4 Steps on how to transfer the Family Business to next generations

4 Steps on how to transfer the Family Business to next generations

How to transfer the family business to next generations?

Timely and proper transferring of family assets requires careful planning and training of successors and documenting the rights and obligations of all family members. This should be based on discussions between qualifying family members in which each express their wishes, worries, objectives and ambitions regarding the family and its joint assets.

In this article 4 key steps are described which allow for a successful transfer of family owned assets to succeeding generations.

Step 1 – When to start the transfer process and who should be involved?

Experience shows that an early start with the inevitable transfer process substantially improves chances of a successful hand over to the next generation. The more involved members of the family are the better. It is essential that they take part on an equal footing and freely express their views. Some first key questions generally are: who is member of the family? Are in-laws –full- members? Are minors? And how about adopted children or those borne outside marriage? Once family- membership is agreed and clear, the next question is how to proceed and with whom?

Step 2 – Identify who wants to succeed and what training is required

Family-heads traditionally decide on their own who should succeed and when, rather than involving family members who can express their views and interests. The patriarch has the final say, but if he wants the transfer to go well and without future trouble, then advance truly open talks between family-members telling what they would want and expect, will certainly help.

For this involving an independent, experienced outsider can be the key. He should start by interviewing all eligible members. Then based on his findings he moderates discussions between family members to agree on the best successor(s). If there are more candidates then each should present their qualities and plans to the family deciding the best candidate. Thereafter a plan to train the potential successor should be adopted, while also the other members should be educated for their role as stakeholder.

But what if no one wants to succeed or has the capacity to do so? Then a non-family member will have to run the family business if it is not sold. To enable that to go well I recommend reading the articles dealing with family governance and family charters. Such documents should allow for outsiders to run the business adequately, while family members can enjoy (financial) rights and accept obligations and limitations.

These documents should also cover subsequent generations and possibilities for them to be(come) executive, and their necessary qualifications.

Step 3 – What rights and obligations should the successor and the other family members have?

Many family businesses fail after a transfer to the 2nd generation and most do not survive a transfer to the 3rd generation! This is because family businesses are generally started by entrepreneurial people who build their business on inspired plans and inspiration. At that stage there are few strict rules and limitations. Profits are applied for the business and with the business grow the experience and know-how of the creator. The founder is often convinced that his children are unable to succeed until they are quite old. A late transfer limits the chances of success!

When kids are finishing school, time has come to start the transfer process by first agreeing and laying down a clear, fair and transparent foundation for the future of the business (or other substantial joint property). Also the rights of all –agreed!- family members now and in future should be fixed, while the candidate-successor should start an intense training.

A committee of wise outsiders can both help to overview the training and protect the position of other future stakeholders as well as the business. So the process must start when the kids are relatively young. It must include discussions on and documenting of rights and obligations of all concerned allowing for a strong business that can be run without undue interference but with informed family members who receive a reasonable, pre-determined income from the joint property.

Step 4 – When should the transfer actually take place and how?

People do not live forever, but experience shows that owners of significant family assets can wait very long with handing over. Most of the time transfers take place upon the execution of a will, the contents of which are frequently a –bad- surprise to the family. Clearly earlier and pre-discussed documentation helps considerably and heads of families should not be afraid to open up on this. It is in fact their prime responsibility to ensure that both their business and his family are ready for the transfer of both the power and the legal title. Structures should be in place to separate power from the legal rights of all stakeholders (see a.o. articles on Foundations and (voting trusts).

There are ways for the older generation to make a transfer so that they can turn the wheel back if things do not work out as planned. However when that route is followed, the step to actually hand over should be taken when the younger generation can do so without undue interference from the elder, but with the possibility to benefit from their experience and knowledge. The new generation will do things differently but not necessarily badly. Also the family constitution should allow for some flexibility and adaptability.

Before the transfer takes place some organisation, committees or boards should be in place so that all members of the family are informed and have an agreed level of influence. Qualifying members of families should be on such boards probably together with 1 or more trusted outsiders who can protect all interests and help resolving potential differences of opinion by acting as mediator or arbitrator.

Fair treatment is essential

It is never easy to hand and to take over but good preparation, transparent documentation and fair treatment of all, is essential!
Most successful people find it increasingly difficult to let go and yet some day, they must! It is relatively easy if there is only 1 child, but when there are more, it is important to start the succession process soon. The successor must be identified and all concerned should be happy with the choice.

Establishing Training, Rules, Rights and Obligations

After that, the training should start while also discussing and establishing the rules, rights and obligations in the family. Such family documentation works best when it is based on broad family-wide discussions so that everyone feels contributor to what must be a fair piece. That will help the successor to run the business well while all others are getting the right information and their fair share out of the successfully transferred family business. https://www.nomoreworries.nl

What do you need to know about Polish inheritance and donations tax?

What do you need to know about Polish inheritance and donations tax?

Under Polish inheritance and donations tax law, a private foundation or a trust could be tax efficient if the Polish beneficiary fulfills some requirements.

Does the private foundation or trust qualify for the tax-exempt status under Polish law?

Even though Polish legal system does not know the institution of a private foundation whose purpose is to manage assets to the benefit of private individuals, or the institution of trusts, it is possible to use either of them to avoid the tax on inheritance and donations on the part of a Polish beneficiary if he changes his tax residence into the place at which the funds received are exempt from taxation.

Inheritance and Donations Tax in Poland

The inheritance and donations tax is regulated by the Polish Law on Inheritance and Donation Tax dated July 28, 1983 (consolidated text: Journal of Laws of 2009 No 93, item. 768 as amended).

According to the above-mentioned Law, the acquisition of property located within the territory of Poland or of property rights exercised within the territory of Poland is subject to the inheritance and donations tax if such acquisition results from:

    • inheritance, normal provision, latter provision, specific bequest, testamentary mandate;
    • donation, benefactor’s mandate;
    • usucaption;
    • annulment of joint ownership without consideration;
    • compulsory portion of inheritance, if an eligible heir has not received it as a donation made by the bequeather, or in a way of succession, or provision;
    • allowance, usufruct or easement without consideration

An acquisition of property located abroad or of property rights exercised abroad is subject to taxation if the acquiring party is a Polish citizen or has a permanent place of residence within the territory of Poland at the moment the inheritance is opened or a deed of donation is entered into.

As a rule, the taxation basis is the value of acquired property and of property rights, after deduction of debts and burdens, determined according to the status of the property or of the property rights on the acquisition day, and the market prices of the day the tax obligation arises. If there is a property damage caused by force majeure prior to the income tax assessment, the assessment shall be made on the basis of the property condition as on the day the assessment is carried out, the insurance compensation for the damage being included in the assessment base.

The applicable tax free-amounts and tax rates depend upon the allocation of the beneficiaries to one of the respective “tax groups”, as defined below.

Tax groups, as set forth by the Polish Law on Inheritance and Donation Tax Law:

  • spouse, descendants, ascendants, stepchildren, son-in-law, daughter-in-law, step parents, parents-in-law;
  • 2nd Group – the siblings’ descendants, the parent’s siblings, the stepchildren’s descendants and spouses, the siblings and siblings of spouses’ spouses, the spouse’s siblings’ spouses, other descendants’ spouses;
  • 3rd Group – other acquiring parties, including unrelated parties.

An acquisition of property or of property rights by a spouse, descendants, ascendants, stepchildren, siblings, or parent-in-law, step parents (i.e. persons from the “1st tax group”, defined in detail below) is tax free, provided that:

  • the beneficiaries have reported the acquisition to the competent head of tax office within 6 months since the day the tax obligation has arisen, and especially in the case of acquisition by succession within the period of 6 months following the date at which the court decision stating the acquisition of inheritance became binding, and
  • in cases where the subject of acquisition from donation or upon donor’s instruction is money, and where the total value of the property acquired from the same person during the period of 5 years which precede the year of the most recent acquisition added to the value of the property and to the value of the property rights most recently acquired exceeds the respective tax-free amount, the beneficiaries evidenced the acquisition thereof with a proof of transfer to the acquiring party’s bank account or the acquiring party’s account kept by a savings and credit institution, or via postal order.

The above-mentioned obligation to report does not involve cases in which:

  • the total value of the property acquired from that person or inherited from that person during the past 5 years since the year of the last acquisition added to the value of the property and of the property rights acquired on the last order does not exceed the respective tax-free amount, or
  • the acquisition takes place on the basis of an agreement executed in the form of a notarial deed.

An acquisition of property and of property rights from one person is subject to taxation where the agreed value thereof exceeds:

  • PLN 9,637 – if the acquiring party is a person from the “1st tax group” (defined below);
  • PLN 7,276 – if the acquiring party is a person from the “2nd tax group” (defined below);
  • PLN 4,902 – if the acquiring party is a person from the “3rd tax group” (defined below); * 1

The excess amount constitutes the basis for the calculation of:

 

Excess amount in PLN:Amount of tax due in PLN:
1)     from the acquiring parties belonging to the “1st tax group”
up to 10,2783%
over 10,278up to 20,556308.30 and 5% of the amount exceeding PLN 10,278
over 20,556 822.20 and 7% of the amount exceeding PLN 20,556
2) from the acquiring parties belonging to the “2nd tax group”
 up to 10,2787%
over 10,278up to 20,556719.50 and 9% of the amount exceeding PLN 10,278
20,556 1,644.50 and 12% of the amount exceeding PLN 20,556
3) from the acquiring parties belonging to the 3rd tax group”
 up to 10,27812%
over 10,278up to 20,5561,233.40 and 16% of the amount exceeding PLN  10,278
over 20,556 2,877.90 and 20% of the amount exceeding PLN 20,556

 

Trusts and private foundations have been lately among those most desirable remedies against increasing taxation all over the world. It seems that the above-said institutions are the best legal options to avoid the uncomfortable burden. However, regarding Polish taxation reality, those legal options may only by profitable if a taxpayer changes his/her residence in order to decrease the tax obligations. When it comes to making a decision, for example, Switzerland is an excellent jurisdiction of choice not only because it is generally considered to be a tax-friendly country but also due to its political stability and the various tax exemptions or reductions available.

Trusts

A trust – a common law institution derived from the Middle Ages feudal system is a type of a tax entity created by an individual person, legal person or organisational unit without legal personality to protect or to preserve the assets, and to distribute income to beneficiaries. Trusts are created primarily either by means of trust clauses in a will, the so-called testamentary trust, or a written agreement between the founder and the trustees during the founder’s lifetime (inter vivos trust) to manage the assets with the necessary care, to the benefit of the trust beneficiaries. A trust seller (founder of trust) transfers assets to a selected trustee, which means that from the date of transfer on, due to the settlement, the trustee is responsible for managing the trust and is obliged to transfer profits to beneficiaries of any kind including the founder of the particular trust. Trusts encompass all types of estate – money, properties, tangible and intangible assets. Trusts are created not only as a strategy of estate protection from creditors but also for international financial planning and preserving the beneficiaries privacy as well as for concealing assets and protecting heirs one from another.

Private interest foundation

A private foundation has nearly nothing do with its Polish definition.  According to Polish law, private foundation may only be established to pillar upstanding goals, subordinate to public administration rather than the founder. A private interest foundation based on European civil law jurisdictions, is an interesting alternative to trusts. The private interest foundation registered as a legal personality  could be defined as a legal entity, formally constituted, to acquire a patrimony that should be managed and protected in accordance with the will of the founder. Private interest foundations are established mainly in Lichtenstein, Panama and Austria and The Netherlands. The foundation has beneficiaries who are ultimately entitled to the assets and income of the foundation. The creator of the foundation is allowed to steer the foundation by being appointed as a financial adviser or protector2. A private interest foundation is considered to be a very interesting finance-managing tool due to:

  • security,
  • favoured inheritance taxation,
  • profitable taxation of future gains from existing firms.

A contribution to the foundation does not mean that any shares or stocks will be accomplished. Therefore, all privileges are purely personal and neither the founder nor beneficiaries are submitted to execution.

The major difference between a foundation and a trust is that in the case of a foundation the legal owner of the foundation’s assets is the foundation itself, a separate legal entity (usually) based in a nil tax jurisdiction. This is different to the situation of a trust where the underling owners of trust assets are the (presently entitled) beneficiaries, which causes a significant impact in terms of tax liability.

It is important to note that the establishing of a foreign (i.e. non-Polish) private interest foundation is not beneficial to Polish residents from a purely tax perspective, as any benefits paid out to the Polish resident would be qualified as a benefit obtained from an unrelated party, thus falling into the 3rd tax group, mentioned above. As a result, any payment from such source would fall under the progressive taxation, reaching up to 20%. However, such a foreign private interest foundation may be used if other, non-tax-related considerations are of prime importance for the interested parties, or of the future beneficiaries would consider change of their tax residence prior to obtaining of any payments.

Lump sum taxation

As already mentioned, trusts and private interest foundations may only be profitable to Polish taxpayers considering future change of their tax residence. The noticeable solutions in tax optimization for individuals with high income is a lump-sum taxation regime in Switzerland, which may be chosen instead of the normal progressive income tax. Foreigners with absence of more than 10 years or who take up residence in Switzerland for the very first time, and do not carry out any profitable activity in this country, will be deemed eligible to taxation under this special regime, also called forfait fiscal (French) or Pauschalbesteuerung (German). Several Swiss cantons have unofficial minimums fixed for the taxable income before they grant particular residence, which as a rule, is not less than CHF 150,000 a year to be eligible. As part of the fiscal arrangement between the taxpayer and authorities of the taxpayer’s residing canton, particular taxpayers indicate the costs of living expenses and then individually negotiate the amount of tax to be paid. However, it is common that the tax amount is usually the quintuple of the annual housing rent value paid by the taxpayer. Moreover, the advantage of the lump sum taxation is that there is no obligation to disclose the actual amount of income or the value of property owned by such a taxpayer to the Swiss fiscal authorities. Since the Swiss legislation imposes limitation to minimum tax amount, the attractiveness of the lump sum taxation might be appreciated by taxpayers receiving high income from non-Swiss sources. https://gessel.pl/en/in-memoriam-dr-janusz-fiszer-2/

  1. currently EUR 1 = approx. PLN 4.2[]
  2. 1[]
Protecting your wealth and estate with an Anguilla Foundation

Protecting your wealth and estate with an Anguilla Foundation

The History of the Anguilla Foundation

The Anguilla Foundation is a versatile platform for Estate Planning and Asset Protection. The Anguilla Foundation finds its roots in the common law trust and, over the centuries, particularly thanks to the Liechtenstein, Austria and Panama models, has evolved into a unique wealth preservation vehicle, combining the benefits of both a trust and a company.

An Anguilla Foundation is distinguishable from a trust, in that it has the rights and duties exercisable by the trustees of a trust (but not by the trust itself) and is capable in its own right of transacting business and of entering into legally binding contracts. It has separate legal personality, the ability to hold assets in its own name and the ability to contract with third parties and to sue and be sued in its own name. But instead of having shareholders, as a company, a foundation holds the assets for the benefit of beneficiaries or purposes.

General Principles

A foundation is administered for the benefit of its beneficiaries and/or purposes in accordance with contractual principles. Such principles are more familiar in Civil Law jurisdictions, where people find it difficult to understand the concept of equitable rights and fiduciary obligations, inherent in the concept of trusts

In contrast to the position under an Anguilla trust, no beneficiary, object or purpose of an Anguilla Foundation has any right “in specie” against the property endowment of the foundation. Subject to the terms of the foundation’s declaration of establishment or by-laws, any assets of the foundation available for distribution to a beneficiary are not capable of being alienated or passed by bankruptcy, insolvency or liquidation, or liable to be seized, sold, attached, or otherwise taken in execution by process of law. Nevertheless, any beneficiary of an Anguilla Foundation may enforce the due administration of the foundation in accordance with the terms of its declaration of establishment and by-laws.

An Anguilla Foundation is irrevocable and not subject to any perpetuity periods. The foundation council may, however, decide to dissolve the foundation, if its purpose can no longer be realised or if there are no assets left in the foundation.

Pros and Cons

The concept of a foundation with separate legal personality is well understood in Civil Law jurisdictions. The main objective of The Anguilla Foundation Act is to enable Anguilla to provide a flexible vehicle for use by clients, especially those based in civil law countries, by offering a modern, lean and workable estate planning concept, with which they are much more familiar than they are with the Common Law trust concept.

Added to that, some of the unique features offered by the Anguilla legislation set the Anguilla Foundation apart as one of the most straightforward, yet sophisticated, foundation models available, and highly suitable for estate planning and asset protection.

Unlike trusts, where changes in trustees often involve highly contentious issues concerning the indemnities to which trustees are entitled, either on retirement or on distributions of assets, no such issues arise in the case of foundations, with consequent cost and time savings.

The legislative framework of the Anguilla Foundation renders it possible to hold assets for beneficial purposes that can be drafted to achieve almost any required result. This could include the mimicking of the non-voting depositary receipts sometimes provided for in foundations created under Dutch law, or a wide variety of other special purpose beneficial provisions.

Entrepreneurs seeking to provide for the welfare of successive generations of their family are frequently concerned to ensure that after their death their business is not broken up or sold. To achieve this, the use of a purpose trust to hold the shares, or possibly to hold a separate class of voting shares, has often been seen as a solution.

Likewise purpose trusts are frequently used to hold the shares in private trust companies established to manage the “family office”, managing the trusts and other personal financial interests for a particular High Net Worth family. In both these cases an Anguilla Foundation is likely to be seen as a more attractive alternative, providing, as it does, the additional insulating layer of corporate personality (the corporate veil). https://www.websterlawbwi.com

Harry Wiggin

Harry Wiggin

Webster Law
What you need to know about setting up an Anguilla Foundation

What you need to know about setting up an Anguilla Foundation

Setting up an Anguilla Foundation is almost as simple as creating an Anguilla Trust, with only a few more formalities for compliance purposes, but essentially not difficult. An Anguilla foundation is established by a natural or legal person making a declaration of establishment in writing, or by a single founder by will, and an initial property endowment of atleast US$10,000.

Anguilla Trusts

The procedure for creating an Anguilla trust is simplicity itself and no different from the procedure for doing so in many Common Law jurisdictions. All that is required is the execution of a trust instrument appointing the trustee(s) and setting out the terms of the trust, coupled with the payment or transfer of a fund (which may be no more than nominal at the outset) to the trustee(s). There are no other formalities.

Setting up an Anguilla Foundation

The establishment of an Anguilla Foundation entails compliance with rather more formalities, but is essentially not difficult.

An Anguilla foundation is established by a natural or legal person making a declaration of establishment in writing, or by a single founder by will, and an initial property endowment of at least US$10,000. There is no requirement for separate articles of the foundation but provisions not required to be included in the declaration of establishment may optionally be included in separate articles or in the by-laws.

A foundation may also have separate by-laws, but their contents are not prescribed. They may be adapted to requirements and deal with any lawful matter compatible with the purposes of the Foundation.

The name of a foundation must end with the word “Foundation” or its abbreviation “Fdn.”, or the foreign language equivalent of the word “Foundation” or its recognised abbreviation in that language. It must not be the same as or similar to the name of any other legal entity registered, deposited or reserved under the laws of Anguilla unless such other legal entity consents in writing to the use of that name. And it must not be a name prohibited by regulations made under the Anguilla Foundation Act or any other law in force in Anguilla.

An Anguilla Foundation must either be registered (which renders it public) or deposited (which maintains its confidentiality). Anguilla Foundations established for estate planning and/or asset protection purposes will normally be deposited, unless they have a commercial purpose, in which case they are required to be registered. The Registrar (who is also the Registrar of Companies) maintains the Register of Foundations.

In the case of a registered foundation, if the Registrar is satisfied that all the requirements of the Act have been complied with, he registers the declaration of establishment, allocates to the foundation a registration number and issues to the registered agent a certificate of registration in respect of the foundation stating the date of registration of the foundation, the name of the foundation and its registration number.

If the Foundation Council has decided not to register the foundation (which is not an option if the foundation has a commercial purpose), the declaration of establishment of the foundation must be deposited with the Registrar, together with the prescribed fees. If the Registrar is satisfied that all the requirements of the Act have been complied with, the Registrar will allocate a deposit number to the foundation and issue to the registered agent a certificate of deposit. In the case of a deposited foundation, the Registrar may only disclose information concerning the foundation in very limited circumstances.

There is no requirement that any member of the Foundation Council must be resident in Anguilla, but if there is no resident member then the foundation must have a Secretary who is a resident registered person.
A foundation only acquires its legal personality and its validity and enforceability once it has been either registered or deposited.

Pros and Cons

If a foundation is the appropriate vehicle through which to achieve a particular objective, the formalities entailed in its establishment are unlikely to be a deterrent; indeed they should engender confidence in the process. One of the more innovative aspects of the Act is that the founder of an Anguilla Foundation may choose between registration or deposit of his foundation. This concept has, until now, been the exclusive preserve of Liechtenstein and one of the main factors responsible for the great success of the Liechtenstein family foundation. As mentioned, however, registration or deposit is a precondition to the validity and enforceability of the Anguilla Foundation.

It should be borne in mind, in the context of the formalities for the formation of Anguilla Foundations, that the procedures for the establishment of Anguilla Foundations can also be used for the purpose of converting trusts, formed either in Anguilla or elsewhere, to foundations. Furthermore, foundations already established outside Anguilla can be migrated or “continued” into Anguilla as Anguilla Foundations and Anguilla Foundations can be continued into a foreign jurisdiction as foundations subject to the laws of the new host jurisdiction. https://www.websterlawbwi.com/

Harry Wiggin

Harry Wiggin

Webster Law
Liechtenstein foundations and trusts for asset protection and wealth preservation

Liechtenstein foundations and trusts for asset protection and wealth preservation

What benefits do Liechtenstein foundations and trusts offer for asset protection and wealth preservation?

Some of us are in a fortunate position where asset protection and wealth preservation are not much of a concern because we live in countries where corruption is rare, governments are relatively stable and creditworthy, courts and governmental authorities are efficient, crime rates are low and chances that illegitimate claims will be enforced against our assets are remote.

For people living in a country where one or more of these factors are missing, however, the danger to their assets may be real and the fear that their wealth may fall into the hands of others without justification may be well-founded. For those who are legitimately concerned about asset protection and wealth preservation, Liechtenstein foundations and trusts offer distinct advantages which will be described below.

Liechtenstein foundations

Let there be no mistake: Liechtenstein provides legal assistance in criminal matters to other countries and has entered into treaties allowing the exchange of information in tax matters with an increasing number of jurisdictions. Furthermore, the creditors of a founder or settlor of a Liechtenstein foundations or trust are not without protection under Liechtenstein law: any gratuitous transfers to a trust or foundation may be challenged by creditors of the founder/settlor within one year from the transfer. If such creditors can prove intent of the founder/settlor to defraud creditors, the statute of limitations is five years.

However, for those who are looking for a safe haven for their assets without any pressure from existing creditors and want to structure their wealth in a tax-compliant way, Liechtenstein foundations and trusts offer the following advantages:

(1) Protection of privacy

In case of Liechtenstein (private) foundations, registration in the trade registry is voluntary. Even if a private foundation is registered, the identity of the founder or the beneficiaries is not disclosed. The names of the foundation council, however, are mentioned.

In case of Liechtenstein trusts, there is a registration requirement (mainly to ensure the payment of the annual tax of CHF 1,200), but this registration does not include the names of the settlor or beneficiaries.

(2) No pre-trial discovery proceedings

In contrast to a number of jurisdictions, in case of pending or threatened litigation there is no duty to disclose documents to the adversary. The only documents that may need to be disclosed upon a court order in the course of litigation are documents so-called “common documents” of the plaintiff and defendant, such as written contracts between them, or other contracts where there is a preexisting obligation to disclose them.

(3) No enforcement of foreign judgments

Liechtenstein does not enforce foreign judgments without a re-litigation on the merits unless there is an enforcement treaty (or other binding declaration) in place with the country whose courts rendered the judgment. This distinguishes Liechtenstein from a large number of jurisdictions, in particular those influenced by common-law, which often enforce foreign judgments if they were rendered in fair proceedings. Other jurisdictions only enforce foreign judgments if the other country would do the same, but have a presumption of such reciprocity.

So far Liechtenstein has only concluded enforcement treaties with Switzerland and Austria and a multilateral convention on the mutual enforcement of certain child support judgments. Liechtenstein is not a member to the Lugano Convention on Jurisdiction and the Enforcement of Judgments, and EC Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments does not apply.

In the absence of an enforcement treaty, foreign judgments may be used by a plaintiff to obtain a preliminary court order in Liechtenstein. However, the defendant may bring legal action against such a preliminary order so that the dispute will need to be re-litigated in Liechtenstein in any event.

(4) Short statute of limitations for a challenge of the transfer of assets to the foundation

In order to protect creditors, any gratuitous transfers to a trust or foundation may be challenged by creditors of the founder/settlor within one year from the transfer. The statute of limitations for transfers to the foundation/trust is five years from the transfer of assets to the trust or foundation if creditors can prove intent of the founder/settlor to defraud them.

After the expiry of these deadlines, no challenges of the transfer of assets to the foundation or trust are possible under Liechtenstein law, provided that the Liechtenstein foundation/trust is structured appropriately. In particular, decisions must be taken by the foundation council/trustee, and the foundation should not be seen as the alter ego of the settlor/founder or the beneficiaries.

(5) No attachment of the interest of beneficiaries

Both, Liechtenstein foundation and trust law, grant considerable flexibility when it comes to the determination of the rights of the beneficiaries in the trust or foundation documents. However, when asset protection is a concern, in many cases a discretionary structure with several possible beneficiaries is preferable where distributions of the capital or income of the foundation or trust are left to the discretion of the foundation council/trustee. This will ensure that there are no legal claims of the beneficiaries that can be attached by third parties.

Taxation of Liechtenstein trusts and foundations

Liechtenstein trusts are subject to an annual tax of CHF 1,200. Liechtenstein foundations may apply for the tax status of a “Private Asset Structure”, provided that they only hold private wealth and do not engage in economic activities. A foundation taxes as such a Private Asset Structure is only liable to pay the minimum annual profit tax of CHF 1,200, and no tax filing needs to be made.

However, even without this special tax status, certain types of income, including all dividends and capital gains from participations and any revenue from foreign real estate are exempt from the otherwise applicable 12.5% profit tax. In case of a foundation which only holds the shares of a holding company, it may therefore not be worthwhile to seek the status of a Private Asset Structure because any dividends and capital gains from the participation will be tax exempt even under regular taxation.

Besides the taxation in Liechtenstein, in each case the tax consequences of the establishment of the trust/foundation and any distributions from the trust/ foundation in the jurisdictions of the settlor and the beneficiaries need to be considered carefully with the assistance of local advisers. https://www.marxerpartner.com/

transfer the family business

Markus Summer

Marxer & Partner