12 May 2023


Trusts - Assets, Succession, Risk, Death & Taxes

When a person ‘passes away’ without a valid will, it is referred to as dying intestate. Intestacy laws then dictate how the person's assets will be distributed. The distribution of the assets will depend on the jurisdiction and the applicable laws can lead to incredible complexity not to mention major liquidity issues.

In general, the distribution will follow a pre-determined hierarchy. For example, the spouse and children will usually be the first to inherit, followed by other family members such as parents or siblings, and then more distant relatives. If no eligible family members are found, the assets may go to the state.

The main problem with dying intestate is that the person's assets may not be distributed according to their wishes. This can lead to disputes among family members, especially if the distribution is not what they expected or if they have different ideas about what should happen to the assets. In addition, the distribution may not take into account any specific needs or circumstances of the beneficiaries, such as minors or individuals with special needs.

Another issue is that dying intestate can lead to higher taxes and fees. In some jurisdictions, the taxes and fees may be higher for individuals who die intestate compared to those who have a valid will or trust.

By using a trust an individual can ensure that their assets are distributed according to their wishes and can minimize the potential for disputes among family members. They can also take advantage of tax planning strategies to reduce the tax burden on their beneficiaries. Additionally, a trust can provide for ongoing management of the assets after the individual's death, such as providing for the care of minors or individuals with special needs.

Trusts are legal arrangements where the legal owner of assets (the settlor) transfers the legal ownership of those assets (the trust property) to individuals or a corporation (the trustee), typically for the benefit of certain persons (the beneficiaries). Once a trust is established, the legal ownership of the trust property will vest in the trustee, and the beneficial ownership of the property will belong to the beneficiaries.

In addition to providing for the efficient distribution of asset, one of the other primary benefits of trusts is asset protection. By placing assets in a trust, the settlor is separating the assets from their personal wealth, thereby creating a layer of protection against potential creditors and any and all claims against the individual and his/her assets.

In the event of bankruptcy, for example, assets held in a trust may be protected from seizure by creditors. Trusts are a legal instruments that have been used for generations by wealthy individuals and families to protect their assets from various threats, such as litigation, creditor claims, and excessive taxation.

Trusts are also useful for succession planning. Trusts can delay the time at which children become entitled to family wealth – it can prevent significant wealth passing to children or adults before they are responsible enough to use the money wisely or are perhaps not in a position to manage and control any distribution. Additionally, trusts can continue to operate after the settlor's death, providing a mechanism for the management and distribution of assets to beneficiaries in accordance with the settlor's wishes as well as an extremely valuable succession plan solution.

From a tax perspective, trusts can provide significant estate cost savings and taxation savings on investment growth and realization. Trusts can be used to mitigate or avoid inheritance taxes in certain jurisdictions by removing assets from the settlor's estate. In addition, if the trust is located in a jurisdiction with favourable tax laws, the trust may be subject to lower tax rates on investment income and capital gains than the settlor would have been subject to.

Trusts also offer the ability to be non-resident from the country in which the settlor lives. By establishing a trust in a jurisdiction that allows for non-resident settlors, the settlor can take advantage of the benefits of the trust structure, some of these benefits can extend to those Settlors and their families looking to move from one domicile to another. This offers significant advantages for those who live in countries with high levels of sovereign risk, poor economic performance and high levels of taxation and taxation as the trust can provide a level of protection against political and economic instability.

In terms of providing for beneficiaries during one's lifetime and on death, trusts can be set up in a variety of ways to meet the settlor's specific wishes. For example, a trust can be established to provide regular payments to a beneficiary for a specific period of time, or to provide for the education and upbringing of minor children. Upon the settlor's death, the trust can be used to manage and distribute assets to beneficiaries in accordance with the settlor's wishes, potentially avoiding the delays and costs associated with the probate process.