Welcome to the first of three “We Trust?” blogs, designed to focus on Trusts around the world.
In the wake of the Brexit vote, this first blog explores Trusts in Europe (specifically, Spain). Then, with the U.S. Presidential election just around the corner, our second blog of the series focuses on the use of Trusts in America. Finally, we’ll be returning home to give an overview of Trusts in the UK.
There are lots of ways to describe a Trust. In a nutshell, a Trust is the split of property ownership rights on the one hand and the ability to enjoy or benefit from that property on the other hand.
“Testamentary freedom” is the idea that you can leave your property to whoever you want when you pass away. A classic example would be a valid Will where you can express who should get what from your estate on death. Interestingly, in most provinces of Spain, forced heirship rules apply. This means that a fixed proportion of the deceased’s estate must pass to the next generation on death, regardless of the terms of that person’s Will.
“Succession” is the process of assets being passed down from the deceased’s estate on death. We have said that most provinces of Spain apply forced heirship rules when it comes to the question of succession. But how does Spain view assets that are left to a Trust, under the deceased’s Will?
Trusts, as we understand the term, cannot be created under Spanish law. There are however certain other Spanish structures and relationships that exist which are similar to true Trusts; they could be described as “quasi Trusts”.
Although a Trust cannot be created under Spanish law, there are certain situations in which Spain will formally recognise the existence of a Trust in a Will.
When a person dies resident in Spain, the typical starting point is to apply the law of their nationality in deciding how the estate should pass. In other words, the succession rules may be governed by the law of that person’s nationality.
Let’s say that we have a British national, resident in Spain, who leaves his estate to the Trustees of a Discretionary Trust in his Will; Spain would recognise the Trust as legitimate because it is recognised under the law of the British national. The difficulty comes however, in relation to the question of tax.
Generally speaking, when a resident of Spain receives an inheritance, he or she may be liable for the “succession” tax which would apply. For example, a British national who leaves Spanish assets to his Spanish spouse (both of whom are resident in Spain) may mean that the spouse is liable to pay succession tax. Conversely, if non-Spanish assets were settled into a UK-based (or any offshore) Trust then this would take it out of the Spanish succession tax regime.
This is the reason that most commentators would suggest that, for a Brit living in Spain who wants to leave assets into a Trust on death, he does so with non-Spanish assets and a UK/Offshore Trust. This is a very grey area though, with clear case law being few and far between.
In summary, Offshore Trusts are potentially acceptable in Spain – a lot will depend on the nationality of the deceased, the location of the assets and the method by which the assets are left on death.
In a later blog, we’ll be considering the laws that apply to estates where assets are spread across Europe, commonly referred to as “Brussels IV”. Stay tuned!
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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.