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 (2nd edition)
Under Israeli law an individual may create a trust, family company or family partnership. Each of these structures provides for different advantages and disadvantages of reporting, tax payment and succession.
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.
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 relatively discrete. Civil/Family partnerships are often used for investment portfolios or art collections. Because of tax reasons, they are primarily used for movable assets.
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.
Trusts are a well-established concept in Cyprus. The Trustee Law of 1955 (Cap 193), which mirrors the UK's Trustee Act 1925, is the basic law dealing with the trust relationship.
In 1992 Cyprus created a state-of-the-art international trusts regime with the enactment of the International Trusts Law, which provides a framework for the establishment of trusts in Cyprus by non-residents.
The 1992 Law introduced a new type of trust, known as an international trust, with tax planning advantages and robust asset protection features. Like similar laws in other jurisdictions, the 1992 Law was not a comprehensive codification and the Trustee Law 1955 applies to international trusts except where the 1992 Law provides otherwise.
The International Trusts (Amendment) Law of 2012, which entered into force in March 2012, updated the 1992 law to reflect developments in the intervening 20 years and brought Cyprus back to the forefront of leading trust jurisdictions. It clarified the eligibility provisions for Cyprus international trusts, strengthened their already formidable asset protection features, gave settlors far more flexibility than under the 1992 Law and widened trustees’ investment powers. It also made several technical amendments and aligned the International Trusts Law with the EU acquis communautaire. The Amending Law of 2012 does not repeal and replace the 1992 Law but instead builds on it. Section 15 provides that it applies to all international trusts irrespective of their date of creation.
It is also possible to establish foundations in Cyprus, but they are not commonly used, because of the high degree of bureaucracy, and most current foundations are public benefit foundations. However, the existing Associations and Foundations Law of 1972 and 1997 was updated in 2017 to simplify procedures and a new law on foundations is expected to be enacted soon. These changes should lead to an increase in the use of private foundations.
Any natural person may establish a private foundation, a holding company or a family company in Austria. Private foundations are more often used as holding companies.
The use of domestic structures to hold, administer and regulate succession to private family wealth is not common.
However, in principle, a private benefit foundation could be constituted in order to hold, administer and regulate succession to private family wealth. By its nature, such a foundation allows for the use of property for a specific goal under the management of designated persons.
The concept of trust is not recognized under the Bulgarian law.
Argentina has no legislation on private foundations. Concerning Trusts (fideicomisos), this figure was previously regulated by the Housing and Construction Financing Law No. 24,441, in particular Title I (Trust Law), which contemplated two types of trusts:
- Financial trust (fideicomiso financiero). Under this type of trust, the trustee must be a financial entity or a corporation specifically authorised by the Argentine Securities Commission to act as financial trustee.
- Ordinary trust (fideicomiso ordinario). These can be:
- management trusts (fideicomisos de administración); or
- guarantee trusts (fideicomisos de garantía).
The CCC amended the Trust Law. Therefore, trusts are now regulated in Chapter 30 of the CCC, which incorporates suggestions of legal scholars and case law with respect to certain issues of interpretation and application of trust law.
Formerly, in order to avoid commencing a court-based procedure and the costs thereby involved (Court Tax and attorney’s fees among others), it was customary for individuals to grant inter vivos gifts (inheritance advances). However, after the enactment of the CCC (Law 26.994), inheritance advances involving real property – even if it’s done in favor of forced heirs - became no longer an option due to the fact that the title would be deemed imperfect (Section 2458 CCC).
Consequently, management revocable local Trusts became an alternative figure to regulate succession to private family wealth, mainly for real property located in Argentina. In this way, the effect of avoiding the entrance of these assets into a court-based procedure is attained as well. Additionally, if the mentioned real property were to be situated in Buenos Aires Province, this structure allows the deferral of the ITGB.
In order to regulate succession to private family wealth of other assets rather than real property situated in Argentina, Foreign Trusts are a better option than local management Trusts, mainly for the following reasons:
- Asset Protection (mainly regarding the “argentine risk”);
- The 30 year limit under Section 1668 CCC would not apply, which gives flexibility in order to regulate private family wealth succession for different generations, extending in this way the asset protection period and allowing a gradual and prudent transfer taking into consideration any particular situation around any given beneficiary (political context, tax residency, marital situation, etc.); and
- Fiscal efficiency (under certain conditions, as seen in Question 22 below)
When it comes to family-owned companies, it is common for the founder to gift his/her shares/interest to his/her heirs reserving for himself/herself the economic rights and in some cases the political rights too, until his or her death (usufructo vitalicio). Related to this, and mainly when the family-owned company held real property or rural land, tax-free reorganizations procedures are commonly used to split them between their members (escisión libre de impuestos), without facing any tax burden, provided the following requirements are accomplished:
- prohibition for the owners to sell the reorganized entities within two years of the reorganization; or
- change their activities within two years of the reorganization.
In the case of family-owned companies where attaining to the particular activity of the given company a reorganization procedure as the mentioned above is not an option, further planning might be suggested aimed to achieve not only an efficient succession on the property (shares of the family company) but also the subsistence of the Family Company throughout generations. A Family Business Constitution (Protocolo de Empresa Familiar) might be an effective figure in order to future-proofing a Family Business.
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 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.
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.
Trusts are very well established in Bermuda and private trusts and purpose trusts are the primary vehicles of choice for succession planning.
Trust law in Bermuda is based on English law principles and it has been partly codified in the Trustee Act 1975 and the Trusts (Special Provisions) Act 1989.
The most common forms of trust established under Bermuda law are:
- Life interest / fixed interest trust
- Accumulation and maintenance
- Non-charitable purpose trusts
- Employee benefit trusts
Bermuda law does not recognise foundations at this time.
In addition to the sophisticated institutional trust companies that operate in Bermuda Private Trust Companies (“PTCs”) can be easily set up to provide more bespoke trustee services to structures.
PTCs have many advantages for private clients and their families, including allowing greater involvement in trust administration through board representation and providing a trust structure through which to hold more non-traditional assets which may be considered onerous by institutional trustees, such as family trading companies, high risk portfolios, and unusual assets.
Bermuda also has codified statute concerning partnerships, which follows English partnership law and family partnerships/family companies are possible under Bermuda law, although trusts are most commonly used.
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.
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 and private foundations,. 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 laws of the Cayman Islands provide for the creation and the administration of trusts, and the Cayman Islands a leading jurisdiction for the establishment of trusts for ultra-high net worth individuals and families. Cayman Islands trusts are established in many different forms, including discretionary trusts, fixed interest trusts, life interest trusts, charitable trusts, STAR trusts (i.e. purpose trusts) and reserved power trusts.
While most Cayman Islands law trusts will have a licensed Cayman Islands trust company serving as trustee, it is also possible in certain circumstance to form a private trust company or restricted licence trust company in the Cayman Islands to serve as trustee. This can allow a settlor and/or family members to have an additional level of involvement in trustee decisions.
The laws of the Cayman Islands also now provide for the formation of foundation companies following the enactment of the Foundation Companies Law, 2017. This new, flexible regime allows a company to operate in a manner that is in part similar to a common law trust and in part similar to a civil law foundation. Unlike a trust, a foundation company has separate legal personality.
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).
The most commonly used structure for succession planning is trust. Under Singapore law, trusts are primarily governed by the Trustees Act and case law, which largely follows English case law. There are tax incentives catered to foreign and local trusts – under the relevant tax incentive, trust income derived from designated investments are tax exempt.
Private trust companies ("PTC") are also commonly used to act as trustees of family trusts. Subject to conditions, PTCs are exempt from the licensing requirement commonly imposed on commercial trust companies.
Partnerships are rarely used for succession planning in Singapore.
Given that foundations are a civil law concept, private foundations are not available as a succession planning tool in Singapore – a common law jurisdiction.
Trusts are not foreseen in the Portuguese legislation, thus cannot be created in Portugal. The most commonly used structures in Portugal would be family companies and private foundations.
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 in the opinion that this provision is discriminatory.
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 are entitled to 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.
In Mexico, people who intend to maintain, manage and regulate the succession of private family wealth could 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, in the extent that the fideicomiso is a structure through which any purpose can be achieved, as long as it is legal and possible, so the uses and purposes that can be given to the contract of fideicomiso are very varied.
Although there is no specific structure for regulating private family wealth, the Brazilian law provides many options to hold, administer and regulate succession. The most common structure is the limited liability company (“sociedade limitada”) in which a person or a family set up governance rules to drive family decisions related to the assets, including succession planning by way of defining the company´s shareholding composition to each family member. It is very important that succession rules are thoroughly laid out in the company´s articles of association to avoid legal disputes among family members and third-parties, including tax authorities.
Brazilian law does not have a specific regulation for trusts and foundations for succession purpose, not even how to tax the estate held abroad and administrated by similar vehicles [see Q&A 22].