Trusts are a powerful tax-planning tool but they also have many other uses that are of equal if not greater importance. A properly drafted and managed trust can be advantageous for any or all of the following:

Asset Protection

Trusts may be used to protect the assets of a person against attack from his creditors. The rationale is that once the assets have been transferred to a trust they no longer belong to the settlor and therefore are protected from attacks by the creditors of the settlor.

With respect to trusts not created by a Mauritian national or a person domiciled in Mauritius, the Act provides that a trust is generally not invalidated because of the settlor's insolvency or action against the settlor by creditors. However, asset protection trusts only works in Mauritius if they are not made in fraud of the rights of creditors. The Act provides that the Supreme Court may declare a trust void, where it is established that the trust was made with the intent to defraud persons who were creditors of the settlor at the time when the trust property was vested in the trustee provided that no action shall lie against the trustee of a trust after more than 2 years from the date of the transfer or disposal of the assets to the trust. Therefore, a person who was not a creditor of the settlor at the time of the trust property was vested cannot attack the trust. Moreover, where the law of Mauritius is the proper law of the trust, the Supreme Court will also not enforce any judgment of a foreign court in respect of the claim of creditors in an insolvency.

Tax Planning

One of the main attractions in using a Mauritius trust is for tax planning purposes. Trusts are usually liable to income tax on its chargeable income at the rate of 15% per annum. However, (a) where the settlor is a non-resident and (b) where all the beneficiaries appointed under the terms of the trust are, throughout an income year, non-resident of Mauritius, may by depositing a declaration of non-residence for any income year with the Director General of the Mauritius Revenue Authority (MRA), within 3 months after the expiry of the income year, be exempt from income tax in respect of that income year.

A Trust which does not opt to be non resident is taxable on its chargeable income at the rate of 15% per annum. However, the trust is allowed a credit for foreign tax on foreign source income. Where written evidence is not presented to the MRA showing the amount of foreign tax charged, the amount of foreign tax is conclusively presumed to be equal to 80 per cent of the Mauritius tax chargeable with respect to that income. Thus effective rate of income tax for a Tax Incentive Trust is 3%.

The chargeable income which is subject to tax is defined as the difference between:
(a)    the net income derived by the trust; and
(b)    the aggregate amount distributed to the beneficiaries under the terms of the trust deed.

Generally, any amount distributed to the beneficiaries under the term of a trust is liable to income tax in the hands of beneficiaries. However, a non-resident beneficiary of a trust is exempt from income tax in respect of his income under the terms of the trusts.

Therefore, the net income derived by the trust can be tax free if the trust distributes all of its net income to its non-resident beneficiaries.

Resident Trusts have access to the benefits under the Double Taxation Agreements in force between Mauritius and various African, European and Asian countries.

Avoiding the Expense and Delays of Probate

In most common law jurisdictions an individual’s estate must go through the probate procedure. This can cause delay, expense, publicity and upheaval. By establishing a trust, probate can be avoided. Death has no effect on the trust property, which will continue to be held and managed in confidence by the Trustee.

Confidentiality

Proving a will is a public procedure and therefore entirely unsuitable for those wishing to keep details of their assets confidential. The only legal alternative form of asset transfer is via a trust. This would generally save estate duty and keep the trust assets confidential.

Avoiding Forced Heirship

Forced heirship is a particular problem in continental Europe and other civil law jurisdictions, as well as in countries of Islamic tradition. A person may potentially avoid the forced heirship rules and determine freely how to dispose of all of his assets by transferring his assets to a Mauritius trust. Where a non-citizen transfers or disposes of property on trust, the transfer or disposition shall not be set aside, avoided, or otherwise declared invalid or ineffective by virtue of any rule or law of his domicile or nationality relating to inheritance or succession or any rule or law of a similar nature, or any rule or law restricting the right of a person to dispose of his property during his lifetime so as to preserve such property for distribution at his death, or any rule or law having similar effect

The forced heirs would also not be able to enforce in Mauritius a judgment obtained in a jurisdiction that is sympathetic to their claim because the Trust Act provides that where the law of Mauritius is the proper law of a trust, the courts in Mauritius shall not recognise the validity of any claim against the trust property pursuant to the law of another jurisdiction or the order of a court of another jurisdiction in respect of succession rights (whether testate or interstate) including the fixed shares of spouses, ascendants and descendants or relatives

Now the effectiveness of a Mauritius trust to circumvent the forced heirship rules will depend on the type of assets being settled and its location. The settlor should ensure that the trust assets are not situated in the country having forced heirship rules. If estate of the settlor consists of immovable property, then the settlor must transfer the immovable property to a company and settle the shares of that company on trust. The trust deed must contain provisions which would discourage the heirs from attacking the trust or make it difficult for them to do so. Thus, the trust deed may contain a clause preventing the trustees from disclosing any information relating to the trust property to the beneficiaries. The trust deed may also provide that the beneficial interest of a beneficiary will automatically lapse if he attacks the trust. In such a case, the heir who is already a beneficiary under a trust may have to think twice before attacking the trust as he may end up getting nothing

Estate Planning

Many people prefer to make more complex arrangements for the distribution of their assets. These might include providing a source of income for a widow or making provision for the education of children. A trust is probably the most satisfactory and flexible way to make arrangements of this kind.

Protecting the weak

A trust allows a person to provide for those who may be unable to manage their own affairs such as infant children, the aged, or persons suffering from certain illnesses.

Preserving Family Assets

Preserving family assets, or increasing them, is often a motive for setting up a trust. An individual may wish to ensure that wealth accumulated over a lifetime is not divided up amongst the heirs, but retained as one fund. The fund can then accumulate further with provision for payments to members of the family as necessary, while preserving some assets for later generations.

Continuing a Family Business

A person who has built up a business will often want to ensure that it continues after their death. If the company shares are transferred into a trust prior to death, the unnecessary liquidation of the family business can be prevented.
In a situation where family members have little business experience, the Trustees could be instructed to retain the shares, keep the company running, and provide payment to members of the family from dividend income. The terms of the trust will ensure that the individual’s wishes are observed.

Gaining flexibility

A discretionary trust can provide a structure that is capable of rapid change as circumstances demand.