Making a case for estate planning to protect your loved ones
By Martin Crawford, CEO, Labuan International Business and Financial Centre
Nobody likes to clean up after a riotous party or a sad ending that leaves behind monumental headaches which could take years to resolve. Two of the most famous examples of the latter must be the late ex-Playboy bunny and model, Anna Nicole Smith, who battled for 14 years over her late second husband’s estate before she herself succumbed two years ago; and the convolutions of Michael Jackson’s financial affairs promise to be as headline grabbing as his colourful life was.
Even if one is far from being in the same league as these two celebrities, there are compelling reasons to take prompt action and advice for good estate planning. Aside from the obvious cost of litigation and the ensuing agony, the legacy could include the burden of hefty taxes.
Depending on your country of birth/origin, estate tax levied can be brutal. In the U.S. – barring amendments that may be made in the year ahead – if your business and other assets are worth more than $3 million, your heirs may have to pay up to 55% tax on income and assets.
For the expatriate working and living away from home, one viable solution is to set up an offshore trust into which you can park a portion – or all – of your assets.
A jurisdiction worth more than a cursory once-over is Labuan International Business and Financial Centre where trust structures can take various forms depending on the individual’s needs such as discretionary trust, interest in possession trust, accumulation and maintenance trust, and ‘spendthrift’ trust.
Of even greater interest is the recently introduced Labuan Special Trust which took its starting point from the British Virgin Islands’ ‘Vista’ Trust, widely regarded as the gold standard in terms of its clarity and modernity – but going further to incorporate some excellent features not available in other jurisdictions.
Under a Labuan Special Trust, a high net worth individual or family uses it to hold shares in a Labuan Holding Company that may own assets such as cash, real estate, valuables or jewellery, securities, businesses, insurance, etc. The trustee holds such shares ‘on trust to retain’, which means the trustee has no responsibility as to the management of the assets. The responsibility of growing or preserving the value of the assets rests solely with the directors. It is this clear separation of the custodian role of the trustees from their fiduciary role of investment (which lies with the directors and/or its financial advisers) that has long been a desired feature, one which makes the Labuan Special Trust so appealing.
In addition, the settlor or protector under a Labuan Special Trust retains sufficient control to dispose of the ‘designated’ shares in the underlying asset holding company, if he so wishes.
He also has wide reserved powers that are reasonable but that do not compromise the existence of the trust, a feature similar to that of trusts in Jersey.
Other advantages of a Labuan Special Trust include the provision for unenforceable claims; a two-year claw-back period and requirements for legal procedures should a creditor attempt to prove a trust is fraudulent; existence of the trust in perpetuity; and the option to register the trust to protect his privacy.
What about the tax issue? Under the Labuan Offshore Business Activity Tax Act 1990, a Labuan Holding Company that does not trade pays no tax on passive income; it also pays no tax on gifts, estate, capital gains or inheritance tax; no tax on dividends or distribution income; no tax on foreign sourced income; no exchange controls or stamp duties.
As of August 1st 2008, Labuan companies have been given an option to make an irrevocable election to pay tax under the Malaysian Income Tax Act 1967 (ITA) at the current rate of 25%, thereby gaining more secure access to all of Malaysia’s Double Taxation Agreements (DTAs) with 69 countries.
For the expatriate or retiree who may be mulling the benefits of re-locating, consider combining the trust structure with the government’s programme called ‘Malaysia My Second Home’. Under the ‘MM2H’ scheme, the foreigner can own a property in the country and reside anywhere in Malaysia with his family, enjoying the country and its facilities like a resident. The combination of a trust with its tax efficiency, living the good life in a low-cost, tropical location with many fine beaches and modern amenities makes Labuan a proposition that’s hard to refuse.
For more information on trusts, go online at www.labuanibfc.my . Labuan IBFC Inc. Sdn. Bhd. Is the official agency set up by the Malaysian government to promote Labuan as the premier international financial centre in Asia Pacific.