Introduction

When planning how to manage and pass on your estate, picking the right strategy is crucial. This choice involves looking at various estate planning tools and vehicles like trusts, foundations, partnerships, companies, and insurance policies. Each has its own set of rules about things like who controls the assets, how they’re protected, and how they’re taxed. This article breaks down the important points to consider, helping you make a choice that fits your estate planning goals. 

Key Considerations for Choosing a Vehicle for International Estate Planning

When selecting a vehicle for international estate planning, several key factors must be considered to ensure the strategy effectively meets the estate owner’s objectives. Here’s a breakdown of these essential considerations:

Need for Registration

Understanding if the estate planning vehicle requires registration with relevant authorities is vital. Registration can offer legitimacy but might also introduce regulatory compliance, public disclosures, and ongoing fees. Balancing these aspects is crucial for maintaining privacy and managing administrative requirements efficiently.

Legal Entity Status

Deciding whether the vehicle would operate as a separate legal entity is fundamental. This status allows the entity to own property, engage in contracts, and handle litigation independently, offering a protective layer between personal assets and those held by the entity.

Degrees of Control

Assessing the level of control the estate owner retains over the vehicle’s management and decisions is crucial. This includes examining mechanisms for maintaining control, such as specific voting rights or management structures, to align with the owner’s needs while ensuring sound governance.

Checks and Balances

Implementing checks and balances prevents concentrated power within the vehicle, promoting fair management. This may involve appointing independent parties to oversee operations, contributing to the integrity and responsible management of the assets.

Degree of Ownership

Clarifying how assets within the vehicle are owned and controlled is key, particularly in distinguishing between legal and beneficial ownership. This distinction has significant implications for asset distribution and is especially important in jurisdictions with specific ownership and inheritance laws.

Succession Planning

Succession planning within an international estate planning vehicle ensures smooth, legally compliant transfer of assets to successors. This aspect is focused on establishing pathways for asset transition upon the estate owner’s death or incapacitation without hindrances.

Avoidance of Probate

One major advantage of certain international estate planning vehicles is avoiding the probate process. Vehicles that facilitate direct asset transfer to beneficiaries without probate can save time, preserve privacy, and reduce costs.

Asset Protection

Evaluating the vehicle’s capacity to protect assets from creditors, legal claims, and other threats is critical. Strong asset protection mechanisms can secure the estate’s value for beneficiaries, a paramount concern for high-net-worth individuals (HNWIs).

Migration Flexibility

For HNWIs with global interests, the ability to relocate the estate planning vehicle or transfer assets across multiple jurisdictions offers crucial adaptability. This flexibility accommodates changes in personal circumstances, tax regulations, or political climates.

Tax Mitigation

Finally, assessing how the vehicle can minimise the estate’s taxation liabilities, including inheritance tax, estate tax, and income taxes across jurisdictions, is essential. This requires a close analysis of estate and gift tax laws, transfer tax laws, estate tax treaties, foreign tax credit laws, federal estate tax system etc. Strategic estate tax planning can significantly increase the estate’s value passed to heirs, emphasising the importance of selecting a tax-efficient vehicle. 

Careful consideration of these factors, ideally with the guidance of estate planning professionals, can lead to a well-structured IEP strategy that secures an estate owner’s legacy while optimising for tax, control, and protection objectives.

The International Estate Planning Vehicles Cheat-sheet

Consideration	Trusts	Foundations	Companies	Partnerships	Insurance Policies
Registration	Varies: In some jurisdictions, trusts must be registered, especially if they hold real estate. However, many private family trusts do not require registration, offering more privacy.	Often Required: Foundations must be registered with the relevant authority in the jurisdiction of establishment, making their existence more public but also providing a structured framework for governance.	Required: Companies must be registered, typically in both common law and civil law countries, involving disclosure of key information and adherence to corporate governance standards. This ensures transparency but can reduce privacy.	Varies: The need for registration depends on the type of partnership and jurisdiction. Limited partnerships are typically required to register, while general partnerships might not be.	Not Applicable: Insurance policies are contractual agreements between the policyholder and the insurer and do not require registration. Privacy levels depend on the insurer’s jurisdiction and policy terms.
Legal Entity	No: Trusts are not separate legal entities; instead, trustees hold title to trust assets on behalf of beneficiaries. This unique structure can provide asset protection and succession benefits.	Yes: Foundations act as separate legal entities that own their assets. This can protect assets from personal liabilities and facilitate estate planning and charitable activities.	Yes: Companies are separate legal entities, allowing for asset ownership, liability protection, and potentially efficient tax structuring separate from personal finances.	Depends on Type: Limited partnerships can offer a structure where the partnership is a distinct entity, whereas general partnerships might not, affecting asset protection and liability.	No: Insurance policies are agreements and do not constitute separate legal entities. However, the beneficiary designation allows for direct asset transfer outside of the estate.
Control	Flexible: Trusts offer flexible control mechanisms through the trust deed, allowing settlers to specify trustee powers and beneficiary rights, tailoring the trust to specific family or business needs.	Set by Charter/Statutes: Foundations provide a formal structure for governance and control, outlined in their charter or statutes. Founders can influence the foundation’s operations, but day-to-day control is often in the hands of a council or board.	Shareholder/Director Controlled: Control in companies is typically exerted through shares and governed by shareholder agreements, with operational control resting with directors. This allows for clear, structured control but with regulatory oversight.	Partners’ Agreement: Control in partnerships is governed by the partnership agreement, allowing partners to define their roles, contributions, and profit-sharing. Flexibility varies with the partnership type.	Policyholder Controlled: The policyholder controls the insurance policy, including beneficiary designations and policy terms, within the constraints of the policy agreement and insurance law.
Ownership	Beneficial Separation: Trusts separate legal ownership (held by trustees) from beneficial ownership (for the benefit of beneficiaries), facilitating asset protection and discrete succession planning.	Foundation Owns Assets: The foundation itself owns assets, distinct from the founder’s personal assets. This separation can be advantageous for protecting assets and defining clear succession paths.	Indirect Ownership: Shareholders own the company indirectly through shares, allowing for asset diversification, potential tax benefits, and ease of transferability.	Direct/Indirect: Ownership depends on the partnership structure. In some cases, assets are held directly by the partnership; in others, partners may have direct ownership stakes.	Designated Beneficiary: The policyholder does not “own” the policy proceeds but designates beneficiaries who directly receive benefits, bypassing traditional ownership and probate processes.
Succession	Direct, Bypasses Probate: Trusts allow for the direct transfer of assets to beneficiaries without the need for probate, facilitating a swift and private succession process.	Direct, Bypasses Probate: Similar to trusts, foundations enable direct asset transfer to beneficiaries as specified in the foundation charter, avoiding probate and enhancing privacy.	Share Transfer, Can Bypass Probate: Companies allow for the transfer of shares to heirs, potentially bypassing probate, especially with clear shareholder agreements and succession planning.	Depends on Agreement, Can Bypass Probate: Properly structured partnerships, especially with a comprehensive partnership agreement, can allow assets to pass to surviving partners or heirs without probate.	Direct, Bypasses Probate: A life insurance policy with up-to-date beneficiary designations does not have to go through probate. The insured sum is paid to the nominated beneficiary.
Asset Protection	High: Trusts create a legal separation between the settlor and the assets, offering protection against creditors and legal judgments, particularly with irrevocable trusts.	High: Foundations legally own the assets, separating them from the founder’s personal assets and providing strong protection against personal creditors.	Moderate to High: Shareholders are usually protected from company debts beyond their investment. Corporate structures can be designed for added asset protection.	Varies: Asset protection depends on the partnership type. Limited partners often enjoy protection from partnership debts, whereas general partners may have personal liability.	Moderate: Insurance policies generally offer a death benefit that is protected from the policyholder’s creditors, with proceeds directly payable to beneficiaries.
Migration Between Jurisdictions	Flexible, But Complex: Trusts can often be re-domiciled or assets transferred to a new trust in another jurisdiction in foreign countries, though this can involve complex legal and tax considerations.	Possible, With Limitations: Foundations can sometimes be migrated to another jurisdiction or have their assets transferred, subject to legal constraints and potential tax implications.	Complex: Companies face significant legal and tax hurdles when relocating across jurisdictions or restructuring assets internationally.	Complex: Partnerships’ ability to migrate depends on the type and jurisdictions involved, often requiring dissolution and reformation.	Not Applicable: Insurance policies are governed by the laws of the jurisdiction in which they are issued, and benefits are specified in the policy, not typically subject to migration.
Tax Mitigation	High: Trusts can be structured for tax efficiency, potentially minimising estate, inheritance, and income taxes, depending on the settlor’s and beneficiaries’ jurisdictions.	High: Foundations can be used to manage and distribute assets in a tax-efficient manner, especially in jurisdictions favorable to foundation structures.	Varies Significantly: Companies can leverage international tax treaties and jurisdictions with favorable tax regime, but must navigate complex international tax rules.	Varies: The tax implications for partnerships depend on the jurisdiction and the structure of the partnership, with some arrangements offering tax efficiencies.	Moderate to High: Insurance policies can offer tax benefits, such as tax-free death benefits and tax-deferred growth of cash value, in many jurisdictions.

Choosing the Right Estate Planning Strategy for Your Cross-border Family

Selecting the best strategy for your estate plan involves careful thought about control, asset protection, taxes, and how you want your assets to be passed on. Whether it’s through trusts, foundations, companies, or insurance, each option serves different needs. Getting professional advice can make this complex decision easier. At PBL Law Group, we’re here to help you figure out the best plan for your estate by analysing your existing estate plan and your future goals. We can guide you through several estate planning strategies and find the one that’s right for you. For help with your estate plan, contact us today!