Domestic and Foreign Trust Differences

The nuts and bolts of a Trust are a legal and binding contractual obligation created between two parties enforceable by law to all parties. Generally, the owner or possessor of valuable assets wishes to legally empower another person to control his assets for a specific purpose.

The concept of Trusts dates back to the Medieval Crusades whereby wealthy land owners would lead his serfs to battle, in far away lands, taking a number of years to get there and a number of years to get back - if they ever got back. The wealthy landowners would leave the chief Monk at the monastery the obligation to work the lands and control his remaining serfs to work the land in his stead until he returned from the Crusades. Since the Monks were the most trustworthy, wowing to a life of absolute religious poverty, the landowners Trusted them over other potential candidates, thus the word Trust.

The legal title of assets rests with the Trustee. As the Trustee, he has the legal power to manage, buy, sell, invest, make and enforce contracts, as the legal owner or possessor with absolute legal rights.

Domestic and Foreign Trust - What's the Difference?

The domicile of the Trust Agreement determines the legal enforceable rights to manage and control the possession under local laws. If the jurisdiction is within the United States it's a domestic Trust. If the jurisdiction is other than the United States it's an offshore Trust or foreign Trust where the local laws apply.

An Offshore Trust is nothing more than a Domestic Onshore Trust for which the jurisdictional laws governing the Trust Agreement is based in the Offshore jurisdiction.

The creation of a Trust can be made during one's life or by will upon the death of the creator. Once created legal title of the assets transferred are vested to the Trustee. The tax consequences are vested with the tax jurisdiction under which it was created. The income tax consequences of the Trust's investments or assets under its control are also under the jurisdiction for which it was created and the domicile of the Grantor and Beneficiaries.

Most Trusts will Contain Some or All of the Following Provisions:

1. The jurisdictional laws (domicile) under which the Trust is created.
2. The name of the owner of the valuable assets, the Grantor.
3. The name of the person who will be entrusted with the Grantor's possessions, the Trustee.
4. The purpose of the legal agreement.
5. The name(s) of the Beneficiaries of the Trust Agreement.
6. A provision for a successor Trustee.
7. The list of powers granted to the Trustee by the Grantor(s).
8. 8. A list of prohibited transactions, a Trustee may never deal for himself.
9. A "flee" clause to move the assets from one jurisdiction to another.
10. A spendthrift provision limiting distributions to any Beneficiary under duress.
11. The duration of the Trust.
12. The name of a Trust Protector, required for Offshore Trusts, but generally not a requirement for a Domestic Trusts. Only Alaska, Delaware, Idaho, South Dakota, and Wyoming have legislation in recognition of the Trust Protector Concept.
13. A compensation provision for the Trustee's services.
14. A provision to employ other financial experts.
15. Power to add or exclude beneficiaries.
16. Power to contract with others.
17. Power to borrow or lend, or both.
18. Power to withhold distributions.
19. Power to make alternative arrangements for incompetent Beneficiaries.
20. Prohibition against direct ownership and operation of a trade or Business.
21. Power to merge with other Trusts.
22. Invalidity provision of any provision considered by local jurisdiction to be invalid, illegal, or unenforceable to cure such invalidity provision.
23. And more as it's necessary for any Contractual Agreement.

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