Trustees are held strictly to account for any negligence in the carrying out of their duties. The Gibraltar Trustee Ordinance is based on the English Trustee Act 1893 and the Supreme Court of Gibraltar has jurisdiction over the activities of trustees. In addition, all trustees who are not among the regulated professions, such as solicitors and accountants, must be licensed by the Financial Services Commission. This high degree of supervisory regulation is most important, because it has to be remembered that on creation of a trust legal title to the trust assets passes from the settlor or to the trustees. The income of a trust created in Gibraltar on behalf of a non-resident of Gibraltar is exempt from all Gibraltar taxation even if the trustees are resident in Gibraltar provided that no Gibraltarian or Gibraltarian resident is a beneficiary of the trust and the income either arises outside Gibraltar or is otherwise exempt.
Assets vested in such a trust are also exempt from estate duty.
Discretionary trusts are frequently used for tax planning purposes. The advantage if this type of trust is that the settlor can be classed among the beneficiaries without incurring a tax liability because he is no longer legally entitled to the trust assets. Trusts can be used to hold shares in tax exempt Gibraltar companies and companies incorporated in other off-shore jurisdictions in order to increase flexibility and to increase the distance between the settlor and the trust assets. Asset Protection Trusts Newcomers to the world of off-shore trusts, asset protection trusts are principally used to meet the needs of professionals, such as lawyers, doctors, architects, engineers and accountants who, particularly in the United States of America, are finding it increasingly difficult to find affordable professional indemnity insurance, and where the extent of liability for negligence can remain indeterminate for a lengthy period of time and an adverse judgment can be ruinous. When properly conceived and executed, an off-shore asset protection trust can and will prevent the assets settled into the trust from being reached by creditors of the settlor who are seeking to enforce a judgement against the settlor rendered in the settlors home country.