Trusts For Planning
Trusts can be an important tool
for international wealth planning
- Trust planning requires careful legal structuring: A trust can be used for wealth and succession planning, but its legal and tax consequences depend heavily on the trust structure, the parties involved and the jurisdictions concerned.
- International trust structures require particular care: For clients with connections to the United States, Germany, Italy or other jurisdictions, the recognition, taxation and reporting of a trust must be assessed across all relevant legal systems.
- Professional advice should come before establishing or transferring assets to a trust: The appropriate structure depends on the client’s objectives, assets, family circumstances and applicable inheritance, corporate and tax laws.
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International Trust and Estate Planning
Trusts can be an important instrument in international wealth and succession planning. They may allow assets to be held and administered according to predetermined rules and can provide a framework for transferring wealth between generations.
However, trusts are particularly complex when the settlor, trustee, beneficiaries and assets are located in different countries. A trust established under U.S. or English law, for example, can have very different legal and tax consequences when the people or assets involved are connected to Germany or Italy.
RAMPF/EICHNER advises clients on the German and Italian legal aspects of international trust structures, wealth planning and succession arrangements.
What Is Trust Planning?
Trust planning involves determining whether and how a trust should be used to achieve specific estate, wealth or succession objectives.
Depending on the individual circumstances, planning may address:
- Who should benefit from the assets
- Who should administer the assets
- How assets should be managed during the settlor’s lifetime
- How assets should be distributed after death
- Whether beneficiaries should receive assets immediately or over time
- How business interests should be handled
- How international assets should be structured
- How the trust interacts with wills and other succession documents
A trust should not be established simply because it is commonly used in another jurisdiction. Its suitability must be assessed in the context of the client’s complete legal and tax situation.
Why Is International Trust Planning Complex?
Trusts originate primarily from common-law legal systems and are not structured in the same way as traditional German civil-law institutions.
Germany does not have a domestic trust law equivalent to the trust systems found in common-law countries. Foreign trusts can nevertheless be relevant in German legal and tax matters.
The analysis may involve:
- The law governing the trust
- German conflict-of-law rules
- The Hague Trust Convention
- German inheritance law
- German tax law
- The law of the country where assets are located
- The residence of the settlor and beneficiaries
Trusts and Succession Planning
Trust planning can form part of a broader succession strategy. A trust may, depending on the applicable law, allow assets to remain under professional management while providing benefits to designated beneficiaries.
This can be relevant where:
- Children are still young
- Beneficiaries should receive assets gradually
- Family wealth should remain organized across generations
- A business interest needs long-term management
- Family members live in different countries
- The settlor wants to establish detailed rules for the administration of assets
Trust planning should generally be coordinated with wills, inheritance agreements and other succession documents.
Trusts Holding Real Estate
International clients may also consider using trust structures in connection with real estate. This requires particular care because the law of the jurisdiction in which the property is located can be decisive for the transfer and ownership of real estate. If a trust is connected with Italian or German real estate, for example, the relevant local property, registration, inheritance and tax rules must be considered in addition to the law governing the trust itself.
Trusts and Business Interests
A trust may also be used to hold shares or other business interests where legally appropriate. However, trust law and corporate law must be coordinated. The trust’s terms should be compatible with the company’s articles of association, shareholder agreements and applicable corporate law. Business succession planning may therefore need to be considered alongside trust planning.
When Should You Consult a Trust Planning Attorney?
Professional advice should ideally be obtained before establishing a trust or transferring significant assets into an existing trust.
This is particularly important if:
- You are a U.S. citizen living in Germany or Italy
- You have assets in several countries
- Your family members live in different jurisdictions
- You own international real estate
- You have significant business interests
- You are planning a cross-border succession
- You already have a foreign trust
- You are considering transferring substantial wealth to a trust
Early advice can help identify legal and tax consequences before they become difficult or expensive to resolve.
International Trust Advice from RAMPF/EICHNER
Trust planning frequently crosses several areas of law. RAMPF/EICHNER advises clients on the German and Italian legal aspects of international wealth and succession structures.
Our international clients can receive legal advice in English, German and Italian. If you are considering establishing a trust, restructuring an existing trust or transferring assets into a trust, obtaining legal advice before taking action can help ensure that the structure is consistent with the applicable legal framework.
Contact RAMPF/EICHNER for individual advice on international trust and succession planning.
Frequently Asked Questions
What is a trust?
A trust is a legal arrangement in which assets are held and managed by a trustee for the benefit of one or more beneficiaries or for a specified purpose. Trusts can be used for estate planning, wealth management, succession planning and other objectives. The legal effect of a trust depends on the applicable law and the specific terms of the trust.
Why would someone use a trust for estate planning?
A trust can provide a framework for managing and transferring assets over time. Depending on the structure and applicable law, it may allow assets to be managed for beneficiaries according to specific instructions rather than transferred to them outright at a single point in time. Trust planning can therefore be relevant where a client wants to establish a long-term succession strategy or provide for future generations.
Can a trust be used to protect assets?
Depending on the applicable jurisdiction and structure, trusts can form part of an asset protection strategy. However, a trust does not automatically protect assets from every creditor or legal claim. Transfers made after a claim has arisen or with the intention of disadvantageous creditors can be subject to legal challenge. Asset protection planning should therefore be undertaken before specific risks materialize.
Can a trust avoid inheritance tax?
A trust should not be established solely on the assumption that it will eliminate inheritance or other taxes. The tax treatment of trusts is highly dependent on the relevant jurisdiction, the trust structure, the residence of the parties and the nature and location of the assets.
Can I put real estate into a trust?
Depending on the applicable law, real estate can potentially be held through or transferred to a trust structure. However, the transfer may have significant legal, registration and tax consequences. Foreign real estate requires particular attention because the law of the country where the property is located may apply to important aspects of the transaction.
Can a trust hold a business?
A trust can potentially be used to hold interests in a business, depending on the applicable legal system and corporate structure.
Where a trust holds shares in a company, the relationship between trust law and corporate law must be carefully considered.
What is the difference between a trust and a will?
A will generally takes effect upon death and governs the succession of the estate. A trust can operate during the settlor’s lifetime and may continue after death, depending on its terms. The two instruments can sometimes be used together as part of a broader estate planning strategy.
What is a trustee?
The trustee is the person or entity responsible for holding and administering trust assets in accordance with the trust instrument and applicable law. The trustee’s powers and duties depend on the applicable trust law and the terms of the trust.
What are the tax consequences of a trust?
Trust taxation can be complex. Relevant factors may include the residence and domicile of the settlor, trustee and beneficiaries, the location and type of assets and whether the trust is treated as transparent or non-transparent for tax purposes. For international clients, both local and foreign tax rules may need to be considered.
Do I need an attorney to establish a trust?
There is no universal requirement that every trust be established through an attorney. However, professional legal advice is strongly advisable where substantial assets, international elements, business interests or complex family circumstances are involved. A poorly structured trust can create significant legal and tax problems.
