Succession Planning – The Use of An Isle of Man Trust

A trust can be used for a variety of reasons including for estate and succession planning and administering family assets or wealth. A trust may often be used with underlying companies and Dixcart Isle of Man can help with such formation and administration services.  The Isle of Man is a leading offshore jurisdiction for trusts with its own trust legislation.

What is a Trust?

Simply put, a trust is a legal arrangement where the ownership of the “Settlor’s” assets (such as property, shares or cash) is transferred to the “Trustee” (usually a small group of people or a trust company) to hold and manage for the benefit of third parties known as the “Beneficiaries” under the terms of a Trust Deed.

A trust can provide flexibility as it can set out terms on how and when assets may be distributed after the death of the Settlor and often without burdening the beneficiary with the weight of responsibility that immediate wealth inheritance can bring. 

What are the Main Reasons for Establishing a Trust?

  • Preservation of wealth

The entrusting of the legal title of the assets in a Trustee prevents the ownership of the assets being diluted by successive generations, whilst allowing individuals to continue to benefit from the assets, such as a family business. As the legal title to the assets remains with the Trustee, this prevents the dilution of ownership that would occur if the assets were distributed from the original owner to second and third generations.

  • Circumvention of forced heirship laws

By divesting assets during the lifetime of the Settlor, the trust will not form part of his estate upon his death, avoiding forced heirship rules which may apply under laws in the Settlor’s country of residence.

  • Succession planning

As the Settlor no longer owns the assets, the need to obtain probate or similar formalities on his death can be avoided. A trust is therefore an efficient vehicle for transferring the benefits of property through generations, providing a useful tool for Settlors as part of tax and financial planning. 

  • Asset protection

The Isle of Man offers a secure and stable political environment in which to hold assets and protect them from strategic risk. In addition, a trust can offer protection from creditors or other third parties in the country of domicile or residence of the Settlor.

  • Confidentiality

On the settlement of assets into a trust, those assets cease to form part of the estate of the Settlor. The legal title passes to the Trustee, whilst the right to future enjoyment can be passed to the Beneficiaries. Private trusts formed in the Isle of Man are not required to have accounts audited or to file accounts with any public body.

The Use of an Isle of Man Trust

Using an Isle of Man trust for estate planning is a popular and efficient way to structure your assets. The Isle of Man is autonomous from the UK and is a self-governing Crown Dependency. This political independence and the Trusts Act 1995 mean that all matters and questions related to an Isle of Man trust are determined solely by local laws. That said, as much of the island’s legislation is based on English Law, decisions of the English High Court and the Court of Appeal will be persuasive in the Isle of Man courts.

The location of a trust and its Trustees is an important factor to consider when creating a trust. We advise clients to establish a trust in a jurisdiction which is reputable and well-regulated.  The Isle of Man satisfies such requirements and is considered a suitable location of choice for a trust.

Isle of Man trusts receive many benefits, including:

  • An Isle of Man resident trust has no liability to Manx tax provided there are no Manx resident beneficiaries and no taxable Manx source income. Bank interest from Manx banks is exempt if there are no Manx resident beneficiaries.
  • No income tax for non-residents: non-resident Beneficiates can benefit from a zero rate of tax for either distributed or undistributed income.
  • No capital gains tax, inheritance tax, gift tax or estate tax.
  • There is no restriction on the accumulation of income.
  • Privacy and confidentiality: Under current legislation Isle of Man trusts are not required to provide information on public record, offering an additional level of confidentiality protection, for trust Settlors and Beneficiaries, nor do they need to be registered (unless they hold Isle of Man real estate or are charitable).
  • The ability to appoint a ‘Protector’ (such as a trusted professional advisor) to provide an additional layer of oversight for the Settlor and to provide further advice, if required.

Summary

Not only do trusts help to navigate the tax environment and provide long-term security for the Beneficiaries in an efficient manner, they also allow the wishes of the Settlor to be carried out over a longer period of time, with the correct discretion.

Additional Information

The Dixcart Group has provided Trustee and related trust services for over forty-five years and has extensive experience in the formation and administration of trusts.

The Dixcart Isle of Man office can assist with the formation and administration of trusts and also with foundations, private and managed trust companies and other family office services. Our team of professionals, work with private individuals, international families and also with legal and accounting firms around the world.

Dixcart Management (IOM) Limited is licenced by the Isle of Man Financial Services Authority to provide trust and corporate services.  The company is also a member of the Association of Corporate Service Providers in the Isle of Man.

For more information, please contact the Dixcart office in the Isle of Man: advice.iom@dixcart.com.

Multi-jurisdiction

Emerging Trends Moving Out of Covid-19: Private Client Focus, Relocation and Corporate Planning

Effects of Covid-19

Covid-19 has impacted across the world, not leaving any country unscathed or any individual unaffected. Fortunately, many countries are now moving out of lockdown and will hopefully avoid future spikes of new cases.

Many ways of life and practices have changed significantly. This Article considers three areas, relating to preservation of wealth, where new trends are emerging; private client work, individuals seeking to relocate and corporate planning.    

Private Client Work Trends

Working as private client advisors across a number of jurisdictions, Dixcart are seeing a definite shift in emphasis in terms of what clients are now seeking as their primary objectives, in relation to managing their wealth.

The health and protection of individual family members, which has always been very important, has become paramount, and greater attention is being applied to succession planning. Wills are being reviewed and a move towards actively involving the next generation, with family wealth planning, is taking place.

We are witnessing an increasing desire for change of residency, both personal and corporate, coupled with an elevated need for more ‘complete’ advice, not just piecemeal, from specialist advisors. Often a personal move will link to a need to re-think and to re-structure corporate and asset protection vehicles.

There is an increased demand to diversify risk, in particular, in relation to:

  • Residence
  • Business location
  • Investment location
  • Protection from government insecurity or interference

There is also an appetite for greater asset protection, with tax neutrality being a key driver. Private clients also wish to ensure that assets are being held in jurisdictions offering economic and political stability, as well as robust legal systems.

There is an increased demand for hybrid structures and a migration of companies to ‘safe havens’.

Trends In Terms of Individual Relocation

Covid-19 has made us all stop and think about what matters most in life and what we consider to be our main priorities. Where we live and our day-to-day lifestyle is now a very important consideration.

New work practices involving working from home and the mastering of on-line meetings and webinars, initially imposed by Covid-19 restrictions, have made many people realise that they do not have to travel to an office in a city, to work on a daily basis.

It is notable that a number of smaller countries, many of them islands, managed Covid-19 well; locking down early, suffering few cases and therefore moving more speedily out of lockdown, in comparison to other countries.

Dixcart has offices in a number of such locations: Cyprus, Guernsey, Isle of Man, Madeira, Malta, and St Kitts & Nevis. Portugal and Switzerland are also regarded as managing the pandemic very well.

If you would like further information regarding these countries, the type of lifestyle that they offer and the tax advantages that are available to individuals moving there, please see Dixcart’s detailed: Residence and Citizenship Programme (Comparison Table).   

An increasing number of high net worth individuals are now seeking to be resident in a different jurisdiction to where their business is ‘resident’. For personal residence, as well as for corporate and asset location, as indicated above, there is a requirement for jurisdictions that are regarded as safe havens.

Priorities for a safe haven in terms of individual residence include; political and social stability, lack of government interference, a relaxed lifestyle and a pleasant and healthy environment in which to raise children and/or retire.

Corporate Planning Trends

Whilst there has been a slowdown in transactional work and deals during the lockdown, we have noted a number of corporate clients taking the chance to  focus on planning for their emergence from this hiatus, and ensuring that they have the necessary tools to take advantage of opportunities that may present themselves.

This has ranged from; restructuring their present corporate and operational structures, to establishing new structures that are ready to act fast when presented with attractive deals. Corporate vehicles and/or arrangements that are established and ‘ready to act’ are valuable for corporate groups, especially if the establishment of banking relationships and any potential integration into group funding facilities, treasury and reporting functions, and corporate governance regimes, has already been set-up.

By speaking to professional advisors and corporate service providers such as Dixcart, clients can get ahead and deal with any potential challenges or time delays in advance.

We are also seeing a move towards organisations seeking to remove or restructure inefficient or ineffective arrangements, including redomiciling structures to well respected and compliant jurisdictions.

Additional Information

The Dixcart model of providing integrated advice: private and corporate, across a number of jurisdictions meets the needs of the post Covid-19 era.

We place great emphasis on teamwork and sharing of professional skills within and across the offices, our teams know and regularly meet each other (in person or more recently with regular on-line catch ups).

During lockdown, our inter-office collaboration has increased still further, enabling us to provide solutions, using a mix of relevant asset protection vehicles, across jurisdictions, to meet the particular needs of each client.

If you have any questions, please speak to your usual Dixcart contact or email us on: advice@dixcart.com.

Why Use A Guernsey Company?

Guernsey – an International Financial Centre

Guernsey is a premier international financial centre with an enviable reputation and excellent standards. The Island has developed as a base from which internationally mobile individuals can organise their worldwide affairs.

Guernsey is a popular jurisdiction in which to incorporate companies, which are regularly listed on the London Stock Exchange (Main Market and AIM Market), the New York Stock Exchange, The International Stock Exchange (previously the Channel Islands Securities Exchange) and many others.

Guernsey companies can be used for a wide range of transactions, such as investment funds, private equity, structured finance and securitisation.

The Law

The Companies (Guernsey) Law 2008, reflects Guernsey’s commitment to providing a modern statutory base and flexibility for companies using the jurisdiction of Guernsey. The Law also reflects the importance placed on corporate governance.

Types of Guernsey Company

A company may be formed as a standard company or as a cellular company. A cellular company may either be a protected cell company or an incorporated cell company.

The liability of all or any of the members of an incorporated Guernsey company can be:

  • limited by shares;
  • limited by guarantee;
  • unlimited; or
  • mixed liability.

Companies formed as one type of company, may convert into a different type of company at a later date.

Tax Status of Guernsey Companies

  • Generally, the rate of corporation tax payable by a Guernsey company is 0%.

There are certain limited exceptions when a 10% or 20% rate of tax apply. Please contact the Dixcart office in Guernsey, for further details: advice.guernsey@dixcart.com.

In addition, there are no capital gains taxes, capital transfer taxes, inheritance taxes, gift duties or VAT payable by, or applicable to, a company in Guernsey. No stamp duty is payable in Guernsey on the issue, transfer or redemption of shares.

Guernsey resident companies may be subject to economic substance requirements, depending on their activities. Again, the Dixcart Guernsey office can provide full details.  

Additional Advantages Offered by Guernsey Companies

In addition to the zero tax rate benefit available to the majority of Guernsey companies, they are also popular corporate entities for a number of other reasons, including:

  • Single member/director companies are allowed, as well as corporate directors and corporate shareholders.
  • Incorporation is very quick (24 hours standard, 2 hours or 15 minutes using the fast-track route).
  • ‘State of the art’ companies registry providing a range of full on-line services for incorporation, searches, filing, information management, document requests, dissolutions and changes to company particulars.
  • Integration with other entities within wider structures, such as; trusts, foundations, limited partnerships and limited liability partnerships, is relatively easy.
  • The Guernsey Company Registry is confidential with limited information available to the general public. Full information on all officers and shareholders is maintained, and is available to the relevant authorities

Additional Factors to Consider Regarding Guernsey

The jurisdiction of Guernsey has extensive experience in administering a wide variety of corporate structures and asset types.

It has a well-respected judicial system, political independence and high standards of compliance and transparency. It offers a pool of experienced professionals with the appropriate legal, accounting and company administration expertise.

Geographically it is close to the UK and to Europe and is in the same time zone as the former. 

New Guernsey residents who purchase ‘open market’ property, can enjoy a tax cap of £50,000 per annum on Guernsey source income in the year of arrival and the subsequent three years. This is provided that the Document Duty paid, in relation to the house purchase, is at least £50,000.

Additional Information

Should you require additional information regarding Guernsey companies please speak to Steven de Jersey or Bruce Watterson: advice.guernsey@dixcart.com.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Maltese Foundations: What Are Their Advantages and Distinct Characteristics?

Background

In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhances Malta as a jurisdiction for international private asset planning.

Foundations have been described as the civil law alternative to trusts.

There are three types of foundations in Malta:

  • Private foundations are established for the benefit of a beneficiary or group of beneficiaries.
  • Charitable foundations are public benefit foundations exclusively promoting a social or public purpose on a non-profit making basis.
  • Purpose foundations are established for a purpose, without beneficiaries and generally have a philanthropic objective, although they can be established with a  private purpose.

Why Establish a Foundation?

There are numerous reasons why a foundation may be of benefit, which apply to a private foundation established in Malta: 

  • Confidentiality: the foundation deed states the foundation’s name, its registered address, a description of the initial endowment with which it was formed, and its purposes and objects.
  • Asset protection: if a home country is not politically or economically stable, a foundation can be established overseas and assets transferred into it (professional advice should always be taken in the home country, prior to any transfer taking place).
  • Securitisation vehicle: Maltese law allows for the use of a foundation in place of a trust, as an appropriate vehicle for the securitisation of debt.
  • Succession planning: a foundation can generate a greater degree of privacy and flexibility than may be possible with a will alone. Foundations can be used to avoid the separation of family estates and to prevent disputes between heirs.
  • Spendthrift beneficiaries: foundations can be created to prevent reckless heirs from spending family wealth on the death of their parents, by limiting their interest to income or to capital (at least until they reach a certain age, or until they fulfil certain requirements). Foundations can be drafted in such a way that a beneficiary is ‘excluded’, if they are, for example, declared bankrupt.
  • A solution for the care of individuals with special needs and minors: a foundation can be used to make special provisions for beneficiaries who will be unable to care for themselves on the death of the founder, and in situations where it may be appropriate that one heir should benefit more on the death of the founder, as they require a greater amount of care, with its associated costs.
  • Lifestyle planning: partners who are not married, or whose family arrangements are not straight-forward may find that some countries’ legal systems do not provide adequate solutions on their death or separation. In such cases a specifically drafted foundation can be used to ensure that partners, and children of such partners, are treated as the founder intends.

Characteristics of Maltese Foundations

  • Maltese private foundations are regulated by the ‘Second Schedule to the Civil Code of the Laws of Malta’. New legislation introduced a registration procedure, which has been designed in a way to safeguard the privacy of Maltese private foundations.
  • A foundation can only be constituted by virtue of a public deed ‘inter vivos,’ drawn up by a notary public or by means of a will. Once the foundation is constituted, it is registered with the Malta Registrar of Legal Persons.
  • A private foundation is limited to a maximum period of 100 years.
  • An interesting feature of a Maltese foundation is that segregated cells can be established within a foundation to achieve particular purposes with particular assets. The segregated cell does not have separate legal personality; however the assets and liabilities of the cell are ring-fenced from other assets and liabilities of the foundation and/or other cells.
  • In terms of Maltese legislation, it is possible to re-domicile a foundation into and out of Malta.
  • A foundation may be terminated at any time if all of the beneficiaries agree, provided they are all alive, none have been convicted of a crime or are minors. If the founder is still alive his consent would also be required. Termination obligations must be included in the deed.

Maltese Foundations: A Choice to be Taxed In One of Two Ways

  • A foundation can either be treated as a company, which is both resident and domiciled in Malta, OR as a trust.

Taxation as a Trust

A Maltese foundation can irrevocably elect that the foundation be treated as a trust, for tax purposes.

An election to be treated as a trust gives rise to beneficial private asset planning opportunities, particularly where the founder and beneficiaries are not resident and/or domiciled in Malta. In such a situation no tax and/or duty will be payable in Malta. This applies on settlement and in relation to the income, attributable to the foundation.

Taxation as a Company

If a Maltese foundation decides to be taxed as a company, as with other companies in Malta, the income and/or gains realised are subject to tax in Malta on a worldwide basis at the flat rate of 35%.

However, on the distribution of qualifying foreign or local source income, by the foundation in favour of its beneficiaries, the beneficiaries will generally be entitled to a refund of 6/7ths of the Malta tax paid by the foundation, giving an effective tax rate of 5%. This assumes that the beneficiaries are not resident and/or domiciled in Malta.

A number of reliefs are also available to foundations, as well as to companies – amongst these are; the full imputation system, participation exemption, and access to appropriate unilateral agreements, Malta also has wide network of Double Tax Treaties.

How Can Dixcart Assist?

The Dixcart office in Malta can assist in the establishment and management of a foundation in an efficient manner and to meet the agreed objects of the foundation.

Additional Information

For further information about Maltese foundations and the benefits that they offer, please speak to Maria Muzarowska or Henno Kotze: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Why is Switzerland a Favoured Location for a Family Office?

Background

Switzerland is a very attractive jurisdiction for the establishment and management of Family Offices, from virtually all continents and countries across the world. South America, in particular is a part of the world that particularly appreciates the gravitas of Switzerland as a location for a Family Office, the stability of this international centre and the highest level of confidentiality that is guaranteed. 

Reasons Why Switzerland is a Favoured Location

  1. Political, Financial, Social and Economic Stability

The economy of Switzerland is one of the world’s most advanced economies. The service sector plays a significant economic role, particularly the financial services sector. The Swiss economy ranks first in the world in the 2019 Global Innovation Index, and fifth in the 2019 Global Competitiveness Report.

The stable political and economic environment of Switzerland makes it an appealing jurisdiction from an asset protection perspective, with the added benefit of attractive tax regimes for both companies and individuals. These factors, combined with the country’s high regard for personal privacy and confidentiality, are of appeal to Family Offices from all over the world.

  • Banking Advantages

Switzerland is the premier financial destination for international investment and private asset protection. It also offers one of the strongest and most commercial banking centres in the world.

It has a long history of expertise in dealing with international currencies and open capital markets. Many banks have dedicated desks for particular jurisdictions, providing specific services to clients.

The main benefits of having a Swiss bank account are the low level of financial risk and high level of privacy

There are a wide variety of large domestic and overseas banks, experienced in operating accounts for different industries; trading, commodities, and commercial, as well as for private individuals.

Switzerland is well-known for its private banks, an exclusive niche for high net worth individuals, which provide sophisticated personal financial services and products to an exclusive clientele.

  • Trusts and Private Trust Companies as Asset Protection Vehicles 

Widely used in Anglo-Saxon countries, a trust is flexible and, in the right circumstances, can be an effective asset protection vehicle. It provides anonymity for families, and confidentiality regarding the assets and/or companies held within it. Trusts can be a useful aid in terms of succession planning and can assist with long term inheritance matters.  

A Private Trust Company (PTC) is a corporate entity authorised to act as trustee. The client and their family can actively participate in the management of the assets and decision-making processes, as well as sitting on the board of the PTC. 

Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.

In Switzerland the Settlor (the individual who settles assets into the Trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries. Professional advice should be taken.

Use of a Swiss Company as Trustee

  • A Swiss company can act as Trustee of a Trust, formed under the law of another jurisdiction
  • Trusts are not subject to taxation in Switzerland
  • The Settlor and Beneficiaries are not subject to taxation in Switzerland, as long as they are not resident in Switzerland

Dixcart and Swiss Trustee Services

The Dixcart office in Switzerland has been providing Swiss Trustee services for over twenty years and is a member of the Swiss Association of Trust Companies (SATC) and registered with the Association Romande des Intermediaires Financiers (ARIF).

The new Swiss Federal Act on Financial Institutions (FINIG), came into effect at the start of 2020 and Family Offices and Trustees must now gain mandatory approval. Dixcart Trustees (Switzerland) SA already met all of the required regulatory obligations and continues to do so.

The Dixcart Swiss office, and the other offices that are part of the Dixcart Fiduciary Group, recognise that the application of compliance procedures, to meet the highest standards, provides our Family Office clients with the most effective and sustainable service.

Additional Information 

If you would like additional information regarding the use of Switzerland for asset protection, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively, please speak to your usual Dixcart contact.