Category: Private Client

Maltese legislation combines features of both Common Law and Civil Law, which adds to its appeal, to individuals from countries operating either of these legal systems.

In order to attract not only local, but also foreign clients, trusts and private foundations were introduced, in 2004 and 2007 respectively, as legal vehicles available in Malta.

Trusts and foundations are recognised as flexible vehicles for the holding of many types of asset.

What is a Trust and What is a Foundation?

Maltese Trusts

In 2004, the Trust and Trustees Act was implemented as the first written law regulating domestic trusts in Malta.

A trust is a legally binding arrangement whereby a person (the settlor) transfers asset to another person (the trustee) who takes legal title to the trust assets. The trustee holds the trust assets for the benefit of other persons (the beneficiaries, which may include the settlor), or for a specified purpose.

There are many forms of trust that have been developed over time, some of the most common forms are:

•          Accumulation and maintenance trusts

•          Discretionary trusts

•          Fixed interest in possession trusts

•          Revocable trusts

Maltese Foundations

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.

The main difference between trusts and foundations is that whereas, in the case of a trust, the settlor settles assets to a trustee to hold for the benefit of the beneficiaries, a foundation entails the creation of an entity with separate legal personality distinct from the founders, the administrators and the beneficiaries.

The legislation introduced registration as a pre-condition to gaining recognition as a separate legal personality, whilst at the same time acting to safeguard the privacy of each private foundation. This is due to the fact that any documents in the Registrar’s possession are not available to third parties, without the prior written consent of the administrators, the supervisory council, if any, or the Court, and only when satisfied that such third parties have a legitimate interest to see this information.

Why Establish a Trust or Foundation?

There are numerous reasons why a trust/foundation may be of benefit, which apply to a trust and 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.

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 rights to future enjoyment are passed to the beneficiaries.

• Asset protection: if a home country is not politically or economically stable, a trust/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.
• Tax benefit: A Malta trust or foundation may be set up to make use of compliant avenues to minimise estate taxes, defer taxable events to a later date or shift tax burdens onto beneficiaries with more favourable tax impositions
• Succession planning: a trust and foundation can generate a greater degree of privacy and flexibility than may be possible with a will alone. Trusts and foundations can be used to avoid the separation of family estates and to prevent disputes between heirs.
• Spendthrift beneficiaries: trusts and 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). Trusts and 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 trust and foundation can be used to make special provisions for beneficiaries who will be unable to care for themselves on the death of the settlor/founder, and in situations where it may be appropriate that one heir should benefit more on the death of the settlor/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 trust or foundation can be used to ensure that partners, and children of such partners, are treated as the settlor or founder intends.

Taxation of Trusts and Foundations in Malta

Taxation of Trusts

Under Maltese Tax Laws, trusts are considered to be transparent in that income earned by the trust and distributed to the beneficiaries is not taxable in Malta.

Taxation of a Foundation

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.

Where the beneficiaries of a trust are not resident in Malta and there is no Maltese source income, the income will not usually suffer Maltese tax even if it is not distributed to the beneficiaries.

Duration

Under Maltese Law both trusts and foundations can continue until the 100th anniversary of the date of creation.

Dixcart as Trustees

Dixcart has provided trustee and related trust services in Guernsey, the Isle of Man, Switzerland and the UK for over thirty five years and has extensive experience in the formation and administration of trusts and foundations.

Dixcart can provide trust services through its wholly owned group company Elise Trustees Limited, in Malta, which is licensed to act as a trustee by the Malta Financial Services Authority.

Additional Information

If you would like further information regarding trusts and foundations in Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com, at the Dixcart office in Malta or your usual Dixcart contact.

Background

As we start 2021, the Covid-19 pandemic remains prevalent across most of the world. Measures are starting to be put in place, in particular the introduction of vaccination programmes, that will hopefully bring the pandemic under control.

Behaviours and lifestyles have had to be dramatically altered. This has impacted on private wealth management, as much as almost every other sector of our lives. Some of these changes are likely to remain with us post pandemic. 

What are the New Wealth Management Trends?

• Modified Perception: What is Wealth?

We are witnessing a re-assessment of key priorities.

The importance of family and health have been elevated significantly as have self-fulfilment and happiness. Financial gain naturally remains an important goal for wealth management but this is being balanced against priorities, many of which have been elevated to much greater importance during the past year.   

• Increased Importance of Business Continuity for Family Wealth Management Planning

Contingency plans for business continuity and wealth management now need to take into account widespread country and regional lockdowns and quarantines, travel disruptions, and significant general disruption to businesses and communities.

Continuity plans need to be assessed and strengthened, where necessary, to build  capabilities now and in anticipation of recovery. These plans and contingencies need to be communicated to key internal and external stakeholders to enhance trust and transparency, and to help mitigate against potential  damage to the preservation of family wealth in the future.

• Investor Preference for Lower Cost and More Passive Strategies

In general, there has been movement towards less risky and more ‘steady’ investment strategies. In a time of crisis, upheaval and volatility this is to be expected.

• Client Preference for Less Risk and Additional Planning for the Future

Clients generally have a reduced risk appetite.

Covid-19 has also emphasised people’s mortality and there has been an increased  emphasis on succession planning and the sharing or moving on of responsibilities to the next generation.

As part of this process, clients have been drafting wills and/or reviewing and amending current wills.

• Increasing Moves Towards Holistic Financial Planning and Philanthropy as a Key Objective

Dixcart has long believed in the advantages of holistic financial planning, by assisting with the management of our clients’ assets as a whole. Increasingly this is being recognised as the most effective way for the future, with a trusted adviser knowing the family members and appreciating and understanding their goals and the nuances of their specific wealth management plan.

In the post-pandemic world it is likely that there may be an increased desire by individuals to spread wealth to those less fortunate than others.

Philanthropy is increasingly becoming an objective for private wealth clients. Individuals can give directly to charity (‘chequebook philanthropy’) or more formal structures can be put in place, to provide an organised platform for giving, as well as offering important tax-planning benefits. It is important that this topic area is discussed with clients and accurately reflected in any wealth management plan.

• Interaction with Clients Digitally – Rather than Face to Face

In many cases the only way to ‘meet’ the majority of clients has been on-line. This requires a different approach and discipline and an investment in appropriate and secure technology by professionals working with wealthy individuals and family offices, to retain relationships and maintain required support levels.

Whilst previously the older generation had, at times, been reluctant to adopt new technology, Covid-19 has provided a real incentive to embrace change. The inter-generational divide, in terms of technology use, is generally not as great as it was pre-pandemic.

Key business workflows are being ‘digitialised’ to accommodate changes in both client behaviour and employees working remotely. This trend is likely to evolve further and lead to the use of more interactive planning and performance reporting tools, initially in a virtual setting and, in the future, for in-person meetings.

With the increasing reliance on technology, the importance of cyber-security has been elevated to a much higher level. The training of family members and of staff to identify potential breaches, is becoming even more critical.

• Collaboration Software is Changing the Way People Work

This trend is evident across a number of sectors, including private wealth.  

Wealthy families, as well as the professionals providing wealth management services, have needed to develop new methods of sharing resources across; families, teams and markets.

The new imperative is to provide access to expertise through a variety of different means, other than solely through geographic proximity and physical interaction.

The use of ‘secure team software’ is likely to continue. This applies to wealthy families with individuals located in a number of counties/locations as much as to Family Offices and private wealth managers.

Summary and Additional Information

As we slowly emerge from the recent upheaval and we move to the next ‘normal’, as in the past, the success of wealth management will depend on the ability of professional advisers to listen to clients and adapt to their changing needs. Wealth management specialists will also need to ensure that they are digitally intelligent, in terms of embracing revised means of keeping in touch with contacts and adopting more flexible wealth management operational systems.

• Dixcart is well placed to meet these challenges. Getting to know our clients and really understanding their objectives, has consistently been our key priority. In addition, we embrace new technology and have our own IT department. The IT team works on projects across the Group, and has helped ensure that we have solutions in place, to communicate with each client in a meaningful manner, and in a way that is most appropriate to them.

If you would like to discuss any of the matters raised in this Information Note, or have any other questions, please contact John Nelson or Paul Harvey at: advice@dixcart.com.

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.

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 and Malta. 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.

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 Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Since the breakout of Covid-19, more individuals are now reviewing their estate and putting practical measures in place regarding succession planning. Although not a catalyst for encouraging individuals to review their affairs, Covid-19 has certainly reinforced the importance of it.

Covid-19 has provided a reason for many families to ‘take stock’ and to put in place or revise practical measures regarding succession planning. 

Since the breakout of Covid-19, more individuals are now reviewing their estate and putting practical measures in place regarding succession planning. Covid-19 is certainly not the main catalyst for encouraging individuals to review their affairs, it has definitely reinforced the importance of it. 

In a number of countries, succession planning can be complex, particularly some Latin American countries and other Civil Law countries, where forced heirship rules still apply. Unless alternative plans are put in place early, at least part of an estate, will be automatically divided between surviving family members, rather than shared according to the individual’s preference. 

International taxation is another reason why individuals may wish to put structuring measures in place. Many high net worth individuals and families incorporate one or more of a Corporate Family Investment Structure, a Trust or Foundation as part of their planning.

8 steps to successful succession planning 

1. Identify exactly what the intended outcome of the succession planning should be.
2. Establish policies and set up a review procedure to ensure the adequate preservation and transfer of wealth to the next generation.
3. Review the ownership structure of any relevant businesses and other assets. Some family businesses may have employees they would also like to include within the planning, just as much as family members.
4. Understand how relevant local laws would apply, in relation to inheritance. Consider where all relevant family members are resident, and also tax resident, and what the implications of this might be regarding the transition of family wealth.
5. Consider or review structuring options, including the use of holding companies and/or family wealth protection vehicles such as family investment companies, foundations, trusts, etc.
6. Review international investment structures, including the holding of real estate, from a tax and asset protection perspective.
7. Confidentiality procedures needs to be developed to deal with relevant confidential information requests from financial institutions and third parties.
8. Identify key successors and their roles, develop open communication amongst family members, especially regarding decision making and ongoing processes. 

All of the above steps should be considered in order to protect an individuals or family’s wealth and/or business(es) in the case of unexpected events occurring; it is also imperative to review the above steps on a regular basis and seek advice regarding the most appropriate legal structures.

Corporate Family Investment Structures 

A family investment company is a company to where the shareholders are drawn from different generations of the same family. The use of a family investment company has grown significantly in recent years, particularly in situations where it has become difficult to pass value into a trust, without incurring an immediate tax charges but there is a desire to continue to have some control and influence over the family’s wealth preservation. 

For more information regarding the benefits of a family investment company: Why use a Corporate Family Investment Structure and Why Use a Guernsey Corporation?

Trusts, Foundations & Private Trust Companies 

Trusts continue to be a popular structure when undertaking estate and succession planning and are used by many Common Law jurisdictions. A trust is a very flexible instrument; at a basic level, the concept of a trust is relatively simple: The Settlor places assets in the legal custody of another (Trustee), who holds the assets for the benefit of a third party (the Beneficiary). 

The Trustees are those who oversee and control the trust. Their role is to deal with the assets according to the Settlor’s wishes and manage the trust on a day-to-day basis. Therefore, the consideration of who is appointed Trustee is extremely important. 

In a similar vein a Foundation can fulfil many of the same functions in Civil Law countries. Assets are transferred to the ownership of the Foundation which is governed by its Charter and managed by a Council for the benefit of the beneficiaries. 

A Private Trust Company (PTC) is a corporate entity authorised to act as a Trustee and is often used as an asset protection vehicle. The use of a PTC can enable the client and his/her family to actively participate in the management of the assets and decision-making process. 

Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Switzerland is in the process of enabling its own trust legislation and already trusts from other jurisdictions, formed under their specific rules, are recognised and can be administered in Switzerland. The use of a Swiss company as a Trustee can be attractive with the perceived extra layer of confidentiality afforded by Swiss legislation. 

An English, Guernsey, Isle of Man or Maltese Law based trust with Swiss Trustees can offer a number of tax efficiencies as well as advantages in terms of wealth preservation and confidentiality. Dixcart can establish and manage such trust structures. More information regarding the benefits of using a Swiss Trustee can be found here: The Use of a Swiss Trustee: How and Why?

Summary

During periods of uncertainty and global turmoil, as inflicted by Covid-19, more of our clients are focusing on making sure they are safe-guarding their family wealth for future generations, offering stability and long-term security. Succession planning and the transfer of wealth to the next generation is a critical issue that should not be overlooked. Not only is it a means to implement generational transition, but also to protect and structure a business. The ability and understanding of the next generation as to how to deal with the organisation and management of the wealth being passed to them is also an important consideration.

The Dixcart Group has over forty-five years’ experience in assisting clients to run and manage Family Offices. We are very familiar with the issues facing families in this ever-changing international world and have extensive experience in providing trustee services across a number of jurisdictions. 

We work with each family wealth structure to coordinate communication with the family and their advisors or to provide access to, and liaison with, additional independent professional advisors. Plans can be put in place to allow for changes in a family’s structure and relationships to be recognised. We also make sure that during the implementation of such structures, relevant tax implications are reviewed and there is full transparency. More information can be found here: Private Client Services: Trusts, Foundations, Family Office. 

If you would like further information regarding effective structuring and succession planning, please speak to your usual Dixcart Manager or contact: advice@dixcart.com.

A Changing World

Particularly, in light of the recent Covid-19 pandemic, many individuals are considering how they can best protect their family health and their family wealth, across future generations.

Many have already set up family offices and use Trusts and/or Foundations as wealth preservation vehicles within these.

This Article is intended for those considering taking such steps.

Dixcart has offer 45 year of experience in helping establish Trust and Foundation vehicles and providing Trustee services. We are licensed to offer these services across the six jurisdictions of; Cyprus, Guernsey, Isle of Man, Malta and Switzerland.

What will be most appropriate, depends on your circumstances and we strongly advice that you take professional advice: advice@dixcart.com.

Questions and Answers

What is the History in Relation to each Vehicle?

Trusts have been used in common law countries for many hundreds of years, for a variety of reasons. With the development of international business, international tax and estate planners were quick to realise the benefits of using offshore trusts in mitigating tax liabilities and assisting in the flow of family wealth through the generations.

Historically, clients from civil law countries have been more familiar with the concept of the Foundation. However, now they are becoming increasingly aware of the benefits of Trusts, and it is the same in terms of common law countries and Foundations.  

How Can a Trust or Foundation Help Preserve Wealth Across Future Generations?

It 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 manage and use to benefit the ‘Beneficiaries’, a third person, or group of people, under the terms of a Trust Deed.

A Foundation creates a separate legal entity with its own legal personality, distinct from the ‘Founder(s)’, who transfers assets into the Foundation, the ‘Council’ manage the Foundation and the ‘Beneficiaries’, benefit from it.

Charitable foundations are the most common and the majority are set up to exist in perpetuity. This means that control over the foundation and its assets can be passed to countless generations of the family.

Are Trusts and Foundations ‘Private’?

In most jurisdictions, no requirements currently exist to register a Trust or for any document or information in connection with the Trust to be placed in the public domain, and the arrangement may therefore be kept completely private.

Limited information in relation to Foundations will be publicly available, but there is currently no requirement that the identity of the Founder, Beneficiaries or purposes of a Foundation should be made publicly available.

Trusts and Foundations can, therefore, both be private arrangements under current rules.

What are the Key Differences Between a Trust and a Foundation?

A number of the key differences are outlined below: 

• A Trust is not a legal entity; a Foundation is a registered legal entity.
• The ownership of the assets in a trust rests with the Trustee whilst the Foundation owns the property concerned directly.
• A Foundation is more structured than a Trust as it is governed by its Charter and Articles or regulations.
• Potentially, a Foundation provides more certainty than a Trust and
  it is less likely to be treated as a potential ‘sham’, particularly in
  civil law jurisdictions.
• Unlike most Trusts, the Beneficiaries of a Foundation may be denied
  rights to information and they generally do not have any equitable or
  other forms of ownership of foundation assets.
• Trusts are intrinsically more flexible than Foundations.
• A Trust can be used for commercial purposes but Foundations, except under limited circumstances, cannot be so used.

What are the main Reasons for having a Trust or a Foundation, in addition to Wealth Preservation?

In addition to the preservation of wealth, selected distribution of assets and favourable tax treatment, Trusts and Foundations are used to achieve the following:

• Circumvention of forced heirship laws
• Asset protection
• Confidentiality
• Continuity on death
• Philanthropy

Dixcart Offices Regulated to Provide Private Client Services:

Dixcart has six offices with extensive expertise in providing Private Client Services, including the provision of Trusts and Foundations:

• Cyprus: Dixcart Management (Cyprus) Limited is regulated and holds a full fiduciary licence under the Cyprus Securities and Exchange Commission.

Email: advice.cyprus@dixcart.com.

• Guernsey: Dixcart Trust Corporation Limited is regulated and holds a full fiduciary licence under the Guernsey Financial Services Commission. Dixcart Trust Corporation Limited is a member of the Guernsey Association of Trustees.

Email: guernsey@dixcart.com.

• Isle of Man: Dixcart Management (IOM) Limited holds a full fiduciary licence and is regulated by the Isle of Man Financial Services Authority. Dixcart Management (IOM) Limited is a member of the Association of Corporate Service Providers.

Email: advice.iom@dixcart.com.

• Malta: Elise Trustees Limited Dixcart House is regulated and holds a full fiduciary licence under the Malta Financial Services Authority.

Email: advice.malta@dixcart.com.

• Switzerland: Dixcart Trustees (Switzerland) SA is a certified member of Swiss Association of Trust Companies (SATC). Dixcart Trustees (Switzerland) SA is affiliated to “Association Romande des Intermédiaires Financiers (ARIF)” a Swiss self-regulatory organization (SRO) officially recognised by Swiss Federal Financial Market Supervisory Authority (FINMA).

Email: advice@switzerland.com.

 Summary and Further Information

Trusts and Foundations can be used to achieve many objectives. The choice of jurisdiction for a Trust and/or Foundation is important and is generally governed by the specific circumstances of each family/family office.

If you would like additional information, please speak to your usual Dixcart contact,  one of the Dixcart offices above, or email: advice@dixcart.com

Family investment companies continue to prove popular as an alternative to trusts in wealth, estate and succession planning.

What is a Family Investment Company?

A family investment company is a company used by a family in their wealth, estate or succession planning which can act as an alternative to a trust. Their use has grown significantly in recent years, particularly in instances where it is difficult for individuals to pass value into a trust without immediate tax charges but there is a desire to continue to have some control or influence over the family’s wealth protection.

Benefits of a Family Investment Company include;

1. If an individual has available cash to transfer into a company, the transfer into the company would be tax-free.
2. For UK domiciled or deemed domiciled individuals there would be no immediate charge to Inheritance Tax (IHT) on a gift of shares from the donor to another individual as this is deemed to be a potentially exempt transfer (PET). There will be no further IHT implications for the donor if they survive for seven years following the date of gift.
3. The donor can still retain some element of control in the company providing the articles of association are carefully drafted.
4. There is no ten year anniversary or IHT exit charge
5. They are income tax efficient for dividend income as dividends are received tax free into the company
6. Shareholders only pay tax to the extent that the company distributes income or provides benefits. If the profits are retained within the company therefore, no further tax would be payable, other than corporation tax as appropriate.
7. International families making direct investments into UK companies as individuals are liable to UK Inheritance Tax on those UK situs assets and it is also advisable that they have a UK will to deal with those assets on their death. Making those investments through a non-UK resident family investment company removes the liability to UK inheritance tax and removes the need to have a UK will.
8. Memorandum and articles of association can be bespoke to the family requirements for example having different classes of shares with varying rights for different family members to suit their circumstances and to meet the wealth and succession planning objectives of the founders.

Trusts vs. Family Investment Companies

Below is a comparison of key features and benefits to individuals, assuming that individual is not actually or deemed to be UK domiciled. 

	Trust	Family Investment Company
Who’s in control?	Controlled by the trustees.	Controlled by the directors.
Who benefits?	The value of the trust fund is for the benefit of the beneficiaries.	The value of the entity belongs to the shareholders.
Flexibility around payments?	Typically, a trust will be discretionary, so that the trustees have discretion over what payments, if any, are made to beneficiaries.	Shareholders hold shares, which may be of different classes and which may allow dividends to be paid to shareholders. It is difficult to change interests after inception without tax consequences and therefore, the interests associated with each shareholder may be considered less flexible than a trust.
Can you roll up income and gains?	It is possible to roll up offshore income and gains within a trust.Tax is paid when amounts are distributed to UK resident beneficiaries, chargeable to income tax to the extent there is accumulated income in the structure and capital gains tax if there are gains in the structure.	A family investment company can roll up income and gains, however, to the extent the person who established the company still has an interest, income tax would be payable on an arising basis. It is also possible for the company to be incorporated offshore with UK directors. This would give rise to a corporation tax liability at company level but then no further taxes at shareholder level until amounts are distributed from the company.
Laws in place?	Long established jurisprudence in family law and probate situations. Position continues to evolve.	Company law is well established.
Governed by?	Governed by a trust deed and a letter of wishes, both of which in most instances are private documents.	Governed by articles and shareholders agreement. The articles of a company are, in many jurisdictions, a public document and therefore any matters of a sensitive nature will generally be included in a share-holders agreement.
Registration requirements?	There is a requirement for any trusts with a UK tax obligation/liability to be included on a register of trust beneficial ownership. This private register is maintained by the HM Revenue & Customs in the UK.	Shareholders of Guernsey companies are included on a beneficial ownership register maintained by the Guernsey Companies Registry. Unlike the UK persons of significant control register, this is a private register.
Taxed in Guernsey?	No tax in Guernsey on income or gains.	No tax in Guernsey on income or gains.

Why Use a Guernsey Company?

The company will pay tax at a rate of 0% on any profits that it generates.

Provided the company is incorporated offshore and the register of members is kept, as required, offshore it is possible to retain ‘excluded property’ status for IHT (apart from UK residential property).

The shares in the company are not a UK situs asset. If the company is a private Guernsey company, it does not need to file accounts. Whilst there is a beneficial ownership register for companies in Guernsey, this is private and not searchable by the public.

In contrast, a UK company would file accounts on public record, and directors and shareholders would be listed on Companies House, a free searchable website, whose shareholders have a UK situs asset regardless, of where in the world they live.

Additional Information

If you require additional information on this topic, please contact your usual Dixcart adviser or speak to Steven de Jersey in the Guernsey office: advice.guernsey@dixcart.com.

The Dixcart Group has more than 50 years of experience in managing private wealth and assisting individuals and their families in matters of succession, estate planning and in the efficient administration of their affairs. 

The Dixcart Group can assist with the formation and administration of trusts, foundations, private and managed trust structures and other family office services and is able to offer these services through six fully regulated and independent entities positioned to enhance the Group’s offering for clients with interests all over the world. 

Our services are tailored to each specific client with the assistance of the clients’ own lawyers, chartered accountants and tax advisers together with input from specialists within the Dixcart Group. 

See Family Office for further information. For more information on managing private wealth, please contact us.

Family investment companies are becoming increasingly popular as an alternative to trusts for wealth, estate and succession planning.

Why has the use of Family Investment Companies Grown? 

Their use has grown significantly in recent years, particularly in instances where it is difficult for individuals to pass value into a trust, without being liable to immediate tax charges, but there is a desire to continue to have some control and/or influence over the family’s wealth protection.

Benefits of a Family Investment Company include:

1. Assuming that an individual has available cash to transfer into a company, the transfer into the company is tax-free.
2. For UK deemed domiciled individuals there would be no immediate charge to UK Inheritance Tax (IHT), on a gift of shares from the donor to another individual, as this is deemed to be a potentially exempt transfer (PET). There will be no further IHT implications on the donor if they survive for seven years following the date of the gift.
3. The donor can still retain some element of control in the company, providing the Articles of Association are carefully drafted.
4. There is no ten year anniversary or IHT exit charge.
5. Family Investment Companies are income tax efficient for dividend income as most dividends will be received tax free into the company.
6. Shareholders only pay tax to the extent that the company distributes income. If the profits are retained within the company no tax would therefore be payable by the shareholders.
7. International families making direct investments into UK investment companies as individuals, are liable to UK IHT on those UK situs assets and it is also advisable that they have a UK will to deal with those assets on their death. Making those investments through a Family Investment Company removes the liability to UK IHT and removes the need to have a UK will. This is as long as the Family Investment Company is offshore and the individuals are non-UK resident, or non UK resident non-dom (or non-deemed dom), to receive the IHT benefit.
8. Memorandum and Articles of Association can be bespoke to the family requirements. There can, for example, be different classes of shares with varying rights for different family members, to suit their circumstances and to meet the wealth and succession planning objectives of the founders.

 Why Use a Guernsey Company?

There are a number of reasons why it is efficient to use a Guernsey Company in a Family Investment Company structure: 

• The company will pay tax at a rate of 0% on any local profit that it generates (the Guernsey Corporate Tax Rate).
• Provided that the company is incorporated in Guernsey and the register of members is kept, as required, in Guernsey, it is possible to retain ‘excluded property’ status in relation to UK IHT (with the exception of UK residential property).
• The shares in the company are not a UK situs asset. If the company is a private Guernsey company it does not need to file accounts. Whilst there is a beneficial ownership register for companies in Guernsey, this is private and not searchable by the public. In contrast a UK company would need to file accounts on public record, and directors and shareholders would be listed on the Companies House website, a free and searchable website. The shareholders would, in addition, be deemed to have a UK situs asset, regardless of where in the world they live.
• The compliance and regulatory requirements for non-UK companies are often considered greater than for UK companies. However these requirements are easily and efficiently navigated with the right professional firm, and with appropriate planning. 

Further Reasons Why Family Investment Companies are Increasing in Popularity

Family investment companies are also becoming very popular in the UK, particularly amongst UK residents and domiciled individuals. This is largely due to the ability to roll up income and gains, having paid only corporation tax. In addition, if all income is in the form of dividends, there should be no liability to tax. 

Regardless of whether there is a UK tax position to consider, a Family Investment Company may be more familiar and better understood than a trust, for many families’ wealth planning and asset protection.

Additional Information

The Dixcart Group has fifty years of experience advising clients on wealth management strategies to best meet specific circumstances and we understand the often complex issues involved.

The Dixcart office in Guernsey provides advice to several private clients and has extensive expertise in establishing and managing Guernsey corporate structures.

For additional information regarding Guernsey Family Investment Companies, please speak to John Nelson or Steve de Jersey at the Dixcart office in Guernsey: advice.guernsey@dixcart.com, or to your regular Dixcart contact.