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Trusts are one area of financial planning where our understanding and interpretation are all too often separated by a common language. One person’s idea of a trust and its purpose can differ vastly from another’s.

As one of the older tools of financial planning, trusts were initially established to safeguard a family or individual’s assets. As tax affairs became more complex, especially for wealthy families, trusts were increasingly used to help with tax planning – and in the process often came to be negatively associated with complex tax structuring.

Over a number of years, legislation has clamped down on several loopholes that enabled much of the negative tax structuring. While tax planning still forms a valid part of trust usage, to avoid elements such as double taxation for people spending time in different countries, modern-day trusts are yet again more widely used to preserve families’ assets for the benefit future generations.

Separated by a common language

This means that many people are coming round to the idea that trusts aren’t bad tools – we may just have different ideas of what role they play. For example, many wealthy US families use living trusts for governing day-to-day financial arrangements, by putting certain assets into a trust, where the settlor is the main beneficiary.

In comparison, a similar trust used in the UK is referred to as ‘settlement’, which demonstrates how crucial it is to ensure you are entirely clear with your wealth planner on what you would like the purpose of a trust to be.

This is particularly important for those internationally mobile US or UK citizens who live in various countries from time to time. Tax affairs can potentially become quite tricky if a trust generates income in a jurisdiction where the beneficiary doesn’t live, which you may not deem significant, or have forgotten about, in the case of long-established family trusts.

If left unchecked, beneficiaries can open themselves up to double taxation, which can deplete a trust very quickly. These families would do best to get focused advice on both areas simultaneously.

Future flexiblity

Rather than thinking of trusts as a potential headache for those with international lives, US and UK citizens should instead have awareness of the different interpretations that the two countries would apply to the same vehicle – and plan accordingly.

In reality, trusts can work to preserve assets, help with financial structuring and manage tax liabilities across different jurisdictions – if you get sufficient advice well in advance. It is possible to achieve the necessary flexibility that allows your trust to serve your family’s needs.

For example, a US trust can be used to fund a life in the UK, as long as this is properly planned for, so that you can effectively match the tax treatment to the events in the various jurisdictions. It is generally only when the various trusts and their intentions have not been disclosed in advance, that problems arise.

Therefore, it remains crucial to ensure a proper and healthy working relationship between your accountants in different countries.

Instead of shying away from them because they may seem complex, trusts can actually be deeply beneficial to help give clarity and much-needed flexibility for wealthy families as they plan their financial affairs for future generations. A wealth manager can help you find the most appropriate structure for your family’s needs.



Robert Paul, Partner and Head of US Family Office, London & Capital
Iain Younger, Director, Frank Hirth
Michael Giraud, Client Services Director, Accuro Fiduciary
Patrick Harney, Partner, Mischon Private

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