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Foundations & Trusts
Final breakthrough for the trust (foundation)...you don't have to be the Queen of Belgium to set one up!
"Things your bookkeeper, accountant, and the notary will NOT tell you!"
Yes, it is still possible to make you (almost) invisible to the Authorities!
Recently a very positive ruling was issued on the use of the trust/foundation. Does this mean the breakthrough of using a trust in the context of estate planning? First, we briefly outline what "a Trust" is and when it makes sense to use it.
What is a Trust (foundation)?
Trusts/Foundations: a trust (foundation) has a history, dating back to the Crusades. When the landlord wanted to make settlements in case he did not come back alive, a trustee was appointed to manage the estate and other properties according to the instructions of the one who died on the field of honor (the settlor). In the Anglo-Saxon world, both private and commercial-economic arrangements have been settled and collected through trusts for centuries. It is a very vibrant legal vehicle, nurtured by extensive jurisprudence, through which fantastic things can be achieved.
To outline it simply, a trust/foundation is a contract, whereby you hand over a portion of your assets to a trustee (trustee-protector). This trustee manages your money or assets for a well-defined beneficiary. The creative thing is that the trustee may also be the legal owner and you the beneficial owner. It is also possible that there is another protector who follows up with the trustee and sees if it is indeed doing what it is supposed to do or even sometimes can change a trustee. So the trustee is given instructions on how to manage the assets. So in a true irrevocable trust, you have permanently surrendered your assets to the trust/foundation. This has consequences for claims, inheritance tax...and also HUGE tax advantages.
It is important that the assets someone wants to place in the trust/foundation are actually placed there and that it can be legally proved. If you choose "a trust", one must do his homework well, half work is just worthless in this context.
With a Trust/Foundation you bypass national laws 100% and after death, the assets of the Trust/Foundation are transferred to WHO you determine. So you can completely "show the finger" to national laws. Through a Foundation, you can e.g. allocate your entire estate to a specific person and/or persons. If this person takes the legal inheritance of the assets OUTSIDE the national borders, ZERO inheritance tax has to be paid (and you can show the national government the finger a 2nd time).
When does a trust/foundation make sense?
A trust may make sense in the following cases:
1. you are at high risk of claims: the portion of your assets that was placed in the trust is safe from such claims.
2. Your private situation (e.g. impending divorce) may also require you to place assets in a trust.
3. You want your inheritance to be handled according to the rules that you want and not according to what the national politicians decide.
4. You wish to invest discreetly.
5. You are an artist and wish your art to continue to exist after your death according to the rules that you wish.
6. You wish to do good works...
7. you wish to give your entire estate to your mistress in the event of your death.
8. you do not wish the national government to find out what you put into the trust/foundation. (No CRS and no UBO).
note: In Anglo-Saxon countries, people will put pension funds and schools and museums, etc in trusts. ... So there may be numerous other reasons to set up a trust.
A positive ruling:
The facts...A so-called Belgian resident (i.e. someone subject to tax there) is a beneficiary of a trust A. This trust A is in turn the beneficiary of a trust B. Both trusts are 'irrevocable' and 'discretionary', i.e. one cannot undo them. In short, a foundation or trust as it really should be. They are exotic trusts, they are both governed by the law of The Bahamas (or Panama) and the trustee is a Bahamian (Panama) company. In fact, the settlor (i.e. the one who set up the trust) is the beneficiary's mother, she is the settlor of both trusts.
The beneficiary of the trust, who is thus a Belgian taxpayer, thus receives distributions from the trust. Remarkably, the ruling commission states that the income received is not subject to income tax. Nor can there be any application of the anti-abuse provision here, according to the Ruling Commission (Decision No.900.329 of December 22, 2009).
What was important? Important is the fact that both trusts were "irrevocable discretionary trusts. In human language, the trustee had to administer the trust in accordance with the trust deed. In other words, the trustees could act entirely at their own discretion, i.e., discretionary. They did not have to receive instructions from anyone, least of all the beneficiaries. It is therefore important that the trust deed should leave nothing to ambiguity in this regard. Thus, it is the trustee who makes distributions to the beneficiaries at his or her own will and discretion. There is also no protector in this trust, so the trust can act with even greater independence.
Not taxable. As you know, the trustee is the legal owner of all the assets held in the trust but also of the income they generate, such as dividends and capital gains. The income is therefore in principle only taxable on the part of the trustee. For example, the trustee is a Bahamian (Panama) company and has no link to Belgium. The income is not taxable in Belgium and not in the Bahamas (Panama).
But what if income is now distributed to a Belgian taxpayer from that trust/foundation. As you would expect, Belgian tax law has no provisions whatsoever regarding income from a trust. And as you may know, one cannot levy a tax without a law in place.
The Ruling Commission checks its' list... It concludes that the income received by the lady in question is no income from movable property, but also no income from immovable property, professional income, or miscellaneous income. In other words, the income cannot be taxed in Belgium. There is no taxable income within the meaning of Article 6 of the Income Tax Code. Furthermore, the ruling commission says that the outcome would have been different if the beneficiary herself had been the settlor, and if there had been no 'irrevocable and discretionary trust'. Also, if the lady in question had been a protector of trusts, the decision might have looked different.
Where do I set up a trust/foundation? There are of course various jurisdictions to set up a trust such as the UK, Jersey, Guernsey, Liechtenstein, Panama...and so on. It is also interesting to set up a trust in Panama, New Zealand, or Singapore because of the great discretion. What is also nice in these countries is the fact that the trustee can be replaced by a so-called trust company or in the case of a foundation you can appoint NOMINEE directors. This is to say many continental Europeans sometimes feel a little uncomfortable about having to give up their assets to a trust and put their fate in the hands of a trustee for a piece. Of course, in practice, the trustee is a professional law firm that does nothing else and usually does a fine job. But in practice, we do feel that a lot of people are uncomfortable with this. Therefore it is a good idea to sometimes replace the trust with a Trust Company. This is then a company (LTD) that can be set up so that through the trust company that one can be involved with, one has more control over the trust.
For the connoisseurs, there is not only "a trust" but also something like "a foundation". A Liechtenstein Stiftung was the first one after that numerous countries have adopted the foundation like Austria but also several other countries. The Stiftung is a good option ... but has become very expensive. In English, one speaks of a foundation.
A foundation is more like a non-profit or a company...it has its own legal personality and a board of directors who run the whole thing. A trust is governed by the so-called civil law (which has its roots in the Napoleonic Code) and the trust falls under the common law. Now both can also be combined. For example, it is conceivable that the beneficiary of a trust is a foundation or vice versa. Someone who really wants to make life difficult for his creditors, etc... Someone who really wants to make things difficult for his creditors, etc., works with a foundation in Panama, for example, and designates a New Zealand trust as the beneficiary. You see, not only are you combining two legal forms and two geographical locations, but you are also combining two legal systems (common law and civil law). As you can understand, it's a chore for lawyers. This is just to show that there are a tremendous number of possibilities with trusts and foundations...this ensures that any opponent will be up to their eyeballs very quickly.
A foundation is more like a not-for-profit or a company... it has its own legal personality and a board of directors who run the whole thing. A trust is governed by the so-called civil law (which has its roots in the Napoleonic Code) and the trust falls under the common law. Now both can also be combined. For example, it is conceivable that the beneficiary of a trust is a foundation or vice versa. Someone who really wants to make life difficult for his creditors, etc... Someone who really wants to make things difficult for his creditors, etc., works with a foundation in Panama, for example, and designates a New Zealand trust as the beneficiary. You see, not only are you combining two legal forms and two geographical locations, but you are also combining two legal systems (common law and civil law). As you can understand, it's a chore for lawyers. This is just to show that there are a tremendous number of possibilities with trusts and foundations...this ensures that the possible opponent is very quickly up to his neck.
Those who want discretion will always use a trust/foundation. One has a will and designates e.g. John as the heir. No one needs to know that John does not actually receive the inheritance himself but is the trustee for someone else... Interesting .... Of course, on the European continent where one usually still has to deal with 'forced heirship' (forced heirs) this story can play a lot less. But even here there are often interesting creative but legal possibilities.
Important considerations. Establishing a trust/foundation is not a complex undertaking. As you will see in this case, it is of the utmost importance that such a trust is set up correctly and that you get expert guidance and, that you choose the right jurisdiction. Setting up a trust/foundation is not expensive. The annual cost is a little over $1,000. So inexpensive that you have to weigh its creation against more conventional estate planning. Still, in some cases, "a trust" is a wonderful tool that you can use to arrange very much. It has proven for centuries to be a valuable tool.
Until the old ruling, the use of a trust in a Belgian context did make less sense, because the Belgian tax authorities did not want to accept the necessary tax consequences of the existence of a trust. With this new ruling, however, this all is changing and a lot of doors are opening. The clever use of a trust/foundation can therefore also offer many advantages in a Belgian context. Estate planning will now be even more fascinating and diverse.
"Those who have been subject to legal theft (taxes) all their lives can make sure that the Government misses out after their death!"
There are, of course, many other possibilities. However, it is important not to delay these things any further. After all, everything is indeed becoming more difficult...and who says more difficult, says more expensive.
Note: also in the Netherlands income from a foundation is NOT taxable.
The annual maintenance cost of a Panama foundation is slightly more than €1,000 and set up the foundation costs less than the annual cost of a Swiss/Liechtenstein foundation. A foundation is therefore accessible to ANYONE. It takes about 2 to 3 weeks to set up a foundation. We usually work with Nominee Directors, Protector, and Beneficiaries.
For those who think it is all not that bad...the table below: know that for Panamanian residents most of these taxes are ZERO! So think twice before confessing all your pennies to the taxman!
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