Alternatives to Trusts

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We have published on trusts and foundations before – https://htj.tax/?s=trusts+foundations

What are trusts used for?

• Succession
• Protection from business failure
• Vulnerable beneficiaries
• Philanthropy
• Anti forced-heirship
• Side-stepping probate
• Pensions
• International families
• Difficult-to-split assets
• Family-business ownership
• Dynastic planning
• Bankruptcy
• Divorce
• Retention of title
• Travel funds
• Employee benefits
• Spendthrift
• Security
• Confidentiality / secrecy
• Tax

What are the alternatives?

• Wills
• Shareholder Agreements
• Private Trust Companies (PTCs)
• Family Companies
• Partnerships
• Pre-nups
• Family constitution
• Insurance
• Power of Attorney
• Co-ownership

Wills

• Which law(s) apply?
• Forced heirship
• Probate(s)
• Tax

Family company

• Separating ownership and control
• Directors and voting shares (≈ trustees)
• Restricted economic shares (≈ beneficiary)
• But beneficiaries have to own shares
• And potentially forfeit shares
• Fixed v discretionary trusts
• Tax
• Probate
• Publicity
• Limited liability

Shareholder Agreements

• Generally does no harm
• Solves a limited range of problems
• Confidential
• Contractually binding
• Looser drafting
• New shareholders need to accede

Family partnership

• Like a family company…but a partnership
• Tax may be different
• Rights of partners are more ephemeral
• May work better for probate purposes
• Less uniform internationally
• Utmost good faith
• Business
• Minors

Family Constitution 

• Shareholders’ agreement without the shares
• Letter of (whole family’s) wishes
• Principles-based drafting
• Contractually binding?
• “We hereby agree to be nice to each other”
• “I’ll come back and haunt you!”
• Useful touchstone of family unity
• Detailed drafting
• And drafting is just the start

Pre-nup 

• Useful / limited purpose
• Full disclosure and carefully negotiated
• The already-married / not-yet married / may-never-be married
• Gifts conditional upon pre-nup
• International portability?
• Longevity?
• False confidence?

Insurance 

• Several uses
• Replace your assets with a contractual promise of payment
• Privity of contract?
• Portability?
• Tax
• Investment choice
• Costs
• Terminology

Power of Attorney 

• Limited purpose
• Allowing someone else to sign
• Incapacity
• False confidence
• Open to abuse
• Portability

Co-ownership 

• Under-rated solution
• Solves some problems reasonably well
• Joint bank accounts?
• Be clear about succession intentions
• Formal co-ownership agreement – especially for real-estate

Private Trust Companies 

Private Trust companies

• Helps solve a number of trust issues:

̶ Trustee liability
̶ Divided trustee loyalties
̶ Speed of decision-making
̶ Confidentiality

• Risk
• Complexity
• Cost

Civil law and other trust-equivalents?

• Hindu undivided family
• Usufruct
• Cell company
• Commanditaire Venootschap
• Liferent
• Executive Entity
• Fideicomiso
• Bewind
• EEIG
• Fiducie
• Attorney Partnership
• Nom collectif
• Offenehande Gesellschaft
• Anstalt
• Tokkin
• Stichting
• Societe Civile
• Hltuafelag
• Stiftung
• Usufruit
• Treuhandschaft
• Fond Commun
• Treuunternehmen
• Hapja Hoesa
• Unterscheftenheit