Succession Planning: Choosing a jurisdiction

By John J. Ryan, Jr. President, CISA Trust

The selection of a suitable estate planning vehicle for a particular individual is a complex task and requires a thorough understanding of the needs of the individual, his family situation, country of residence, etc. An estate planning vehicle is normally considered when an individual has young or inexperienced children, or children with special needs, and wishes to distribute certain assets over time, and not immediately upon his death, which is not generally possible through a will.

Trusts are common law estate planning vehicles, and foundations are their civil law equivalents. It should be noted that some common law jurisdictions have foundation legislation (Jersey, Wyoming), and vice versa (Liechtenstein, Panama).

Choosing a Jurisdiction

In choosing a suitable jurisdiction, it is important to consider the quality of the trust or foundation laws and the court system, the taxation of trusts, the quality of the work force, the strength of the financial center of the jurisdiction, the economic and political stability of the jurisdiction, as well as the reputation of the jurisdiction and its standing with the Global Forum of the OECD and the FATF.

Trust vs. Foundation

In very general terms, Trusts are not considered to be separate legal entities. Legal ownership of trust property is held by the trustees whilst an equitable interest in trust property is held by the beneficiaries, which can provide beneficiaries with greater protection due to the nature of their equitable interests. On the other hand, foundations are typically considered to have separate legal personality, can contract in their own name, sue and be sued, etc., which can have negative tax consequences for residents of certain jurisdictions. Foundations are considered to be the legal owners of assets held by the foundation, and not the founder or beneficiaries.

Common Law Trust Jurisdictions

The leading trust international trust jurisdictions include the Bahamas, Bermuda, the British Virgin Islands, Canada, Cayman, Guernsey, the Isle of Man, Jersey, New Zealand, Singapore, Switzerland, the United Kingdom, and the United States. The laws of these jurisdictions vary considerably. In respect of perpetuities periods, the trust laws of the leading trust jurisdictions all now provide for lengthy trust periods, or unlimited perpetuities periods where the rule against perpetuities has been abolished. The existence of reserved powers legislation, which gives broad powers of trust administration to the settlor, can also be an important factor in the choice of a trust jurisdiction and is common in the modern trust jurisdictions.

Many leading trust jurisdictions have strong asset protection laws, including the Bahamas, Cayman, and South Dakota, which laws place time limits on claims brought by creditors of the settlor. However, Jersey, Guernsey and the Isle of Man do not have specific asset protection legislation for trusts and still apply the Statute of Elizabeth. Confidentially is now a relative concept with automatic information exchange under CRS, and bilateral and multilateral agreements for exchange of information on request. Thus, the more relevant question is whether the trust instrument is required to be lodged with governmental authorities. In the vast majority of trust jurisdictions, the trust instrument remains a private document kept by the trustee and not filed with any authority. However, New Zealand and the United Kingdom has introduced a trust registry, and a number of jurisdictions have introduced central beneficial owner registries.

In respect of beneficiaries right to information, most common law trust jurisdictions generally follow English law and the leading Rosewood case, which recognizes the right of beneficiaries to information. These rights may be restricted depending on various factors, such as the status of the beneficiary (discretionary versus fixed interest), the nature of information requested and the purpose of the request, prejudice to other beneficiaries, etc. In some jurisdictions, such as South Dakota, disclosure to beneficiaries may be restricted or prohibited in the trust instrument itself.

Civil Law Foundation Jurisdictions

The leading civil law jurisdictions with private foundation legislation include Liechtenstein, the Netherlands, and Panama. None of these jurisdictions have limitations on the duration of private foundations. Depending on the foundation charter, these jurisdictions typically allow broad powers in favor of the founder. Liechtenstein and Panama have specific asset protection rules that limit the rights of creditors to attach assets transferred to foundations.

In respect of confidentiality, civil law jurisdictions have commercial registers where the foundation charters are registered, which typically do not identify the founder and beneficiaries, and this information remains confidential in the internal documents of the foundation. Nonetheless, even though confidential information is not required to be filed by foundations, many of the foundation jurisdictions require beneficial owner information to be lodged with central beneficial owner registries, which is public in some jurisdictions. In respect of the rights of beneficiaries of foundations to information, these are typically quite limited and can be restricted or eliminated altogether in the foundation charter.

Holding Operating Assets

Trusts can hold almost any kind of property, financial assets, property, operating companies, yachts, aircraft, jewelry, artworks, etc. In the case of operating companies, depending on the existence of political risk factors, it may be prudent to hold the operating companies through a holding company incorporated in a jurisdiction with an agreement with the jurisdiction of the operating company that provides for international arbitration in the event of nationalization or expropriation. In addition, to ensure that such a structure is tax efficient with respect to remittances, the holding company is often incorporated in a jurisdiction with a double tax treaty with the jurisdiction of the operating company.


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