This week, Joanne Whelan, a partner with Deloitte in Ireland, discusses the use of trusts in succession planning.
For years in Ireland and elsewhere, the use of trusts as an asset-holding mechanism fell out of favour due to changes in tax regimes, and of course, it is still the case that the relevant jurisdiction's tax rules must be considered before any decision to set up a trust is made. However, as the global economy continues to recover and the value of family enterprises continues to grow, I have found that more and more of our clients are seeking to utilise trust structures as a means of collectively holding family assets.
Asset protection
Historically, some of my clients' concerns have tended to relate to effective tax planning and ensuring any value in the family enterprise passes to the next generation at as low a tax cost as possible. However, increasingly the issues of concern have centred around asset protection in the case of marital breakdown, insolvency or where family members may not have the requisite commercial acumen to preserve and grow wealth. Also, some of my clients are concerned with how best to successfully transition wealth to the next generation without creating an unnecessary burden or indeed having a negative impact on individual family members. In such scenarios, a trust can provide a useful mechanism for the wider family to benefit without many of the risks of individual ownership.
Commercial benefits
Whether for business or investment assets, trust structures can, in some instances, make good commercial sense. Succession is increasingly seen as a business issue and holding business assets through a trust structure can provide continuity of ownership that is often crucial to the stability of the business.
They can also protect against control being diluted where, for example, the number of family members increases with each generation. By linking the powers of the trustees to the governance structure of the business, the trust effectively becomes a tool which can control where the value from the enterprise flows.
Managing wealth centrally through a trust structure can ensure economies of scale can be maintained and greater investment potential is realised.
Trusts can also help to protect against the dilution of family asset values arising on life events such as marital breakdown or death.
Privacy
Where the level of wealth is such as to become a burden for the holder, a trust can put distance between the assets and the ultimate beneficiaries, creating a level of privacy and security that cannot be achieved by individual ownership, particularly in this age of transparency.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
