Establishing a Nevis trust is much more than filling out paperwork and signing a trust agreement. An appropriately set up trust can provide many benefits, including asset protection, wealth preservation, succession planning, estate administration, and long-term family governance. As such, every trust depends on how it is created at inception.
Each settlor will have their own unique goals, assets, family situation, and jurisdictional factors to consider. The decisions made by the settlor regarding beneficiaries, trustees, protectors, reserved powers, and funding the trust will have serious implications with regard to potential liabilities (legal), taxes (tax), and other practical ramifications for generations to come. Therefore, professional trust counsel will spend significant time understanding each client’s circumstances before making recommendations regarding trust structuring.
These 15 questions are just a few of the numerous important issues that should be carefully reviewed and discussed when considering establishing a Nevis trust. Careful consideration and planning at the outset may help avoid costly errors later.
Key Takeaways
- The Nevis trust is an asset-protection strategy used by millions of people worldwide.
- Trust design, planning, and administration are critical to asset protection, tax planning, succession planning, and confidentiality.
- Each aspect of your trust (beneficiaries, trustees, protectors, and the type of assets) will have to be evaluated before you establish a Nevis trust.
- The creditor-protection provisions of Nevis trust legislation are unique among many jurisdictions.
- Obtaining legal advice from a professional lawyer and/or tax advisor is essential when implementing any international trust structure.
The Legal Framework Behind Nevis Trusts
The development of Nevis’ modern reputation as an offshore jurisdiction is based on a legislative structure that has evolved over multiple decades. The Nevis International Exempt Trust Ordinance (NIETO) was enacted in 1984 and remains the foundational legislation for Nevis’ offshore trust industry, continuing to play a significant role in regulating trusts in Nevis today.
In addition, like many international financial centers, Nevis’s jurisdiction operates within an increasingly globalized regulatory regime. In turn, the use of trust structures may have implications for anti-money laundering (AML) and know-your-customer (KYC) regulations, as well as cross-border tax reporting, including the OECD’s CRS. Depending on the jurisdictions involved in the trust plan, there may be additional reporting obligations under their respective domestic tax statutes.
Therefore, a comprehensive approach to trust planning will require consideration of both the applicable laws of Nevis and those of all relevant jurisdictions in which the settlor, beneficiaries, and assets are located.
1. What Are Your Primary Objectives for the Trust?
You can’t fulfill your fiduciary duty as a trustee until you understand what it is that the grantor wants to achieve through creating this trust. Some common purposes of trusts are:
- Preserving long-term family wealth for future generations;
- Protection of assets from commercial risk, messy divorces, or political instability in your own country;
- Tax planning (while staying within limits of laws prohibiting tax avoidance);
- Family governance and succession planning. In many ways an enhanced version of a will, as you have more flexibility to outline different possible scenarios when drafting the terms of a trust.
- Confidentiality and anonymity;
- Streamlined probate and international asset transfer process for those with a multi-jurisdictional business and/or other interests.
The structure of each trust — including the roles of the protector and enforcer, the use of reserved powers, and whether an LLC is created underneath — is also determined by the client’s intended purpose.
2. Who Is the Settlor, and What Is Their Tax, Legal, and Residency Profile?
All of the settlor’s (U.S.-called “the grantor”) jurisdictions will affect the settlor’s tax status, CRS/FATCA classifications/reporting obligations, ability to reserve power to act on behalf of the trust (and thus its potential for being revocable vs. irrevocable), and risk of creditor attacks.
Our Nevis trust attorney will investigate:
- Where does the settlor reside? Where does he/she/it have a domicile?
- Is the settlor a citizen of one country or multiple countries?
- What is your source of wealth: a high-level view of your overall situation and not specifically related to the assets you plan to place within this trust?
- Are there any active lawsuits against the settlor now or threatened suits that could potentially arise after the settlor places his/her/its assets in this trust?
3. Who Are the Beneficiaries, and Should the Class Be Broad or Specific?
The Nevis Trust Act provides for an incredible amount of freedom in respect to who the beneficiaries may be. Therefore, our Nevis trust attorney must first determine the following:
- Primary beneficiary(ies).
- Secondary/contingent beneficiaries.
- Whether unborn descendant(s) shall be included as beneficiaries.
- How future spouse(s), both your own and those of your descendant(s), are treated (often excluded).
- If classes of beneficiaries may be added/deleted/amended at a later date, and if so, whether such changes would require the unanimous consent of all living trustees.
- Whether distributions shall be made on a discretionary basis, be mandatory, or follow some predetermined guideline.
This is one area where clarity from the outset minimizes potential problems that may arise later. Generally speaking, the most commonly used type of trust names relatives as beneficiaries. However, trusts can also be established for purposes — e.g., world peace or caring for your beloved pet after your death.
4. What Assets Will the Trust Hold, and in Which Jurisdictions Are They Located?
Each type of asset has some specific factors to consider:
- Banking and brokerage accounts: How are these set up? Who has signature authority over them, and who makes investment decisions now and going forward?
- Underlying companies: Often, a Nevis LLC is used as an additional layer of protection to avoid direct exposure to the trust in the event of a lawsuit. In addition, this allows you to create separate LLC’s for each asset (i.e., operating companies).
- Operating companies: Economic substance requirements and how the trust plans to manage its equity position in actively managed companies with their own management structure.
- Real estate: Local registration, transfer tax. From the perspective of Nevis, just about any type of asset can be included in the trust; however, most countries have laws restricting foreign ownership of real estate that must be considered when deciding what assets to include.
- Shares of private companies: Valuation or shareholder agreement(s) if there are co-shareholders.
- Crypto assets: How will custody and private key management be done during and after your lifetime?
- Intellectual property: Royalty flow, licensing, withholding taxes.
The trust lawyer must verify transferability, chain-of-title issues, and fraudulent-transfer look-back periods.
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5. Is the Client Anticipating Any Litigation, Divorce, or Creditor Action?
The Nevis trusts are very powerful in protecting your clients from creditor actions; however, it is critical to understand when to act.
Some of the most important provisions in the Nevis Trusts Ordinance (statutory law) provide:
- Foreign judgments cannot be enforced within the jurisdiction of Nevis
- Creditors must initiate their legal actions within the jurisdiction of Nevis
- They must place a substantial surety/security deposit with the court of at least $100,000; this amount may increase based upon the amount of the creditors’ claim
- The burden of proof will rest with the creditor to establish by clear and convincing evidence that the transfer(s) were made fraudulently
- Statutes of limitation are normally two years from the date of each transfer
Therefore, a lawyer will need to assess the following:
- Are any potential claims reasonably foreseeable?
- Have any assets already been “tainted”? If so, could you protect them through “ring-fencing”?
- Should you stage trust funding over time — Generally speaking, it is best to fund your client’s trust immediately with all of his/her/its assets so that all assets are completely protected.
There are some exceptions to consider, such as intellectual property like patents and new inventions, or shares in a start-up.
6. Who Will be the Trustee, and Will There Be Co-Trustees?
Under Nevis law, you need to have at least one local trustee for an international exempt trust. Usually, this is a local company. You can appoint co-trustees in other countries, and your client may want to do so as they get greater control over the trust — but a trustee in another country may provide less protection against court action. This needs to be discussed in great detail with your appointed professional.
The trust attorney has to consider:
- Will you appoint additional trustees in a different jurisdiction?
- Succession of the trustees & removing trustees
- What makes a trustee retire or remove themselves
- How trustee authority will be overseen (protector oversight, committee structure, and private trust company).
- Can your trust be ring-fenced from your trusts where your trustee serves?
7. Should a Protector Be Appointed, and What Should Their Powers Be?
The protector/enforcer is a significant element of contemporary trust planning and is specifically permitted by Nevis legislation. In many cases, the protector makes a better choice than a co-trustee.
Although there are no specific requirements regarding legal qualifications for a protector, they could simply be a family friend (or your attorney back at “home”). Although in some jurisdictions, being appointed as a protector can trigger local reporting obligations. The bank will also need to complete a know-your-customer (“KYC”) check on protectors. As a protector, you are automatically subject to reporting under CRS/FATCA and should therefore treat the position with respect.
One alternative, which has become increasingly popular, is appointing an independent professional protector. This service, provided by Q Wealth too, safeguards against the main trustee taking any action that would adversely affect the beneficiaries’ interests.
Typical examples of authority given to protectors in Nevis trusts include:
- Appointing/trusting other trustees
- Approving/denying distribution to the beneficiaries
- Adding/removing beneficiaries
- Approving investment strategy
- Authority to transfer/migrate the trust to a different jurisdiction
- Supervising any material changes to the structure of the trust
As such, the stronger power given to the protector will normally give greater comfort to the settlor. However, the increased powers may create problems if they are considered too close to those of a settlor or result in adverse tax consequences.
8. Should the Settlor Retain Reserved Powers?
Under Nevis law, the settlor may retain significant influence without invalidating the trust.
Examples of such retained powers include:
- Directing investments
- Replacing trustees
- Adding or excluding beneficiaries
- Approving distributions
- Changing the proper law or governing jurisdiction
- Even revoking the trust itself.
The lawyer must weigh:
- Asset-protection strength vs. settlor control
- Tax considerations
- Whether the settlor is comfortable relinquishing control in exchange for greater protection.
Ultimately, of course, the client calls the shots. But it is up to the lawyer to ensure the client understands the nuances of settlor control and weighs the benefits against the risks.
9. How Will the Trust Be Funded, and Over What Timeframe?
Some critical things to consider are:
- Whether you intend to move your assets into the trust now or over time;
- If you expect to make ongoing contributions to the trust;
- The value of the assets in the trust when they are transferred;
- And whether the trust should have an underlying Nevis LLC that will serve as the main operational entity for the trust.
Your funding strategy has to match your creditor claims timeline, tax planning goals, and your settlors’ (you) need for liquidity in the future.
Many people who use offshore trusts create them with a small amount of money (such as $1,000), just as many companies start out with some seed money. For example, it is very common to establish a Nevis trust for $1000 and then add additional funds and/or assets later.
10. What Long-Term Governance Structures Does the Client Want?
Trusts with growing asset bases may have more than just “trustee + protector” governance.
The attorney should also think about:
- Investment committees
- Family councils
- Financial advisors require approval prior to making decisions on investment/distribution
- Distribution committees
- Letters of wishes that include family philosophies/values/long-term goals
- Mechanisms to address trustee/incapacity issues related to protectors or committee members
Establishing such frameworks will create an opportunity for consistency and minimize conflict. Establishing the trust deed to provide for future additions (mechanisms) will enable you to add them at a lower cost rather than establishing all possible mechanisms at the outset. This should be taken into consideration and discussed during your review of the draft trust deed.
11. Does the Client Require the Trust to Be a Non-Grantor Trust for Tax Purposes?
This question is particularly applicable to:
- U.S. persons
- UK citizens
- Canadians who are filing T1135
- Residents in France and Spain (who could potentially be caught by anti-abuse regulations)
- Latin American clients with CFC regimes
- S. African residents, who have very strict trust/tax laws.
Non-grantor status would require the following:
- The trustee has no power resembling ownership.
- Trustee decision-making ability is independent of the settlor.
- The settlor & trust had economic separation.
Your Nevis trustee will not know anything about your foreign country’s taxes. Your trust attorney will never advise on tax. The client and the trustee may decide to get a tax / legal opinion if needed, and the trustee will have all the people he needs.
12. Should the Trust Own a Nevis LLC for Enhanced Asset Protection?
One of the most robust of all Nevis structures is the following:
A Nevis Trust → A Nevis LLC → The operating company/entities/assets.
Advantages include:
- Protection from charging orders
- Further protection by way of a judgment barrier/firewall
- The ability to segregate assets into separate LLC’s
- Greater flexibility with investments and banking arrangements
- Counterparties will never be able to identify the trust’s name and may not even be aware that a trust exists.
In addition, an LLC can provide services and issue invoices for them. It is also common for the settlor or protector to act as an LLC manager or to execute a limited power of attorney so as to allow them to invest and/or make decisions regarding a particular asset.
13. Are There Cross-Border Estate or Inheritance Tax Exposures?
You need to consider:
- UK inheritance tax on all of your worldwide assets if you are considered a UK domicile.
- France’s civil law forced heirship rules;
- Spain’s succession tax;
- Germany’s anti-tax avoidance laws;
- Estate taxes based upon your country of residence in Latin America;
A Nevis trust can protect against being subject to a forced heirship claim — you can override it — but only if properly drafted. Sometimes a trust may require other entities or situs planning to prevent an attack by way of forced heirship.
As stated previously, the Nevis trustee has no obligation to become intimately familiar with the various foreign tax systems. As mentioned before, your trust attorney will provide you with no tax advice. However, you and the trustee can collectively decide whether to obtain legal/tax opinions as needed, and the trustee will have access to the resources/contacts to do so.
14. Should the Trust Be Registered in Nevis as a Foreign Trust to Facilitate Portability?
If your client has an existing trust that was formed as one of the following:
- U.S. domestic trust
- UK/Canada trust
- Panama/Cook Islands structure
You will need to discuss portability with them. Nevis allows for a 3-step process when converting foreign trusts into Nevis trusts:
- Registration of the foreign trust in Nevis.
- Migration of the foreign trust to Nevis law (i.e., “foreign” laws).
- Continue/redomicile the foreign trust.
You also need to find out from the lawyer whether it’s the trust assets that are going to migrate, or if the entire trust will migrate, and also whether there will be an exit tax imposed by the original jurisdiction; and finally, do the existing trustees need to resign and be replaced by Nevis-based trustees?
15. Will There Be Loans, Compensation, or Financial Interaction Between the Settlor and the Trust?
Loans from the settlor to the trust, or vice versa, represent a particularly high level of risk. For instance:
- Loans create tax issues
- Loans create creditor liabilities for the trust
- Loans may be considered “retained control.”
- Loans may change a trust into either a grantor or a non-grantor trust.
Therefore, legitimate loan transactions must meet the requirements:
- Loan transactions must be documented
- Loan transactions must occur on an arm’s-length basis
- Loan transactions must generate interest (if such is a requirement of the applicable taxing authority)
- Loan transactions must be properly recorded in the trust’s records.
It would also make sense to discuss whether loans will be made when you initially establish your Nevis trust.
Conclusion: Optimal Offshore Asset Protection Depends on a Holistic, Structured Approach
One of the most flexible and powerful (and thus most effective) offshore asset protection strategies available today is the Nevis International Exempt Trust. However, the Nevis trust is not a “one size fits all” vehicle. Because of its flexibility, the trust needs to be carefully crafted to fit each client’s individual situation, family dynamics, creditor risk profile, and preferred long-term governance options.
When a trust attorney has asked all 15 of the essential questions described in this article (and when they have received from their clients clear and complete responses), there may well be additional questions. There are many issues that cannot be adequately assessed by an attorney until he/she has obtained a full understanding of his/her client’s particular situation. Do not be concerned about this. Having a thorough, open conversation about each issue prior to engaging an attorney is certainly worthwhile.
Additionally, failing to address any of the items listed above may result in unforeseen negative consequences, significantly reduced asset protection, and/or the potential to void the trust entirely.
An appropriately constructed Nevis trust is an integral component of international wealth planning that can provide support to families, entrepreneurs, and global investors for decades or even generations.
EDITOR’S NOTE: After reviewing this article, some readers may want to speak with a qualified attorney regarding the specifics of creating a trust before ultimately deciding to create the trust itself. Therefore, we now offer prospective clients the opportunity to meet with a qualified attorney for a 1-hour paid consultation before deciding whether to proceed with establishing a trust. Any monies paid by the prospective client during the consultation hours will be credited toward the establishment costs of a new trust if they do choose to proceed with the creation process. To learn more about this paid online consultation offer, contact one of our experts today.
