International Trusts: What They Are, How They Work and When They Make Sense

Key points

• A trust separates the legal ownership of assets (held by a trustee) from the benefit of those assets (for the beneficiaries), under rules written by the settlor.
• Well-structured irrevocable trusts support succession without probate, continuity across generations and protection against future risks. A revocable trust offers no asset protection.
• Common jurisdictions include the Cayman Islands, Jersey, Guernsey, Nevis and, for U.S.-law trusts, states such as Delaware, South Dakota and Nevada.
• Trusts are not secret: CRS, FATCA and beneficial ownership registers require reporting. Tax is generally due where the settlor or beneficiaries live.
• U.S. persons connected to a foreign trust file Forms 3520 and 3520-A; the penalty for a missing 3520-A is the greater of $10,000 or 5% of the trust assets.

What is an international trust?

An international trust is a legal arrangement in which a person (the settlor) transfers assets to a trustee, who holds and manages them for the benefit of chosen beneficiaries, under a jurisdiction other than the settlor's own. For business owners and families with significant wealth, it is one of the most established tools for succession and long-term protection.

Trusts come from common law and are widely used in the United Kingdom, the United States and offshore centers such as the Cayman Islands and the Channel Islands. Beyond protecting assets, they are a legitimate way to plan succession, so that wealth is preserved and passed on according to the settlor's wishes even if family, political or tax circumstances change.

The settlor transfers ownership of specific assets, such as investment portfolios, real estate, shareholdings or bank accounts, to the trustee. The trustee manages them according to the rules set out in the trust deed.

A trust is sometimes compared to a family holding company, which also centralizes assets. The difference is that the assets no longer belong to the settlor or to a company the family controls: they are held by an independent trustee under fiduciary duties.

That separation is what allows a trust to protect assets from future claims, simplify succession and, depending on the jurisdiction and on the tax rules of the people involved, avoid unnecessary layers of tax.

How a trust is structured

A trust rests on the separation between legal ownership, which passes to the trustee, and beneficial ownership, which belongs to the beneficiaries. That distinction gives the trust its legal strength.

The trust is created by a trust deed that records the settlor's intentions and sets rules for managing the assets, distributing income and ending the trust. It takes effect when the assets are transferred. Many settlors also write a letter of wishes: a non-binding letter that guides the trustee on how to manage the assets over time, especially after the settlor's death.

Settlor, trustee and beneficiaries

• Settlor: creates the trust, transfers the assets and defines the rules and beneficiaries. In an irrevocable trust the settlor gives up ownership and control of the assets, which is what makes the protection work.
• Trustee: the individual or, more commonly, the licensed trust company that manages the assets. It has a fiduciary duty to act in the best interest of the beneficiaries and according to the trust deed. In reputable jurisdictions trustees are regulated and supervised.
• Beneficiaries: the people or entities who benefit from the trust, such as family members, heirs or charities. The settlor can be a beneficiary in some structures, but a trust that the settlor can revoke or that mainly benefits the settlor offers little or no protection from creditors.

Each role is separate. The settlor sets the purpose, the trustee manages impartially and the beneficiaries receive under defined conditions, within a legal framework that has been recognized for centuries.

Common trust jurisdictions

A trust must follow the law of the jurisdiction chosen. Among the most established:

• Cayman Islands: modern trust law, no local taxes on trusts and a deep professional sector.
• Delaware, South Dakota and Nevada (United States): favoured for U.S.-law trusts, including domestic asset protection trusts that U.S. families often prefer to foreign trusts.
• Nevis: flexible legislation and strong protection against foreign judgments.
• Jersey and Guernsey: long tradition, strong regulation and wide use by international banks and wealth managers.

The choice should weigh legal certainty, the tax treatment in the countries of the settlor and beneficiaries, reputation and cost. Each jurisdiction has its own rules on the duration of the trust, trustee duties and registration or audit requirements, so experienced advice is essential.

Benefits of an international trust

A trust brings asset protection, succession planning and, in some cases, tax efficiency into one structure. Each case needs individual analysis, but the main benefits are well established.

Protection against future risks

Because the assets legally belong to the trustee, they are no longer part of the settlor's personal estate and are protected from future lawsuits, creditors or family disputes, as well as from political or economic instability in the settlor's home country.

The protection only works for future risks. A transfer made when a claim already exists, or to avoid known creditors, can be reversed by the courts as a fraudulent transfer. That is why trusts are set up in calm times, well before any dispute.

Succession without probate

Assets held in a trust pass according to the trust deed, not through probate. In many countries probate is slow, public and expensive; a trust allows an orderly, private transfer to the next generation, under conditions the settlor chose in advance, such as ages, education or staged distributions.

This is why families use trusts to keep a legacy together across generations and to reduce the risk of disputes among heirs.

Tax treatment

Jurisdictions such as the Cayman Islands and Nevis do not tax trusts on income or gains from assets held outside their territory. That does not make the income tax-free: the settlor and the beneficiaries are generally taxed in the countries where they live, and many countries have specific rules for foreign trusts. The trust adds no extra layer of tax, but it does not remove the tax at home.

A trust also allows professional management of an international portfolio in strong currencies such as the U.S. dollar, the euro and the Swiss franc, within a transparent and compliant structure.

Costs and limits

Like any sophisticated legal tool, a trust requires planning, ongoing costs and discipline.

Running costs and legal requirements

There are set-up costs and annual fees for the trustee, accounting, audits and regulatory reporting, which vary by jurisdiction and complexity. The trust is governed by the law of the jurisdiction where it was created and must meet anti-money laundering and know-your-customer standards: the settlor and trustee must prove the lawful origin of the assets.

Choosing the jurisdiction and the trustee

A trust is only as strong as its structure. Jurisdictions with established law, modern regulation and a good reputation, such as the Cayman Islands, Jersey and Guernsey, offer the best balance of stability and recognition.

Transparency and reporting

Trusts are not secret. Under the OECD Common Reporting Standard, in force since 2016 in the first countries, financial institutions report trusts and their beneficiaries to tax authorities; the United States applies its own FATCA rules instead. Many jurisdictions also keep beneficial ownership registers. A properly declared trust stays private from the public, while tax authorities receive the information.

International trusts and U.S. persons

U.S. citizens and residents face specific rules. A foreign trust with a U.S. settlor is usually treated as a grantor trust, so its income is taxed to the settlor each year. The U.S. owner must ensure the trust files Form 3520-A and must report transfers and distributions on Form 3520. The penalty for a missing Form 3520-A is the greater of $10,000 or 5% of the trust assets, and trust accounts also appear on the FBAR. For many American families, a domestic trust in Delaware, South Dakota or Nevada achieves similar goals with simpler reporting.

Read more in our guide to FBAR requirements for U.S. citizens.

Trust, foundation or holding company?

Families planning their succession usually compare three structures. They share goals, but their legal nature and consequences differ.

Family holding company

A company that centralizes family shareholdings and assets under the company law of its country. It is simple to run and keeps control with the family, but the shares remain part of each owner's estate, it is subject to local corporate and inheritance tax, and it offers less protection than a trust.

Private foundation

A foundation combines features of a company and a trust. It is common in Liechtenstein, Panama and the Cayman Islands and can serve family or charitable purposes. Unlike a trust, it has its own legal personality and a council that carries out the founder's wishes set out in its charter.

In practice these structures are often combined, for example a trust that owns a holding company, to build layers of protection and governance around a family's assets.

How we help

Setting up a trust is more than picking a jurisdiction and a trustee. We start with a review of the family's assets and goals, recommend the structure (trust, foundation, holding company or a combination), select the jurisdiction and a regulated trustee, and coordinate the reporting required in every country involved.

Bottom line

An international trust is one of the most complete tools for protecting and passing on wealth, provided it is created before any dispute, run by a regulated trustee and fully declared in the countries of the settlor and beneficiaries.

Our Private Advisory Session assesses whether a trust suits your family and how it fits with your residence and tax position.

Sources

• IRS: Foreign trust reporting requirements and tax consequences
• IRS: Instructions for Form 3520-A
• OECD: Consolidated text of the Common Reporting Standard (2025)