Advance planning is the key to favourable succession arrangements in any form.

Chateau Fiduciaire SA will guide you through the process, introduce you to a wide array of professionals and provide a clear outline of our multi disciplinary approach to tax and estate planning for you and your family. This may well involve the use of several entities, and quite possibly, include the establishment of a trust.

A trust is an arrangement whereby a person known as the Settlor transfers assets to Trustees who then hold legal title to those assets neither for their own benefit nor for the benefit of the Settlor but rather for the benefit of others known as Beneficiaries. The terms of the trust are incorporated into a legal document known as the instrument of trust or trust deed. The trustees must look after the Trust assets under the terms of the Trust Deed.

Contrary to popular belief, trusts are not exclusive to the wealthy, neither are they used simply to defer the effects of taxation. Trusts might be used for a variety of reasons for example;

i)      To provide for a spouse after death whilst protecting the interests of any children

ii)     To provide for vulnerable relations who may not be able to look after their own affairs

iii)    To protect the inheritance of minor children from squandering assets until such time as they are deemed adequately responsible

iv)    To protect and separate assets before marriage

v)     To help succession planning in a family business

vi)    To provide key personnel with share options and other benefits

vii)   To negate exposure to probate

viii)  To provide a high degree of confidentiality over the affairs of the family

Trusts can have tax deferment or mitigation advantages, but are generally used as a segment of tax and succession planning.  Such trusts are subject to strict criteria, but if used correctly can have significant advantages for non domiciled individuals in many jurisdictions.

There are several different types of trust, the most common of which can be categorized and summarised as follows;

Discretionary Trust

By far the most common and flexible trust because the trustee will decide who may benefit and there is no absolute entitlement to trust assets. The wide discretion given to the Trustees makes this type of trust very strong in defending against attack from third parties such as former spouses, ambitious minor beneficiaries and other personal creditors. The Trustees are often guided by a written letter from the Settlor of the Trust as to their true intentions for the trust assets.

Accumulation and Maintenance Trust

Often used to provide for children, school fees and other related expenses. There is an absolute entitlement to benefit for an agreed period of time, for example to pay school and education fees until a child reaches the age of majority. Thereafter the trust can be converted to a Fixed Interest Trust.

Fixed Interest Trust, also known as a Life Interest Settlement

The rights of beneficiaries are fixed according to the terms of the trust deed and provide for an interest in the income or capital of the trust fund either for the lifetime of a beneficiary or until they reach a pre-determined age such as 25. The trust is useful in looking after money and investments until the beneficiary is able to manage the assets themselves or if for a lifetime then to protect a beneficiary against leaving themselves destitute having squandered or mis-managed the money.

Families are attracted by the flexibility of trust structures to deal with a wide variety of family circumstances.  This is particularly relevant when a family or its business interests cover a range of jurisdictions, each with its own inheritance, tax and business laws.

The key matter to consider is that whilst the Trustees legally own and manage the Trust assets they must always act in the best interests and for the benefit of the beneficiaries and no-one else.