“Patrimonial Protection. Generational transfer. Fiscal neutrality”
In line with global uncertainty, transparency and exchange of information among countries and the growth of tax and oversight pressure in Latin America, proposals usually offered are based on a short-term mentality and lack serious analysis. Within this framework of mere opportunism, it is noteworthy that the use of “Trusts” is promoted as a tool whose main and only purpose is tax planning.
In a trust, the person transfers assets to a third party (“trustee”) and such trustee is entrusted with the management of such assets in favor of whoever the contributor indicates. It is no coincidence that the word “trust” is used.
The main purpose of a trust is the protection and defense of the assets. Additionally, estate planning. Logically, any subsequent tax benefit will be welcomed, which will be defined according to the treatment given to the structure by the jurisdictions where contributors and beneficiaries have their fiscal residence. It is the task of the tax advisor to ensure that the trust has the best possible tax treatment.
However, and unfortunately, what has been happening is that some improvised people try to promote the trust as a solution whose main and only objective is to seek a tax benefit, and even copying standard formats that have not been adapted as a solution to the particular case of the client. This is a serious mistake. This should never be the case. The trust must be solid, well-structured and comply with all the requirements required by its nature in order not to be considered a “sham”.
It is essential to be clear that the proper way to plan a Trust should follow the following order of goals: 1-Asset Protection 2- Generational transfer and adequate estate planning 3- Fiscal neutrality. If the design alters the search for these priorities, it puts us at risk of generating undesirable effects for our assets. Once the right goals are accomplished, we can seek to obtain the most favorable tax treatment for the parties, always within the framework of current regulations. Forcing the use of a trust without the correct advice or with the focus on inadequate reasons would leave it open to questioning by third parties.
Trusts are and will continue to be an excellent asset protection and estate planning tool. Neither the client nor their advisor should lose that focus. Going the opposite way will generate mistakes that leave the door open to future contingencies.
Our advice is that families work with serious and solid tax advisors to help them design the appropriate structures for the right reasons. And that such structures are constituted and managed by competent and reliable providers.