Offshore Trusts and Citizenship Planning: Structuring Wealth Around Residency Change

For HNW individuals pursuing second citizenship or residency by investment, the trust structure is one of the most powerful and frequently misunderstood tools available. When timed and structured correctly, a discretionary trust settled in conjunction with a move in residency can achieve significant tax efficiency, protect assets from forced heirship regimes, separate wealth from future residency changes, and provide multigenerational estate planning continuity.

Timed or structured incorrectly, the same trust can trigger adverse tax consequences, create reporting obligations, and fail to achieve its objectives — sometimes irreversibly.

This guide examines the key considerations for HNW individuals who wish to combine trust planning with citizenship or residency acquisition. It is an introduction to a complex subject, not a substitute for specialist legal and tax advice.

Trust law and its interaction with tax and residency rules varies enormously between jurisdictions and with each individual's circumstances. This guide is for informational purposes only. Always engage a qualified trust lawyer and tax adviser before settling or modifying any trust structure.

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What a Discretionary Trust Does

A discretionary trust is a legal arrangement under which a settlor transfers assets to one or more trustees, who hold and manage those assets for the benefit of a defined class of beneficiaries. The trustees exercise discretion over how and when to distribute income and capital to beneficiaries — the beneficiaries have no fixed entitlement, only the hope of distributions.

The key features relevant to citizenship and residency planning are:

Separation of legal and beneficial ownership: Assets transferred to a trust are no longer owned by the settlor. In most jurisdictions, this means the settled assets are outside the settlor's estate for inheritance tax and, if structured properly, for creditor claims.

Flexibility: The trustees can accumulate income, pay it to different beneficiaries in different proportions, or retain capital for future generations. This flexibility allows the trust to adapt to changing circumstances — including changes in beneficiaries' residency and tax positions.

Perpetuity: Many offshore trust jurisdictions allow trusts to run for long periods — Cayman permits trusts for up to 150 years; BVI and Jersey permit similar or indefinite duration. This supports multigenerational planning.

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Settlement Timing: Before or After Residency Change?

The single most important planning decision for individuals combining trusts with residency change is the timing of trust settlement relative to the departure from the home country and the establishment of new residency.

Settling before departure — advantages: In many jurisdictions, settling a trust while the settlor is tax resident can lock in the tax treatment of settled assets under the departing country's rules. In the UK, for example, a discretionary trust settled by a settlor who is a "long-term UK resident" is potentially subject to UK inheritance tax on a ten-year charge and exit charge basis — but settlement before departure (while assets are below the IHT nil-rate band) may crystallise a planning opportunity.

More importantly, settling before departure (and specifically before triggering a deemed disposal) allows assets to be transferred into the trust at current cost base, potentially deferring or eliminating capital gains tax on subsequent appreciation.

Settling after departure — advantages: In a new residency jurisdiction with no capital gains tax and no trust reporting obligations, the trust can receive assets without triggering tax in the new jurisdiction. For individuals who have already moved to a zero-tax jurisdiction, settlement into a trust is more straightforward and less fraught.

The critical interaction with the UK's residence-based IHT rules: Since 6 April 2025 the UK has abolished domicile and deemed domicile as the connecting factors for inheritance tax and moved to a residence-based regime. What now matters is whether the settlor is a "long-term UK resident" — broadly, someone who has been UK tax resident for at least 10 of the previous 20 tax years. A long-term UK resident who leaves the UK retains that status for a number of "tail" years (depending on how long they were resident) before falling out of scope. This means a trust settled shortly after departure can continue to attract UK IHT treatment while the settlor remains a long-term UK resident. Under the new rules, foreign assets in a settlement are only "excluded property" (outside UK IHT) if the settlor is not a long-term UK resident at the time of the chargeable event; settling while long-term-resident status persists creates a "relevant property" trust. Pre-2025 excluded property trusts no longer give a guaranteed IHT shelter if the settlor is a long-term UK resident.

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Trust Situs and Governing Law

The jurisdiction in which a trust is administered — and whose law governs it — matters significantly.

Cayman Islands: Cayman trusts are administered under the Cayman STAR Act (special trusts regime) or ordinary trust law. Cayman has no income tax, capital gains tax, or inheritance tax. It has a very sophisticated trustee industry, strong statutory protection for trustees, and well-developed case law. Cayman is the world's largest offshore trust jurisdiction by assets under administration. Reporting obligations depend on the tax residency of settlors and beneficiaries, not on Cayman itself.

BVI (British Virgin Islands): BVI trusts are flexible, cost-effective, and widely used. BVI law offers strong firewall provisions preventing foreign courts from interfering with trust administration. BVI has no CRS reporting at the trust level for non-US trusts, though individual trustee obligations and CRS reporting by financial institutions holding trust assets apply. BVI is commonly used for less complex structures or as a complement to more complex Cayman structures.

Jersey: Jersey trusts operate under the Trusts (Jersey) Law 1984, as amended. Jersey is a respected, internationally recognised jurisdiction with strong rule of law and a mature trustee industry. It is particularly used by UK-connected families because of Jersey's British legal heritage, geographic proximity, and the strong relationship between Jersey and the City of London financial community. Jersey has signed CRS agreements and reports information to HMRC and other relevant authorities.

Practical choice: For HNW individuals acquiring Caribbean or other non-European citizenship with significant international wealth, Cayman or BVI are typically the most flexible options. For UK or EU-connected families who value proximity to European legal systems, Jersey is often preferred.

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Forced Heirship Avoidance

Forced heirship laws — which require that certain proportions of an estate pass to defined relatives regardless of the deceased's wishes — exist in civil law countries across Europe, the Middle East, parts of Asia, and Latin America. For HNW individuals with assets or family connections in these jurisdictions, forced heirship can override carefully constructed estate plans.

A properly settled offshore discretionary trust can remove assets from the forced heirship reach of many civil law jurisdictions, because:

• The assets are no longer owned by the settlor
• The governing law is the trust's situs law, not the settlor's national law
• Common law trust jurisdictions (Cayman, BVI, Jersey) have statutory provisions that explicitly disapply foreign forced heirship claims in their courts

However, the effectiveness of this protection depends on the specific jurisdiction making the forced heirship claim, whether bilateral treaties or EU succession regulations apply, and whether the trust is structured and funded before the relevant claims arise. French and EU succession regulation, for example, has significant extraterritorial reach.

This is an area where specialist legal advice — covering both the trust jurisdiction and the forced heirship jurisdiction — is essential.

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The Protector Role

A trust protector is an individual (often the settlor's trusted adviser, family member, or professional) appointed to oversee the trustees and exercise defined reserved powers, such as:

• Adding or removing beneficiaries
• Replacing trustees
• Approving certain major transactions
• Vetoing distributions

For families acquiring new citizenship or changing residency, the protector role provides a mechanism to keep oversight of the trust close to the family without the settlor retaining legal control (which would undermine the tax effectiveness of the settlement in most jurisdictions).

The protector's domicile, residence, and tax status are also relevant — a protector resident in a high-tax jurisdiction exercising substantial control may cause that jurisdiction's courts to treat the trust as having a domestic presence. Professional protector services are available through Cayman, BVI, and Jersey service providers.

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Interaction with CBI and Residency Programme Due Diligence

Trust structures featuring in an applicant's net worth or source of funds profile will be subject to scrutiny by CBI programme administrators. Due diligence advisers will wish to see:

• Trust deed and any deeds of amendment
• Schedule of trust assets
• Evidence of legitimate source of settled assets
• Confirmation of beneficial ownership for AML purposes
• Evidence that the trust is not a vehicle for concealing assets from relevant authorities

All assets held through a trust must be declared in CBI source of funds documentation. Failing to disclose trust interests, or presenting trust assets as unavailable when they are in fact available to the applicant, constitutes misrepresentation — which can result in application rejection or, more seriously, citizenship revocation and criminal liability.

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How Global Investments Can Help

Global Investments works alongside specialist trust lawyers in Cayman, BVI, and Jersey to help clients integrate trust structures into their overall citizenship and residency planning.

We provide a joined-up approach: aligning the timing of trust settlement with the tax exit from the home jurisdiction, ensuring that trust assets are properly documented for CBI due diligence, and helping clients understand the ongoing reporting obligations that arise from their trust and residency profile.

Trust structures are not appropriate for every client, and we will say so when they are not. For those for whom a trust forms a genuine part of the wealth and estate planning picture, getting the timing and structure right is material.

Contact Global Investments for a confidential discussion about how trust planning fits within your investment migration objectives.