Estate planning is a requirement for the affluent (and everyone else) who want to make certain that their families and loved ones are provided for adequately. It’s essential for the affluent who wish to control the disposition of their assets after their death, and to minimize the tax bite imposed by the both state and federal government.
What is a trust?
A trust is a private contract where you hand over the legal ownership of a certain fraction of your assets to a confidant (trustee). The trustee manages your money and/or other assets in favour of specific beneficiaries who benefit from the trust. The creativity of a trust lies in the fact that it’s a contract where the trustee is the legal owner of the assets while the beneficiaries are the beneficial owners of the assets. A trustee can be anyone, like a professional law firm. But, if you feel more comfortable with this, the trustee could also be a trust company. In this way you get more control over the trust.
Why a trust?
The trust can be set up in a low-tax jurisdiction which has no links with the country of residence of the settlor and the beneficiaries. Therefore, the income of the trust cannot be taxed in the country of residence of the settlor nor in the country of residence of the beneficiaries. But tax legislation, especially in civil-law countries, could complicate things. Each case is different and a careful analysis of the situation is always necessary. In this regard it could be important to work with an irrevocable trust… Contact us for the details!
Where do you set up a trust?
Our favourite jurisdictions to set up a trust are e.g. Malta, Singapore, South Dakota, Wyoming, New Zealand, Jersey, Guernsey…
A foundation could be used for the same goals as a trust. The foundation can be used to manage the assets for the benefit of scientific, philanthropic, educational and humanitarian purposes. You can then transfer assets into the foundation which will serve to financially support any well-described good cause. Basically, a foundation cannot carry out any commercial activities (but it can passively hold the shares of a commercial company, of course). A foundation is excellent if you love discretion. For example, it’s a good idea to use a foundation as a holding entity of your shares in an offshore company. This is an even more discreet and even better protected option. In other words, you can also hold or maintain an anonymous shareholding in a company by using a foundation as a holding entity. It’s an alternative to bearer shares, which now have been abolished in various countries.
How does it work?
Each foundation has a founder who establishes the foundation and a foundation council which has the responsibility to (1) carry out the objectives of the foundation and to (2) manage and administer the assets of the foundation according to its charter and regulations. The powers and responsibilities of the foundation council are determined in the foundation charter and/or the regulations.
Depending on Foundations the wishes of the founder, the foundation charter and/or regulations may limit or expand the powers of the foundation council. The founder may appoint a protector to supervise the actions of the foundation council (in order to check whether the actions are in line with the charter and regulations) prior to or after his/her death. A foundation has no shareholders (read no owners) but only beneficiaries who benefit from the assets transferred into the foundation. These beneficiaries (in most cases the founder and his family or charities) are traditionally appointed in the private regulations. Keeping in mind that a certain beneficiary could die unexpectedly in the future, other beneficiaries (a second reserve layer) can already be identified, there are many options. In a lot of cases a foundation pays no (or little) taxes. Of course just like with the trust there could be tax implications in the country of residence of the founder or beneficiaries.
Where do we set up a foundation?
Our favourite jurisdictions to set up a foundation are Austria (where it is called a Stiftung), Switzerland, Panama, or the Isle of Man.
There is nothing wrong with tax advice as long as you stay within the (legal) boundaries. Nowadays everything is put in the same basket. But it is still your right to pay fewer taxes if you play it fair. We try to explain this through a couple of examples.
Bill lived in four countries during his professional live, was married four times and divorced four times. He has kids in 7 countries, houses in 4 countries, bank accounts in 5 countries etc. Now he lives in Dubai with his Polish girlfriend who is half his age and, yes, he became a father for the 8th time. When Bill passes away, it will all be a mess that will definitely lead to a big fight. Different legislations in several countries will apply to this situation. If he does not take the necessary precautions, he might be paying double taxes in some situations. Maybe a trust or a foundation is a solution. Bill will need some good tax planning and maybe we can also save on future inheritance tax. We can assist with this!
Tatiana lives in Dubai and makes a fortune there. But she still spends a lot of her time in the Czech Republic. She also has some real estate over there and a few businesses. She needs good tax advice to avoid taxation in the Czech Republic over her Dubai income! We can assist her!