Do the laws of your jurisdiction 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?
Private Client (3rd edition)
Yes, Colombian law allows individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth. Several precisions must be made:
- Civil law
Colombian civil law does not provide rules on common law trusts or private foundations. However, Colombian law sets out rules on civil and commercial local trust agreements whereby a settlor transfers the property or adminis¬tration of certain assets to a trustee in exchange for fiduciary rights. The trustee is responsible for managing such assets or transferring them to a third party to carry out the purpose determined in the local trust agreement, either for the benefit of the settlor or a third party. The local trusts should not be confused with the Anglo-Saxon or common law trust.
Local trusts are commonly used in Colombia as instruments to administer properties or businesses with a specific purpose or to grant guaranties or collaterals, considering that trustees are professional regulated entities.
- Foreign structures
There are no civil or commercial regulations regarding the establishment of foreign trusts, private foundations, etc. However, foreign entities are recognized by Colombian law and tax authorities and may be used as structures to administer private family wealth and circumvent forced heirship rules in Colombia. However, anti-abuse rules have to be observed.
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 and general interest, but 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.
It is worth mentioning that life insurance policies are widely used given the possibility to redeem them and to change the beneficiaries.
As a common law system based largely on the English system, Cyprus law recognises the existence of trusts and the use of such structures for succession planning purposes and for the management and protection of family assets.
Cyprus trust law is mainly regulated by the Trustee Law, Cap. 193 and the International Trusts Law of 1992, which deals with Cyprus International Trusts (CIT) created by a non-resident settlor for the benefit of non-resident beneficiaries.
CIT are very popular and are being broadly used, as succession, heirship or other laws applicable in Cyprus or any foreign jurisdictions, or court judgments, or arbitral awards do not affect the validity of a CIT, or the transfer of property to the trustee.
Foundations can be established according to the provisions of the new Associations and Foundations Law (104(I)/2017), however, these are rarely used in practice of succession planning purposes.
a. The most commonly used structures for succession planning in Hong Kong are trusts and companies.
b. Partnerships are rarely used for succession planning in Hong Kong.
c. There is no private foundation under Hong Kong law.
In Mexico, people who intend to maintain, manage and regulate the succession of private family wealth can do so through two legal structures: through a "family" company or through the constitution of a fideicomiso.
The first of these options would involve the constitution of a "family entity", or a company whose partners or shareholders are only members of that family, being able to condition the alienation of the company´s shares only among the members of that particular family.
Nevertheless, the most commonly used structures are fideicomisos, since they allow individuals to establish a purpose and a regulatory framework that best suits the needs of each specific case, to the extent that the fideicomiso is a structure through which any purpose can be achieved (as long as it is legal and possible).
Although foundations are not recognised in India, Indian law permits individuals to create trusts, partnerships and companies. A private trust is the most commonly used structure.
Families often set up a private discretionary and irrevocable trust for succession and estate planning. A settlement of a private family trust for the benefit of certain specified relatives of the settlor is eligible for tax exemptions under the ITA. It offers a long term solution by allowing the ability to ring fence the assets of the trust against any future creditor claim or imposition of future inheritance tax. The trust documentation enables flexibility in determining distribution milestones, dispute resolution procedures, and plan for future contingencies (for example, incapacitation of a spouse, special needs of a minor, etc.). However, setting up a private trust would involve stamp duty and registration costs which differ from state to state. Additionally, in cases where the trust involves non-residents, exchange regulations may restrict the operation of the trust.
Liechtenstein laws allow the creation of private foundations ("Familienstiftungen") as well as trusts. Besides, Liechtenstein law provides for further legal entities which may be used for the same or similar purposes: e.g. establishments ("Anstalten") or trust enterprises ("Treuunternehmen").
A foundation is used to make assets legally independent from the founder by transferring them to a legal entity in its own right. The Liechtenstein foundation is wide-spread and an excellent tool for estate planning and asset protection. Unlike a corporation, a foundation has no members but does have beneficiaries who may enjoy the foundation assets and/or income according to the will of the founder.
Liechtenstein has regulated the Anglo-Saxon institution of the trust (common law trust) by statute. The trust, in its form as express family trust, is often used instead of a foundation for the administration of assets for the benefit of family members, because it allows to freely structure the beneficial interests and, in contrast to the law on foundations, there are no limitations on its objects and purposes. In general, the institution of a trust is better known to persons from Anglo-American jurisdictions than, for example, a foundation.
Trusts, public / charitable foundations, civil companies, and family offices are common practice in Monaco.
Trusts can exist under two forms.
Foreign trusts are recognized and enforced according to the provisions of the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition. This Convention expressly states that public policy may override its provisions. Hence, this kind of trust does not allow to bypass the forced heirship rules under Monegasque law.
Trusts can also be made in accordance with Law n°214 of February 27, 1936 which allows nationals from jurisdictions where trusts exist to set up inter-vivos and testamentary trusts governed by their own national law.
Testamentary trusts made in accordance with Law n°214 allow to avoid the Monegasque succession rules, including forced heirship rights.
Monaco does not allow the creation of private foundations. Yet, Monegasque law does provide for the creation of charitable foundations that can possibly benefit from an advantageous tax regime.
Civil companies can be used to manage and invest personal assets. They offer the advantage to conceal the identity of their shareholders and beneficiaries which is only know by authorities listed by law.
Single family offices are not specifically regulated. Their regime will depend on the form they choose to take.
Multi-family offices are subject to Law n°1439 of December 2, 2016 and are growing in number.
Poland as a country of civil-law rule does not recognise the concept of a trust. Moreover, Poland is not a signatory of the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. Private foundations are not allowed by Polish law; however, Polish residents are entitled to set up foreign private foundations.
A “family company” or a “family partnership” has no legal definition and is not construed as a special purpose structure. However, those terms are commonly used by family business circles as referring to companies/partnerships established under the Commercial Companies Code, where the ownership belongs to the family members.
Except for Madeiran Trusts, trusts are not foreseen under the Portuguese civil law. However, the use of foreign trusts particularly by international families is not incompatible with the Portuguese law.
It is common to see the Family estate structured by a family holding company. Families are advised to properly design the company’s articles of association and to elaborate a Family Business Agreement to regulate the relationships between the Family, the Family’s estate and the Family’s business.
Unit-linked life insurance policies are a particularly relevant succession and tax planning instrument for both domestic and international Families.
The Russian law does not recognise trusts, foundations, and family partnerships. However, since 2018 individuals may establish an inheritance fund by will. The will has to include the decision of an individual to establish the fund, the declaration of the fund, and administration rules. The declaration should indicate the information about appointed manager or procedure for such appointment, as well as details of property to be transferred to the fund and specify the term period or conditions on which it exists.
Serbian law provides for endowments (zadužbina) which are commonly formed for charitable and other public benefit purposes, such as e.g. promotion and protection of human, civil and minority rights, democratic values, European integration and international cooperation, sustainable development, regional development, gender equality, culture, mass media, science, education, arts, amateur sport, support for disabled, elderly, children, environmental protection etc.
However, endowments may also be formed for private purposes (e.g. supporting education of children). However, endowments could not be used for succession to private family wealth as they are not recognised as such vehicle by the Succession Act.
For estate planning purposes, Swiss law allows the establishment of all types of vehicles under Swiss and foreign law including foreign trusts. The use of these vehicles is common depending on the value and location of the assets. However, Swiss families traditionally also transfer assets outright and bind the heirs through family governance instruments and/or shareholders' agreements.
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.
The prevalent structure in tax, wealth or succession planning in Singapore is the trust. This can be revocable (where the settlor reserves a power of revocation under the trust deed), irrevocable, discretionary or fixed interest, depending on the objectives to be achieved. Other structures are available in Singapore, including the company limited by guarantee (“CLG”), limited liability partnership and fund structures. CLGs have members (instead of shareholders) whose liability is limited to a fixed sum of money in the event the company is wound up; this structure tends to be used for charitable objects. Limited liability partnerships have a separate legal personality from their partners, whose liability is limited to their contributions; this structure is an option where the intention is to separate the legal ownership and economic ownership of investments or businesses.
Singapore does not have foundations in the civil law sense; that is, a legal structure (distinct from companies or trusts) that is created for specific purposes. The foundations that are set up in Singapore tend to be charitable structures (either a society or a company limited by guarantee). In accordance with guidelines from the Commissioner of Charities, only organisations that are self-funded by an individual, family or for-profit company to aid the organisation’s intended charitable purposes or that are financed by an endowment for said organisation can have the word ‘foundation’ in their names.
Israel’s Companies Law, 5759 - 1999 regulates the incorporation and administration of companies, including those set for the purpose of holding family assets, whereas the Israeli Trust Law, 5739 – 1979 legally recognises and regulates the establishment and administration of trusts. In parallel, the Israeli ITO regulates the taxation of trusts, including private foundations established under foreign laws, and “family companies”, which are transparent for tax purposes with the main shareholder being taxed on the company’s entire income.
In general, due to absence of inheritance tax, Israeli families tend to favour family companies as succession structure, although some families choose to separate voting rights from property rights, thus bestowing wealth in the hands of the younger generation without burdening them with the responsibility of managing a business, with an aim to pass on control and responsibility at a later point in time.
More sophisticated families use trusts as a means for executing a measured and regulated transfer of family’s wealth. Sometimes a trust is combined with strategies originating in the Israeli Companies Law, 5759 – 1999: mainly, the transferring owners would create a family holding company distinguishing between property rights and control rights; while the property rights are settled into a trust, the controlling interests are either left with the transferring owners or granted to the more suitable next generation member(s), thus retaining equality in the property rights.
Nonetheless, families putting in place succession plans using trusts or similar vehicles should be aware of the complex and strict taxation rules of trusts in Israel, which, inter alia, subject the trust’s worldwide income to full Israeli taxation in the event that there is even one Israeli tax resident beneficiary. Such taxation exists even where the trust’s settlor has not been an Israeli tax resident ever since the settlement of the trust, or has passed away, regardless of the settlor’s tax residency, the situs of the trust’s assets, the trust’s revocability, the number of foreign beneficiaries and the beneficiaries’ right to claim a distribution.
French law allows to create (or does not prevent individuals from creating) 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 of the opinion that this provision is discriminatory.
Trusts are generally not recognised in Germany as Germany did not ratify the HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985. Structures commonly used in Germany to hold assets are corporations, partnerships and foundations.
18.1 Individuals can create trusts (§19.2), 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 (§19.2) 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.