International and offshore trusts

If the settlor, the trustee and the beneficiary are residents of the same country, in which the property transferred to the trust is also located, then the trust is deemed national or local.

At the same time, if the participants of trust relations are residents of different countries or the trust property is located abroad, then we are talking about an international trust. With it, the term “international” can equally refer to both family and charitable, hereditary and any other types of trusts.

The main feature of international trusts is that the law of two or more countries is applicable to their regulation, therefore, it is important to determine the applicable law at the time of creating a trust

In Ukraine, same as in all other post-Soviet countries, there is no institution of trust, but there are no prohibitions for residents of these countries to establish trusts in other jurisdictions where it is provided by law.

Accordingly, such trusts will always be qualified as international, since they will be created by non-residents in relation to the country where the trust is located. Additionally, property can often also be located in a country different from the place of the trust establishment and management.

Let us give a real-life example: a resident of Ukraine transfers his/her real estate in Ukraine to the trust of a Swiss (Cypriot or English) fiduciary company, which will have to manage this property in favor of Ukrainian beneficiaries. Such trust will be recognized as international, since its participants are residents of different countries, and the property is not located in the territory of trustee’s location.

International trusts have all the features of national (local) trusts, depending on their type, but their main feature is that they fall under the scope of private international law and, accordingly, the law of several countries may be applied, therefore, it is very important to determine the applicable law at the time of creating a trust in order to avoid misunderstandings and problems in future. Based on our practice, we may state that often the parties choose the law of England, Cyprus or offshore jurisdictions, such as the law of Isle of Jersey, Isle of Guernsey, Isle of Man, etc.

Separately, one should dwell on offshore trusts, which have gained particular popularity in recent decades. In fact, offshore trusts are a type of international trusts, but their main distinguishing feature is that they are created in one of the jurisdictions, which for one or another reason is offshore.

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