Location: Gibraltar, 'the Rock', is a peninsula of approximately three square nukes at the southernmost tip of Spain. It is one of the legendary Pillars of Hercules poised between the two continents of Europe and Africa, guarding the gateway to the Mediterranean. History and Constitution: ceded to Britain in perpetuity by the Treaty of Utrecht in 1713, Gibraltar has been British for nearly 300 years. The official language is English, but most of the 30,000 British inhabitants are bilingual in English and Spanish. The official currency is the Gibraltar pounds, although the sterling pound circulates freely at par with the Gibraltar pound. There are no exchange controls. Communications: Gibraltar enjoys sophisticated communications with daily scheduled airline services with the UK and satellite and digital telecommunications systems. Political and legal system: The UK is responsibly for Gibraltar's defence, foreign policy and internal security, and appoints the Governor who is the representative of the Crown in Gibraltar. In all other matters however, Gibraltar is self-governing. Laws, known as Ordinances, are passed in the Gibraltar House of Assembly, a freely and democratically elected Assembly. It enacts laws independently of the UK and maintains an independent tax status (a freedom which has greatly helped its development as a financial centre). The legal system is nevertheless based on the common law and statute law of the UK and therefore embodies the advantages and security of UK Company and Trust law. What makes a jurisdiction suitable for the establishment of a Trust? One can distinguish between jurisdictions in which the Anglo-Saxon form of trust is well embedded and those Civil law jurisdictions which have adopted trust laws but have no real history or precedent of developing Trust law. The danger of using a jurisdiction whose Trust laws are adopted and have not evolved over a period of time should not be underestimated. Should an action be brought against the Trust settled in such a jurisdiction, the client would have to contend with both practitioners who may not have fully grasped the duties of Trustees or their administration needs or with judges who do not comprehend or at times do not wish to comprehend this very Anglo-Saxon concept. It is therefore important to ensure that the jurisdiction in which you establish your Trust has legal practitioners able to advise fully on who the settlor should be, the effect of such a Trust on beneficiaries, and the correct manner of managing and maintaining such a Trust. It is for the client or his/her advisers to ensure that the Trustees are professional and know their duties as Trustees. It is also important to ensure that the courts within the chosen jurisdiction, and the judges who sit in, them fully understand the Trust concept. Legal practitioners, Judges and courts: Only UK qualified barristers and solicitors may practice law in Gibraltar. Nicholas Peter Cruz LLB is a barrister called to the bar of England and Wales and a member of Middle Temple, one of the four Inns of Court to which every barrister in the UK must belong. Practitioners in Gibraltar, having qualified in the UK subsequently are called to the Bar in Gibraltar. The legal profession in Gibraltar is fused. Officially they are all, "Barristers & Acting Solicitors". Gibraltar lawyers are consequently well versed in Trust law. Furthermore, the Trust concept is fully recognized by the Gibraltar Supreme Court. If anyone is dissatisfied with the decision of the Supreme Court in Gibraltar they may appeal to the Gibraltar Court of Appeal which is made up of UK judges who visit Gibraltar on a bi-annual basis. The ultimate Court of Appeal is the Privy Council, in effect the UK House of Lords. Bilingual Jurisdiction: Gibraltar is bilingual in most areas as a result of our close proximity to Spain. Gibraltar lawyers' ability to explain the Trust concept to Spanish speaking people places them at a distinct advantage over non-Spanish speaking offshore jurisdictions. Appointment of Trustees: An individual or a Trust corporation may be appointed as Trustee. However it is usual, in the case of individual Trustees, for at least two Trustees to be appointed to avoid a situation where a Trustee dies and the Trust is left without a trustee. Often a Trust corporation will be appointed removing this possibility. Gibraltar and its Trust legislation: Gibraltar's Trust law is similar to the United Kingdom. The Trustee Ordinance is based on the Trustee Act 1893 of the United Kingdom. Amendments have been made from time to time so that Gibraltar remains abreast of favorable changes which occur in the UK as regards Trust law whilst at the same time ensuring Gibraltar's attractiveness as a Trust jurisdiction is maintained and where possible enhanced. Whilst the Trustee Ordinance creates the statutory framework which outlines the powers and duties of the Trustees, it is to the Trust Deed itself which one must look at to assess the scope and nature of the Trust. The Ordinance thereby provides a backstop to the Deed itself, especially when the Deed is silent on a particular issue. Perpetuity period: The perpetuity period was extended by the Perpetuities and Accumulation Ordinance 1986 to 100 years. Variation of Trusts and Powers of Investment: The UK Trustee Act of 1925 has not been implemented in Gibraltar. However, certain amendments to the laws have been made so that Trusts may now be varied and wider powers of investment made available to Trustees. Gibraltar's Trust law now allows the variation of Trusts by applying the UK Variation of Trusts Act 1958. Under Gibraltar's Application of English Law Ordinance, UK Acts can be applied in their entirety without the need for Gibraltar to introduce its own Ordinance. This is used sparingly as in most instances it is more advantageous to redraft provisions in the law to suit our particular needs. Extensive investment powers similar to those contained in the UK Trustee Investment Act 1961 were introduced by the Trustee Investment Ordinance. The powers of delegation conferred on Trustees by the UK Trustee Act 1925 and the Powers of Attorney Act 1971 are now contained within the Trustee Ordinance. Effectively the Anglo-Saxon Trust is fully embedded in Gibraltar laws and has been amended from time to time to ensure that developments in Trust law which are beneficial to beneficiaries and to trustees in administering such Trusts are included. Forms of Trust: Whilst Life Interest Trusts and Accumulation and Maintenance Trusts are used in Gibraltar the most extensively used form of Trust is the Discretionary Trust. Such a Trust can be used effectively to hold assets, which are administered and distributed confidentially maintaining the client's anonymity if desired. The Discretionary Trust specifies named beneficiaries. However the interest of these beneficiaries is contingent. This means that their interest only becomes a real and fixed interest when the Trustees, in their discretion, appoint a benefit to a beneficiary. Such a benefit may be cash held in a bank account, shares, property or other investments. Not surprisingly, the Trustees usually follow the wishes of the settlor (client) provided they are able to do so under the terms of the Trust. Removal and addition of beneficiaries: It is not unusual for such Trusts to include provisions as to the removal and addition of beneficiaries providing total flexibility to the settlor. This power is usually retained by the Trustees although a Counselor, or Protector as he is sometimes known, can be appointed to the Trust to take on such duties. The Gibraltar Trust usually grants wide powers to the Trustees which would include the power to add beneficiaries, exclude particular persons or class or classes of persons from being added, and a provision to change the proper law and residence of the Trust, should this be necessary or desirable for any reason. Memorandum of Wishes: The settlor/client normally provides the Trustees with a Memorandum of his Wishes in which he sets out how he would like his Trustees to deal with the assets of the Trust during his lifetime and in particular on his death. The Trustees can have regard to the wishes of the client at any time and any matters set out in the Memorandum of Wishes can be amended from time to time during his lifetime. Counsellor/Protector: It is possible to appoint a Counsellor, sometimes known as a protector, whereby the Trustees can only exercise certain powers contained in the Trust Deed with the written consent of the Counsellor. The Counsellor is normally a trusted friend, lawyer or colleague of the client whom the client knows will act responsibly and have particular regard to his wishes. The powers, which may not be exercised without the consent of the Counsellor, usually include the addition and removal of beneficiaries. The Counsellor may also be entrusted with the power to remove and appoint Trustees, change the proper law of the Trust and its place of administration. The Trust Deed may specifically set out the pores of the Counsellor or alternatively a separate document to this effect may be executed by the Trustees and the Counsellor and make provision for the appointment of an alternative Counsellor usually in the event of his death. Recognition of Trusts: The courts will apply the proper law of the Trust to determine its nature and validity. The Trusts (Recognition) Ordinance applies the provisions of the Hague Convention whereby the law chosen by the settlor governs a Trust. Usually Gibraltar Trustees, be they individuals or a trust corporation, are appointed and the Trust specifically refers to the proper law of the trust as being Gibraltar law. Emigration of Trusts: Gibraltar Trust law allows the Trust to include a clause enabling a change of the proper law of the Trust and of its place of administration. Underlying Gibraltar Company: It is not unusual for an Underlying Company to be utilized as a vehicle to hold assets of the Trust. The Company acquires assets such as real estate, market securities, pleasure yachts or any other investments or businesses and it is the shares in the Company that are entirely owned by the Trust. This does tend to maximize the flexibility and may enable the client to exercise a greater degree of control over the administration of the assets. An Underlying Company also provides a shield against Force Heirship Rules. If the Trust asset is situated in a country which does not readily recognize the concept of a Trust, Force Heirship Rules within that jurisdiction could prevent the Trustees from properly dealing with the Trust assets, in accordance with the wishes of the settlor or, if a Discretionary Trust, in accordance with the discretion of the Trustees. If the Trust assets are owned by an Underlying Gibraltar Company whose shares are in turn held by the Trust, Force Heirship will not affect the said asset in the event of the beneficiary's death. In other words, since the asset is owned by a Company Force Heirship does not become an issue since the Company continues to exist after the death of the beneficiary. The shares in that Gibraltar company are held by the Gibraltar Trust. As Gibraltar does recognise the concept of a Trust Forced Heirship will not apply to the Company's shares. Such a Gibraltar Company would be a Gibraltar tax-exempt company so that any profits made by the Company would be totally free of all taxation in Gibraltar, including estate duties/inheritance taxes. The Gibraltar Tax-Exempt Company, on fulfilling certain basic requirements and paying the Government of Gibraltar an annual fee of 225 pound per annum, is not liable to taxation in Gibraltar. Taxation of Gibraltar Trusts: Gibraltar, not surprisingly, has not followed the United Kingdom as far as the taxation of Trusts is concerned. Trusts established for non-residents of Gibraltar do not pay any tax in Gibraltar even where the Trustees are Gibraltar residents and the Trust is fully managed from Gibraltar. The income received by a Trust created by or on behalf of a non-resident person is exempted from tax where the income accrues or is derived outside Gibraltar or in the case of income received by a Trust, would, if it had been received directly by the beneficiary, be not liable to tax under the Income Tax Ordinance. These enables trust assets such as bank deposits to be held in a Gibraltar based bank without the Trust incurring any liability to income tax in Gibraltar. For the Trust to be Tax-Exempt, the terms of the Trust must expressly exclude residents of Gibraltar as persons who either are, or may become under any discretionary power of the Trustees under the terms of the Trust, beneficiaries. Further tax advantages: such Trusts are exempted from estate duty (inheritance tax). No stamp duty is payable on the transfer of any assets held by such a Trust except in the case of immovable property situate in Gibraltar? No gift or wealth taxes are payable. There are no capital gains taxes in Gibraltar. Setting aside a Trust: In certain instances a Trust may be set aside. If a Trust is set up for an illegal or immoral purpose or is contrary to public policy, it will be declared void. A Trust set up to defraud creditors will be set aside by the Courts. A Trust, not being a Trust created before and in consideration of marriage, or made in good faith and for valuable consideration, is, if the settlor becomes bankrupt within two years after creating the Trust, void against his or her Trustee in bankruptcy. If he or she becomes bankrupt at any subsequent time within ten years from the creation of the Trust, it is void against the Trustee in bankruptcy unless the parties claiming under the Trust can prove that at the time of creating the Trust he or she was able to pay all his or her debts without the aid of the Trust property. Asset Protection Trusts are treated differently. Costs: The cost of creating a Trust varies depending on the assets and nature of the Trust. Although specific quotes are only given upon request, a general summary of cost is provided below (a) Simple Trust: Where the only asset is a property or an insurance policy. An initial set-up fee of 350 pound sterling with an annual fee of 350 pound sterling levied in advance on the anniversary of the creation of the Trust. In total 700 pound sterling the first year and 350 pound sterling per annum thereafter. (b) Complex Trusts: Where the Trust has many assets which may include life policies, property, bank accounts, funds, stocks, shares. An initial set up fee of 550 pound sterling with an annual fee of 550 pound sterling levied in advance on the anniversary of creation of the Trust. In total 1,100 pound first year 550 pound sterling per annum thereafter. These fees cover the maintenance of files and records. Should the client require additional services, such as payment to or from Trust, addition and removal of trust property, amendment of Trust, appointment or change in Trustees, Counsellor, amendments of Memorandum of Wishes, opening or operation of a bank account, portfolio management, etc., this work is charged on a time-costed basis.