the trust property.

What Does This Mean?

One benefit of the Nevis trust is that in order to bring an action against the trust, a bond must be placed in the amount of $270,000 from a financial institution in Nevis. As you may imagine this automatically puts the creditor in a negative position because not only are they seeking a judgment because they claim the debtor already owes them money — but now they have to put up more than a quarter million dollar bond just to pursue the action.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.