Do the laws allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
The Bulgarian laws do not recognise the concept of trusts.
However private foundations or closed companies where the entry of new shareholders is limited may be used for holding, administration and regulation of succession to private family wealth.
Yes, the laws of Ireland allow individuals to create trusts, family companies and family partnerships. Private foundations cannot be established in Ireland.
A private limited liability company is usually used where the individual wishes to avail of separate legal personality and limited liability. However, trusts and partnerships are the most commonly used structures to protect wealth and assets for beneficiaries while incorporating tax and estate planning.
Yes, US tax law and the laws of the various states and other jurisdictions within the US recognize a wide variety of trusts, both revocable and irrevocable, private foundations, both operating and grant-making, and family limited liability companies (FLLCs) and family limited liability partnerships (FLPs). Generally, wealth transfer planning for US clients will involve use of some or all of these structures.
French law allows or does not prevent individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession. It is however unfortunate that trusts (and private foundations) set up by French resident since 11 May 2011 are subject to inheritance tax at the rate of 60% upon the death of the settlor regardless the degree of relationship between the settlor and the beneficiaries. The authors are however in the opinion that this provision is discriminatory.
The Italian Civil Code does not regulate the trust, (but trusts regulated by foreign laws can be recognised in Italy; see 21).
Italian foundations may be created to achieve purposes of social benefit, not to pursue the segregation and conservation of family wealth.
The Italian non-commercial partnership (società semplice) is widely used to hold assets including real estate. The partnership agreement can be structured in a very flexible way. The splitting of voting rights from profit participation rights may be achieved. Individuals other than family members may be prevented from acquiring an interest in the partnership and from being involved in the management of the assets.
The Israeli Succession law determines that there are only two ways to leave assets after the demise – by way of making a will or according to the law (intestate). Accordingly, although it is possible to establish trusts or companies, such structures do not necessarily override succession rights.
Although the Greek set of legal rules recognizes trusts and private foundations established abroad, there is no legislation available for their establishment in Greece.
The most similar structure to the trust is the Greek law “inheritance trust”, presented in question 17 above.
In regards to foundations, an individual in Greece may establish a Greek law foundation which may only serve a public charitable purpose [or be of interest to the public].
As such, the “inheritance trust” serves towards holding, administering and regulating succession to private family wealth, within a limited –nevertheless- scope.
German laws allow the creation of private foundations (“Familienstiftung”), family companies (“Familiengesellschaften i.F.v. Kapitalgesellschaften”) and family partnerships (“Familiengesellschaften i.F.v. Personengesellschaften”). Trusts as they are understood in common-law jurisdictions are not known to German law.
Family companies and family partnerships are very common as they are an adequate means to implement a family corporate governance. A particular advantage of private foundations is the possibility to shelter the assets from claims of creditors of the settlor or beneficiaries (see below question 23).
Belgian law allows the creation of control structures. The most frequently used control structure is a civil/family partnership, because it is low-cost, flexible and discrete. Civil/Family partnerships are often used for investment portfolios or art collections. Because of tax reasons, they are primarily used for movable assets.
British Virgin Islands
The BVI is the world’s leading international finance centre for company incorporations and BVI companies account for 45% of the international market share (according to a report by the IMF in 2004). It effectively emerged as an international finance centre in 1984 and there are now over 500,000 active companies on the register and many of these are set up as private holding companies (and are particularly popular in Asia).
Since 1984 the Territory has progressed from being a single product jurisdiction to a financial centre which is able to offer the full range of international products and services.
It was following the enactment of amendments to the BVI Trustee Act in 1993 that the BVI began to emerge as a popular jurisdiction for the establishment of trusts. The 1993 Act reformed BVI trust law in line with the laws of some of its main competitors to include in it clarification relating to conflict of laws provisions, those enabling protectors to be appointed and powers to be reserved to settlors, protectors and others; it also added provisions enabling non-charitable purpose trust to be established. Most importantly the statute abolished the requirement to the effect that all BVI trust deeds needed to be filed publicly since the latter had been a major deterrent to the creation of BVI trusts. The first specialist trust lawyer (co-author Chris McKenzie) arrived in the BVI in 1996, others soon followed and the number of BVI trusts began to steadily increase. Accordingly, within less than 10 years, the BVI became one of the world’s leading international trust centres.
In 2003 reforms which took effect in March 2004, mostly notably the Virgin Islands Special Trusts Act, 2003 (VISTA) has given the BVI major competitive advantage over many other jurisdictions and increasing global familiarity and acceptance of the reforms has fuelled - and will continue to fuel - the accelerating growth of BVI trust business. The VISTA legislation is unique in that it enables trusts to be established to hold shares in BVI companies (as holding companies for other assets such as shares in foreign companies and speculative investments) and, uniquely, offers a secure and appropriate way to hold commercial assets in a trust structure.
The appeal of the BVI as a trust jurisdiction was further augmented when innovative regulations enabling private trust companies (PTCs) to be established in the BVI were introduced in 2007.
BVI partnerships are often used within structures that manage and hold family wealth. The Partnership Act,1996 governs the formation and operation of BVI partnerships.
The laws of the BVI do not yet provide for the creation of civil law- type foundations.
BVI trusts and (to a less extent companies) are most commonly used for succession planning purposes.
The laws of the DIFC allow for the creation of trusts and shortly foundations (the DIFC equivalent in the Emirate of Abu Dhabi is the Abu Dhabi Global Market Freezone which has recently introduced similar trust and foundation laws). The DIFC Trust Law expressly provides that the common law of trusts, and principles of equity apply.
Under New Zealand law a person may create such similar structures (except private foundations) for holding and administering family wealth and for estate planning purposes. New Zealand is not a signatory to The Hague Convention on Trusts. Its courts are therefore not required to take into account the customary or legal requirements of foreign jurisdictions in relation to trusts.
Monegasque law allows individuals to create trusts and family companies.
As a civil law country, Monaco does not have a substantive trust law. However, Monaco enacted special legislation (Law No. 214 of 1936) designed to recognise trusts and allow certain foreigners who are resident in Monaco to take advantage of their national law which enables them to create trusts either during their lifetime or by Will. The use of trusts under Law 214 (both inter vivos and will trusts) is therefore reserved to those
persons whose national law provides for the possibility for settling one’s estate in a trust. Foreign residents who qualify may thus create a Monaco-based trust according to their national (foreign) law. For example, an English national, resident in Monaco, may establish an inter vivos trust or a will trust, pursuant to Monaco Law 214, governed by the English law.
Regarding Monegasque foundations, Law n°56 of 29 January 1922 allows the setup of foundations. However, Monegasque foundations can only be of public or charity interest, to the exclusion of private foundations.
The creation of single family offices is also a common practice in Monaco, although single family offices are not specifically regulated.
Finally, Law 1.439 enacted on 2 December 2016 governs the creation of multi-family offices. These structures are being increasingly used.
Trust: Switzerland as a civil law jurisdiction does not directly provide for trusts in its laws. However Switzerland ratified the 1985 Hague convention on the law applicable to trusts and their recognition (Hague Trust Convention) with legal effects as of 1 July 2007.
The Federal tax administration has issued a Circular regarding trust taxation in 2007. This Circular is neither legally binding nor enforceable by law, but has been declared as an applicable standard for the purpose of income and wealth tax as well as withholding taxes with respect to trusts. In practice, tax ruling are recommended to confirm the tax treatment of trusts for Swiss residents. As per this Circular, trusts can be divided into two main categories:
A. Revocable trust: A trust under which a settlor does not dispose of the trust assets in a definitive manner is qualified as revocable trust. The settlor is deemed not to dispose definitively of the trust assets if she or he is appointed as trustee or beneficiary or if she or he keeps an influence of any kind on the trust. This result in an allocation of the trust assets and income to the settlor for tax purposes. Distributions to beneficiaries are taxed as gifts and that upon settlor's death a revocable trust becomes an irrevocable trust.
B. Irrevocable trust: Any trust in which the settlor disposes of the trust assets in a definitive manner so that he or she may not influence the use of the assets any more after the trust's establishment is qualified as an irrevocable trust. The settlor should not retain any rights or obligations with regard to the trust assets. The Circular distinguishes further between (i.) irrevocable fixed interest trust and (ii.) irrevocable discretionary trust:
i. If the irrevocable trust is fixed, the beneficiaries are directly designated by the trust deed, which determines also the frequency of the income distributions arising out of the trust. From a tax perspective, irrevocable fixed interest trusts are treated as donation upon establishment. The trust's assets and income are then directly attributed to the beneficiaries. Capital gains are not subject to tax.
ii. If a trust is of discretionary nature, the trustees have the sole and absolute discretion to make distributions. Hence, the trust deed grants only expectations. Irrevocable discretionary trusts are treated as a donation upon establishment. If the settlor was not a Swiss tax resident at the time of the trust's settlement, there is no Swiss gift tax. Assets are not attributable to the settlor anymore if he decides to move to Switzerland. Beneficiaries, if they live in Switzerland, are not taxable on trust assets and trust income, unless there is a distribution. Any distribution is taxable, except amounts corresponding to the distribution of trust capital (distributions of capital gains are taxable, as other type of income).
According to the Circular, irrevocable and discretionary trusts still remain taxable at the level of the settlor if the settlor was a Swiss tax resident at the time of the trust's settlement. In addition, irrevocable and discretionary trusts can be treated as irrevocable fixed interest if there are frequent and systematic distributions of income to the beneficiaries.
Foundations: Individuals may create a private foundation, which is a legal entity under Swiss law. Swiss foundations are themselves subject to profit tax and capital tax. The applicable rates are usually lower than the corporate tax rates. Distributions are in principle taxable (income tax) at the level of the beneficiaries. Swiss family foundations are permitted but only to cover the costs of education, endowment to family members or similar objects. Family foundations are not permitted to pursue further-reaching objectives. Therefore the use of Swiss foundations for the administration of private wealth is very limited. However, foundation form is a very popular form for charities that pursue a non-profit objective (see question 26 below).
Partnerships: Under Swiss law, the general partnership and the limited partnership do not have separate legal personality. They are both transparent for tax purposes. Therefore, their profits and assets are directly taxed at the level of the partners rather than at the partnership level.
18.1 Individuals can create trusts (§19.1), partnerships and companies to hold family wealth. The use of trusts is the most common method to regulate succession to private family wealth. English law does not currently allow the creation of private foundations.
18.2 By transferring assets into trust (§19.1) during his lifetime, an individual may enjoy greater certainty as to the ultimate devolution of those assets than if he owned those assets himself and allowed them to pass under a Will on his death. Further, a trust arrangement can provide a higher degree of flexibility, confidentiality and asset protection than personal ownership. Although trustees are now subject to a number of disclosure regimes, disclosure is generally to public authorities and not to the public itself.
18.3 However, the creation of a trust by an individual who is domiciled (§1.9) or deemed domiciled for inheritance tax purposes (§5.9) in the UK is costly in terms of UK tax, and so such an individual may wish to consider an alternative asset-holding structure such as a family partnership or family investment company.