Trusts can be particularly useful for British expatriates who live in Spain for tax mitigation purposes and also for arranging your wealth for the benefit of your family.
What is
Trusts can be particularly useful for British expatriates who live in Spain for tax mitigation purposes and also for arranging your wealth for the benefit of your family.
What is a trust?
A trust is a legal relationship which exists between the settlor, the beneficiaries and the trustees. For tax purposes, a trust is treated as a separate and continuing body of persons and different tax treatment is afforded to trusts than to individuals.
A trust is created when a person (the ?settlor?) transfers assets to two or more people or a company (the ?trustees?) with instructions that the assets are to be held for the benefit of one or more individuals (the ?beneficiaries?). An agreement (the ?trust deed?) is prepared which sets out the duties and powers of the various parties to the trust.
The settlor can also specify how they want their assets to be handled in a ?letter of wishes?. Though not legally binding upon the trustees, the wishes are almost always followed by the trustees, unless circumstances change and then their duty is to do the very best they can for the beneficiaries. Trustees are obliged by law to administer the trust so as to safeguard the best interests of the beneficiaries.
The trust deed states who the initial beneficiaries are, which may include yourself, your spouse, children, grandchildren, any future unborn children or anyone else you wish, including charities.
The trustees are normally professional trustees or a corporate entity managed by a professional firm authorised to act as a trustee.
The usual types of assets which are placed in a trust are investment portfolios, equities and bonds, bank deposits, life assurance policies, jewellery and property. If you own many assets spread across different countries they can be consolidated in a trust.
Trusts are particularly useful when it comes to estate planning and ensuring your assets are used to help your family, according to your wishes. You can stipulate how you want your assets managed and distributed in certain circumstances.
One example is where you want to leave your money to your spouse/partner if you die first, but know that he/she is uncomfortable with financial planning. The trustees will manage your assets for your spouse according to your wishes. You can do the same to look after yourself should you become incapacitated in the future – the trustees can coordinate protection for them dealing with medical and care needs, as well as full financial support.
Trusts can prove invaluable for complex family situations, for example if you and/or your spouse have children from previous relationships and you want to ensure that your assets are only distributed as you want them to be. They are also very useful where you are leaving money to a child as you would provide instructions when he/she is to receive the money and in what amounts, and also on how the monies are to be invested in the meantime.
Assets in a trust are usually protected from bankruptcy, creditors and divorce.
A trust is completely confidential ? it does not need to be registered and the settlor does not have to be openly connected with it.
Tax and estate planning advantages of a trust
- No Spanish succession tax on non-Spanish assets transferred into a trust.
- Income and gains are free from Spanish tax
- The assets themselves would also be free from Spanish wealth tax. Although Spanish wealth tax is currently set at a zero rate, many experts believe a higher rate will be reinstated after the Spanish government announced a tax offensive on those who have the most and looks to find ways to increase income.
- If the settlor dies in Spain as a non UK domicile, there is no liability to UK inheritance tax on assets held in certain trusts.
- Where the trust asset consists of an insurance bond, any beneficiaries resident in the UK may receive up to 5% per annum of the sum originally invested tax-free. The exact calculation depends on previous withdrawals.
- Trusts avoid Spanish succession law.
- Even with a carefully prepared will, probate can be a lengthy process, delaying your estate?s distribution. If your estate is in a trust, there are no delays as the trustees already have possession of the assets and can continue to hold them or distribute them to your beneficiaries according to wishes.
Modern trust deeds can be tailored to meet your specific requirements, but as they are varied and wide ranging in their application contact Blevins Franks before establishing a trust to ensure you use the most appropriate type for your circumstances and objectives.
The tax treatment(s) detailed above is current at the time of writing and may change in the future.
By David Franks, Chief Executive, Blevins Franks
15th September 2010
