Structures
STRUCTURES
Wealth and structuring go hand in hand. There is hardly any wealthy family that does not use one or more wealth planning structures to safeguard, optimise or preserve their wealth.
Family offices are very often, in one way or another, involved in these wealth planning structures. A single or multi family office can set them up on behalf of the family, maintain them and or fulfil a function in the structure.
Nowadays one of the most important tasks of a family office is to make sure the structures used by the families they serve are tax and regulation compliant in the country where the family lives.
Below you will find an overview of the most widely used wealth planning structures and information on the functions these structures can fulfil for affluent families, when used in compliance with laws and regulations:
COMPANIES
A family office can help you establish and/or manage a foreign holding company. When structuring their assets, a considerable number of wealthy families and their family offices use International Business Companies as their wealth planning structure of choice.
Historically, these companies are established in jurisdictions such as, for example, Panama, the British Virgin Islands, the Cayman Islands or Belize, which all have attractive tax systems for companies based there and which generate their income outside their territory.
THE TRADITIONAL USE OF INTERNATIONAL BUSINESS COMPANIES
The main characteristic of an International business company is that any income generated or kept outside the jurisdiction in which the company is established, is not taxable within that jurisdiction. Consequently, this sort of company is regularly used by a multi family office as the top holding for the international corporate structure of the family, in case this is also tax beneficial and compliant from the perspective of the country of residence of the ultimate shareholders.
The underlying structure can distribute profits generated by the active family business, via a dividend distribution, to a tax exempt environment, creating a long term tax deferral. In the International Business Company the profits will accumulate until they are partly distributed to the family. Such a final distribution to the shareholders often triggers taxation in the country of residence of the family. In order to create additional deferral, a family office may advise for the shares of companies to be held by a trust or foundation. Apart from the operational business being owned by a foreign holding company, private aircraft, yachts and real estate are also often owned via a wealth planning structure including an International Business Company.
PROTECTING YOUR PRIVACY
An international holding company may also be set up by a family office for privacy reasons. There are numerous jurisdictions in the world where the public is better kept in the dark about the owner of a successful company, as this could jeopardise the family’s safety; for example, there are risks of kidnapping, extortion or political pressure. Most offshore companies are still not found on public registers such as a chamber of commerce, meaning they can add a layer of privacy between the active business and the ultimate owners, namely the family. When onshore companies are used instead of offshore ones, often multi layer structures are used to protect the privacy of the ultimate beneficial owners.
UP-AND-COMING JURISDICTIONS
Growing international pressure on tax havens to become more transparent and the introduction of automatic exchange of financial information, coupled with pressure from the international community on jurisdictions which do not levy any tax on income, is causing a marked shift to other jurisdictions such as Ireland, Malta, Singapore, Switzerland and New Zealand, for the establishment of international holding companies.
These other jurisdictions also offer beneficial tax regimes, but have more sophisticated taxation legislation, including tax rates of 10% or slightly over. A 10% tax rate is low by international standards, but currently considered an acceptable level of corporate tax. Because this tax rate is combined with all kinds of exemptions (which differ from jurisdiction to jurisdiction), the result is very low effective taxation, sometimes practically zero. Family offices are also aware of this development and therefore many of them nowadays prefer to structure via these jurisdictions.
A good EU multi family office offers quite some services relating to foreign holding companies. It can support your family with tax advice on a solid international holding structure. The family office can often also organise and/or coordinate the setting up of an offshore company, and act as a board member or nominee shareholder of that company. A family office could also take over the actual management of all your (foreign) companies.
ADVISORY SERVICES
Growing international pressure on tax havens to become more transparent and the introduction of automatic exchange of financial information, coupled with pressure from the international community on jurisdictions which do not levy any tax on income, is causing a marked shift to other jurisdictions such as Ireland, Malta, Singapore, Switzerland and New Zealand, for the establishment of international holding companies.
TRUSTS
A corporate trust provider or family office in Europe can act as trustee or take another role in your family trust. All kind of assets can be held in a trust, and trusts are a great instrument for protecting wealth and privacy, as well as compliant tax planning. For generations, trusts have been used to protect wealthy families’ assets from tough economic and political conditions.
Wealth advisors in Europe very often suggest the use of trusts as a wealth planning instrument to their clients. Although there is no Trust law as such, “EU trusts” are, in practice, possible when you use a EU trustee a trustee located in Europe to manage and administer your trust in Europe.
WHAT IS A TRUST?
For most of us, a trust is a very complicated structure to understand, but it can be an excellent wealth planning tool, especially for wealthy, international families. Trusts are used by numerous affluent and well known families around the world, and are often suggested by their family offices, as a way of separating some or all of their assets.
A trust can best be described as a legal arrangement a legal form through which the legal ownership of assets is transferred to the trustee in order to keep these assets for the benefit of others the beneficiaries; the equitable ownership of the assets is thus deemed to be held by the beneficiaries. Trusts are established based on the trust law of common law countries and date back to the time of the Crusades. Although trusts are a common law structure, the trust and trustee can be based in europe or around the continent.
WHO PLAYS WHICH ROLE IN A TRUST
The person establishing a trust is called the settlor. The person or company managing and legally owning the trust’s assets is called the trustee; very often, a single or multi family office acts as the trustee. The trustee controls and manages the assets, but the beneficiaries are entitled to all the benefits of the assets and profits of all property held by the trust. The settlor informs the trustee of his wishes as regards the management of the trust in the so called a letter of wishes. In most cases, these are non binding instructions to the trustee about the management of the contributed assets and potential distributions to beneficiaries.
The settlor often also appoints a protector. A protector is, in short, someone who checks the acts of the trustee on behalf of the settlor or someone who may, for certain decisions, act as an advisor to the trustee. Normally the protector is somebody in whom the settlor has every confidence. A multi family office or UK corporate trust provider could act as trustee of the family’s trust, or could fulfil the role of a protector.
THE USE OF A TRUST FOR WEALTH PROTECTION AND PRIVACY
Most wealthy families use trusts to hold, for example, the shares of the family holding or significant real estate projects, as they are extremely useful for asset protection. If a trust is structured correctly and based in the right jurisdiction, it is an excellent tool for protecting a family’s assets from any possible threat inside or outside their home country, because these assets are transferred into the possession of the trustee.
Trusts are also a great tool for compliant international tax planning and for safeguarding your privacy. A trust offers a high level of privacy due to the fact that they are in most jurisdictions still not found on any public register, in contrast to most corporate structures. The existence of a trust is therefore very difficult to discover. In a large number of countries this feature is vital, as the safety and security of the family could depend on it. It is mainly for this reason that a family office regularly advises establishing a trust.
"HOW MANY GENERATIONS WILL YOUR WEALTH LAST?"
TAXATION OF TRUSTS
Trusts are not recognised in every civil-law jurisdiction but Majority recognises trusts. As a result of the lack of recognition by tax authorities in most civil law countries, it is sometimes unclear whether, how and when the assets being held by trusts are taxed. It can also be unclear whether, how and when distributions by the trust are taxed once they are distributed to the beneficiaries. On the other hand, the family’s wealth can sometimes remain fully compliant and untaxed for generations due to trust structures. For this reason, it is extremely important that professional tax advice be sought before a foreign trust is actually set up.
A considerable number of multi family offices in Europe can assist you in setting up an international or UK trust and can provide trustee services to you. There are also numerous corporate trust providers in Europe provides this service. But keep in mind that the provided services will be different from provider to provider.
OUR ADVISORY SERVICES
Feel free to contact us when you have any questions about international trusts, what you need to pay attention to when you select a multi family office corporate trust provider or when you want to discuss your wealth planning needs in general. We look forward to assisting you.