Property Trusts Explained | Tax-Saving Strategies for Expats

11 Sept

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Living and Working Abroad: The Case for Family Trusts

Living and working abroad presents unique opportunities, but also complex challenges, particularly when it comes to managing your assets and protecting your family's future. On last weeks The Living and Working Abroad Show ProACT Sam highlighted a critical issue: the significant costs, delays, and complications that arise upon death or incapacitation, especially when owning assets in foreign jurisdictions. The key takeaway? You don't need to own everything to enjoy it.

The Perils of Personal Ownership

When you own assets, such as property or investments, in your name, you are subject to the probate and administration processes of that jurisdiction upon your death. Even with a will, this process can be lengthy and expensive, particularly for those living overseas. The host of the show pointed out that a simple probate process can take a year or more to complete.

Furthermore, different countries have different laws regarding inheritance. Some countries may have "forced heirship" laws, automatically passing assets to children regardless of your wishes, while others may not recognize a spouse as a primary heir. These laws can conflict with your intentions, leading to family disputes and unintended outcomes. Moreover, there's the specter of inheritance tax, which in the UK can be as high as 40%.

The Problem of Incapacity

The challenges aren't limited to death. What if you lose your mental capacity to make decisions? Without a Power of Attorney, your family would have to go through a court process to gain control of your affairs, incurring additional expense and delay. A UK Power of Attorney can be a valuable tool for expats, but it may not be sufficient for managing overseas assets.

The Solution: A Family Trust

The show's host proposed a powerful solution to these problems: the family trust. A trust is a separate legal and tax entity that can own assets on your behalf, allowing you to enjoy them without the personal ownership risks. This can include real estate, business shares, investments, valuable art, or even cars.

Here's why a family trust is a compelling option:

Avoids Probate: Because the trust, not you, owns the assets, there is no need to go through the costly and time-consuming probate process upon your death. The trustees (who can be family members) can simply manage the assets according to the trust's terms.
Tax Efficiency: Trusts can be structured to minimize or even eliminate inheritance tax, capital gains tax, and dividend tax. The show highlighted Cyprus as an ideal jurisdiction for setting up a trust due to its favorable tax laws.
Flexibility and Control: A trust gives you control over how your assets are managed and distributed, both during your lifetime and for future generations. It can cater to complex family situations, such as stepchildren or special needs children, and ensure your wealth is passed down according to your wishes, not a country's default laws.
Asset Protection: A trust can protect your assets from foreign laws and potential family disputes. It creates a stable, long-term structure for managing wealth.

The host cited the Duke of Westminster's estate as a prime example of a successful family trust. While the Duke is a beneficiary, he doesn't personally own the vast assets of the estate, allowing the wealth to be managed for the family's long-term benefit for centuries.

Taking Action

If you are living and working abroad with overseas assets, considering a family trust is a crucial step for safeguarding your family's financial future. It allows you to protect your wealth, avoid bureaucratic delays and high taxes, and ensure your assets are distributed exactly as you intend, for generations to come.

For more information and guidance, contact us.