Estate Planning

Bernard Shaw, a widower of 65, is planning to remarry with a Canadian woman and emigrate to Canada. At present, Mr. Shaw is resident in the UK. He has two children; a son living in the Bahamas, and a daughter who married a German man and has been a resident of Germany for more than 10 years. His new wife also has two children from her first marriage; a son who lives in Brazil, and a daughter living in the United States.

Before he remarries, Mr. Shaw wishes to come to a comprehensive, tax effective arrangement for the administration and the transfer of his property and the benefits derived there from after his death. Mr. Shaw wishes to keep control of his property during his life, and it should be possible to sell part of the assets if this should become necessary. In the case of the latter, it should also be possible to have the free use of the gain realised (if any), but not of the original acquisition price included in the sales price of the assets.

However, after his death only his own children and their children (i.e. not his second wife's family) should be entitled to the benefits. His property consists, among others, of the following:

Real property in the UK, worth £2 Million

Real property in Spain, worth £1.5 Million

Shares in UK companies, deposited with a bank in Switzerland (current value £1 Million), as well as an interest-bearing account with the same bank in Switzerland (current balance £0.5 Million)

Shares in a Luxembourg mutual fund, deposited with a bank in Luxembourg (subsidiary of the Swiss bank), worth £1 Million

How to develop a tax-effective structure?

Suggested solution:

This is a "classical" case of using trusts for estate planning, but as far as the tax implications (income tax, inheritance tax, capital gains tax) are concerned, it needs careful structuring. Points of attention include:

Is Mr. Shaw domiciled for UK tax purposes?

Will Mr. Shaw retain an interest in the trust, either as a trustee or as a beneficiary? If so, will this lead to UK income tax consequences for Mr. Shaw? What are the tax consequences for Mr. Shaw's daughter, being a resident of Germany, as a beneficiary?

Will payments to the trust be subject to income tax or withholding tax in foreign jurisdictions? If so, can this be solved by setting-up intermediate holding companies?

Will the trust be established in UK law or under foreign law? If under UK law, will it be a resident trust or an offshore trust?

Will there be a transfer of assets for UK tax purposes upon setting-up the trust? What anti-avoidance measures in the UK should be taken into account?

The answers of all these and other questions may be manifold. Therefore, it is not possible to give one clear solution to this case. In any case, it is recommendable that the trust is set up after Mr. Shaw has left the UK and that the trust is not set up under UK law or Canadian law.