There are many commentators, and I would be one of those, who say that if there is no other reason whatsoever for placing assets into trust or a foundation other than to avoid probate then it is still a must do item. Probate is both expensive and time consuming. Even a simple estate can rarely be wound up in less than a year. An estate comprising assets situated in different countries will normally take a minimum of 2 years and the procedures will typically cost 4-6% of the value of the estate.
If you know when you are going to die then you need do nothing until nearer the time. If you don't know then do something about it now. Making a will is always necessary (but its surprising how many haven't done it) but putting the majority of your assets into a trust, a foundation or a lovely guarantee company may well be the best solution.
Guarantee companies are an extremely useful alternative to a trust or civil law foundation. Most clubs are companies limited by guarantee but these entities have been largely ignored by the tax but they have attributes which cannot easily be replicated by a company limited by shares.
If you subscribe for shares in a company and pay for them in full then you cannot be required to further contribute by creditors of the company. Your liability is limited in this way. Members of a guarantee company have their liability limited in a different way. They become members of the company subject to guaranteeing the debts of the company up to a certain specified-usually nominal amount. Whereas a share is an asset, a guarantee membership is a contingent liability which would crystallise only if the company got into financial difficulty. This may never happen.
The guarantee membership can carry the same rights, privileges and obligations as a shareholding so can have a)votes, b)rights to dividends and c) rights to capital. Frequently there will be members with financial rights but no votes and others with votes only.
The beauty of the guarantee membership is that, like membership of a club, it is generally non transferable and expires on the death of the member so no probate procedure is needed. This facet is particularly useful.
A guarantee company can be structured to replicate a civil law foundation but will be more readily understood by citizens of common law countries. For example, the head of the family Mr X may use a guarantee company to own his personal assets whether they be held directly by that gurantee company or in subsidiaries. He and other family members might be the directors. He could be a class A member with 100 votes, his wife the class B member with 10 votes and his 3 children Class C members with one vote each. He might also include within the constitution of the company a committee who have power to expel members and/or approve further applications for membership. During his lifetime he would have 100 votes out of a total of 113 and therefore control. On his death, resignation or expulsion Mrs X would have 10 votes out of the remaining 13 and therefore have control. In the even of her death the 3 children are left with one vote each so can argue it out between themselves. In another construction Mr X holds a non participating Class A membership which carries 100 votes. A professional trust company holds a non participating Class B membership which carries 10 votes and Mrs X and the children hold non voting participating shares. I think the effect is apparent.
The voting control would allow Mr X to appoint or fire directors. Mr X could also be the committee member so he could rearrange the ownership of the company as he chose adding or expelling members. Thus you have an extremely flexible personal holding company. To use another analogy the participating members are like the beneficiaries under a discretionary trust and the voting members are like the trustees. But as it is a company it is much more easily understood than either a foundation or a trust while in many cases, and if carefully structured, still having similar asset protection, tax and estate advantages.
For estate duty purposes it is probably the case that upon the expiry of a membership there is an immediate transfer away from the estate equal to the value of the underlying assets of the company or whatever proportion of the company is represented by that membership. This would probably trigger a charge to estate duty if such is applicable which would depend upon the domicile and residency of the member. However probate is avoided so it difficult to see how estate duty could be calculated and who would have any duty to make any sort of report to the capital taxes office responsible for collecting estate duty.
Anyone with substantial assets would be well advised to get their affairs in order and this structure might be just what is required.
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.
