Choosing the Right Offshore Jurisdiction

Wealth and estate planning that make use of so-called offshore trust structures are popular. Such structures are useful for many reasons, including to support individuals and families who are seeking a change in residency, and to offer longevity, predictability and security that is not always available in one’s home country. They can more readily adapt to beneficiaries in different and changing jurisdictions, and in the right circumstances they can offer tax efficiencies. If you have determined that an offshore structure is right for you, you will find that there are many offshore jurisdictions that could potentially be suitable for your needs. This inBrief looks at how to go about evaluating and selecting the right jurisdiction for your structure.


A brief summary of some of the factors you should take into account follows:


– A zero-tax environment. Many jurisdictions offer this.


– Reputability. This is really a colloquial catch-all for how well the jurisdiction adopts and implements FATF guidelines, OECD (and US) tax and reporting rules, transparency and level of cooperativeness of local government and courts, among other things. The international reputation is not a matter of perception, but much more importantly, it is a matter of how willing other professionals and financial service providers will be to deal with entities formed in that jurisdiction.


– Regulatory compliance. This is related to reputability. A jurisdiction that is compliance-focused will be more readily welcomed by banks, investment managers, insurers, land and asset registries, and others that will interact with the entity you establish. In this context, compliance refers essentially to thorough disclosure of beneficial ownership and processes to keep it up to date and verifiable, and accessible to legitimate government inquiry (not to the public, necessarily).


– Quality of service providers. Offshore structures such as trusts can only function properly if they are serviced by qualified, experienced, reliable service providers, in particular trust companies acting as trustees (others include accountants, lawyers, private bankers, investment managers, and insurance advisors). It is of great benefit to establish a trust in a jurisdiction with a mature market of well-established service providers.


– The legal environment. Offshore jurisdictions tend to have well-developed laws regulating their trust industry, and many have developed issue-specific specializations.  Depending on your priorities and what you wish to achieve with your trust, you may be better served by one jurisdiction or another.  For instance, the Cook Islands have a relatively strong position protecting Cook Islands trusts against foreign claims.  The British Virgin Islands offer a special regime for so-called VISTA trusts[1], which have advantages when the trust acts as a holding vehicle for shares in an underlying company, especially where the underlying investments are relatively high risk.  The Cayman Islands have a special regime for so-called STAR trusts, which allow for non-charitable purpose trusts, useful for creating “orphan” structures, for example.  There are other examples, and many other uses for VISTA and STAR trusts[2].


– The courts. This is really part of the legal environment, but it deserves a separate mention. The track record of the courts in upholding the local laws, and their ability to address trust-related claims in a manner that is sophisticated and predictable is an important factor.


– Privacy. This is also part of the legal environment but deserves a separate mention too. Robust, modern privacy laws are important to ensure that your sensitive personal and financial information is not misused or disclosed to third parties or the public or potential bad actors. It is worth clarifying that “privacy” does not mean “secrecy”, and that any reputable jurisdiction will have detailed beneficial ownership disclosure requirements, and will have international reporting obligations and exchange-of-information treaties, including among tax authorities. The purpose of an offshore structure is not to conceal information from governmental authorities who have a legitimate interest. This was the case decades ago and is the source of negative stereotyping of offshore jurisdictions which continues in the media to this day, ignoring the enormous reforms in transparency, regulation and international disclosure that have occurred over the years.


– Political stability. A long track record of peace and good order and rule of law is critical. Trusts for wealth and estate planning purposes are often intended to last for many years, over multiple generations.


– Cost. The cost of establishing and ongoing maintenance of the trust or other structure is a legitimate focus, of course, but in our view is not the primary driver. The other factors listed above are more important, and, the cost tends to be relatively similar across the board, with limited exceptions.


In our view, among the factors listed above, by far the most important factors to focus on are the legal environment and the quality of trust service providers. The legal environment is important because the objectives for the trust may be better served by the laws of one jurisdiction or another. The quality of trust service providers is important not only for the reasons summarized above but also because a good service provider brings with it its own standards and safeguards around privacy (and the IT infrastructure and culture of compliance that goes with that), often at a level higher than that required by local laws.


A good service provider will also attract qualified personnel, will be responsive, service-oriented, and will be helpful and capable whenever new demands arise.


If you have identified jurisdictions that are reputable, and which have a legal environment that supports your needs, and which have quality service providers available, you can consider some of the softer tie-breaker considerations, such as time zone for ease of communication, and physical accessibility in the event you wish to personally visit from time to time to meet your trustees or other providers.


During the planning phase, it can be useful to weigh the pros and cons of different jurisdictions for a number of reasons. Good planning sometimes entails utilizing a structure with elements in multiple jurisdictions (a private investment company owned by a trust, each in different jurisdictions, for example); and, it can be helpful to consider an alternate jurisdiction in case you wish to re-domicile your trust (most offshore trusts are portable from one jurisdiction to another, if the trust deed allows for it).


The above is not intended to be a definitive list, and specific factual context must always be taken into account. The factors set out above should usually present a reasonable starting point.


If you are considering an offshore trust structure or have questions about whether it may be suitable for you, or which jurisdiction may suit your needs, please contact us and we will be happy to help. ■




[1] Trusts created under the Virgin Islands Special Trust Act 2003 (as amended) (British Virgin Island)

[2] Trusts created under the Special Trusts (Alternative Regime) Law 1997 (Cayman Island)

Tax-Driven Changes in Residency for Canadians

For those with sufficient assets, tax-driven relocations and changes in residency have become commonplace.  They began to occur in earnest in the 1990s and have increased in popularity ever since.  In the past 1-2 years in particular, the popularity of residency changes for tax reasons has seen a marked rise.  This has been driven by several factors, which include:  the steady reduction in other viable international tax planning strategies as the OECD continues to press aggressive reform, more mobile lifestyles brought about by COVID-19, and the expectation of an increased tax burden especially for the wealthy (also brought about by COVID-19, at least in part).  In short, more people have begun to enjoy more mobility, and the comparative tax advantages of relocating have never been greater.   As we have stated in prior inBriefs, for Canadians, changing their country of tax residency is almost certainly going to be the single most effective tax planning strategy they can adopt, with both immediate and long-term benefits.


The opportunity to attract such mobile, wealthy people is also very appealing to potential recipient countries, who stand to gain economically from an influx of wealthy immigrants.  Competition for economically beneficial immigrants is high.  Many countries have established residency programs and tax incentives specifically intended to attract economic immigrants.  Some of the most popular destinations in recent years have included the UAE, Portugal, Greece and Italy, among many others including some Caribbean nations.  The models adopted by these countries typically require the applicant to make an investment in the country, often in real estate, in exchange for medium- or long-term residency (and sometimes a path to citizenship over time), and access to a favourable tax regime.  The amount of the investment varies greatly from country to country (from EUR 200,000 to EUR 3,000,000).[1]  The favourable tax regime will be one of two models: the   requirement    for   an   annual   lump-sum   payment   of   tax irrespective of actual income each year (e.g., Italy, Switzerland), or, access to a low or no tax environment without the lump-sum in exchange for having made an initial investment (e.g., Portugal, Greece, UAE).


Deciding where to seek your new residency can be complex and should take into account many factors, not only taxation.  There are publicly available resources which help you to evaluate potential destination countries according, breaking down some of the more relevant factors on a country-by-country basis, and even offering rankings of countries by popularity for their tax residency offerings.[2]


The conditions of residency and favourable tax treatment usually do not require significant “days in country”, so extensive travel is permitted, but you would need to avoid spending so many days in another country that you are deemed tax resident there as well.  The residency status granted normally gives you and your family the ability to live, study, and work in the destination country (and, for EU destinations, these rights would apply anywhere in the Schengen region).


From a tax planning perspective, it is crucial to carefully evaluate your assets and your expected sources of income before settling on a destination for tax residency, and to obtain professional advice as to how your specific assets and income will be taxed there.  There are always exceptions to the favourable tax treatment offered by each jurisdiction.  For instance, some may provide that only passive income from foreign sources will enjoy low/no tax, and only if there is a double taxation treaty in place with the foreign source country (in which case, income from assets located in offshore jurisdictions may not qualify, nor income you generate if you are working in your new country of residence).  Also, assets located in the country you are moving away from may continue to impose tax on income and gains on those assets, despite your non-residency.


As such, the change of residency journey will almost always include a restructuring of your assets, and planning your sources of income, in order to achieve the desired tax-efficient result.  As part of the planning, it can often be helpful to make use of trusts in low/no tax jurisdictions as a vehicle in which to hold appreciating or income-producing investments.  Distributions from trusts can generally be structured in a manner which attracts little or no tax, depending on whether the distribution is out of trust income or trust capital.  International planning using trusts can be complex and requires cooperation among advisors in your new country of residence, your country of origin, the country in which the trust is established, and every country in which there is a beneficiary of the trust.  Trust distributions to a beneficiary will be treated differently depending on where each beneficiary resides.  However, despite some complexity in the planning phase, trusts remain by far the most popular wealth planning vehicle for good reason, as the benefits of their use can be significant.  For example:


– Tax efficient distributions: payments from a trust to its beneficiaries can be managed so as to attract less overall taxation, or no taxation, if the trust has been planned and structured properly.  This can include tax-free distributions to Canadian resident beneficiaries, if properly planned.


– Wealth accumulation: trusts in low/no tax jurisdictions often have very long lifespans, or are permitted to exist indefinitely.  As such, they can accumulate investment gains with little or no tax over a long period, and can effectively preserve and grow capital. As such, capital can effectively be sheltered in the offshore trust indefinitely, with distributions made to beneficiaries as and when desired so that only those distributions are subject to tax when received (assuming the recipient is subject to tax).


– Transition of wealth: for the above reasons, it is often very advantageous to structure an inheritance through an offshore trust, where the capital can be better preserved, grown and distributed much more efficiently than if the inheritance were given directly to beneficiaries.


– Creditor protection: trusts have long been a popular vehicle for asset protection.  Since the trust legally owns the assets, the settlor’s creditors cannot seize them (subject to some exceptions where there are concerns around defrauding creditors).  And, since beneficiaries usually only have discretionary interests which are not vested, the creditors of the beneficiaries have nothing to seize either.  Trusts are also a useful tool to keep wealth outside of the net of “family property” or similar definitions which determine what a spouse is entitled to upon separation, divorce or death.


– Flexibility and control: trusts are flexible enough to allow you to transfer legal title to assets and grant beneficiaries economic benefits to or from the assets, without transferring control over the assets.  This flexibility to retain control can be useful for many reasons, including in situations where beneficiaries may not be ready to responsibly manage the assets, or, in the context of a family business, where you may not yet know which child or children will be involved in the business upon succession.  Often of most interest to settlors is the ability to continue to control the management of the trust’s investments, rather than handing over control to a trustee and institutional investment manager.


– Estate planning benefits: trusts have a great many benefits in the context of an estate plan, including all of those noted above in this list, along with additional benefits such as the ability to place trust assets outside of the scope of a forced heirship regime, and the fact that trust assets will not be made subject to probate and estate administration procedures which are complex, time-consuming and sometimes expensive.


Once you have selected a destination and have considered how to structure your assets and income in order to achieve a tax-efficient result, you may also need to carefully plan your emigration from your current place of residency. For Canadian residents, there are tax consequences of ceasing to be a resident and there may be planning opportunities to reduce the impact upon your exit.  Advance planning is especially important if you own shares in one or more private companies.


In light of the above, it is important that you select an experienced advisor who not only has local expertise along with an international network and capabilities, but who can also mobilize other professionals in your country and your new country of residence (and a suitable trust jurisdiction) in order to provide you with cohesive and complete advice.  It is typical to require legal counsel and tax accountants in at least two countries, along with valuation experts and professional trustees, in order to provide complete advice on a tax-driven relocation.


If you would like to explore a change in residency and the potential tax advantages, please do not hesitate to contact us. ■


[See also our earlier inBrief dated 4 October 2021, “Planning for Non-residency – Doing it Right”]


[1] There are other paths to residency aside from investment in some countries, such as through employment or establishing a business.  In the UAE, for example, you may establish a company for significantly less cost than the cost of investing in real estate, and arrange for the company to sponsor your UAE residency.

[2] For example, see the popular Henley & Partners indices and reports which rank investment immigration programs, and perceived quality of different residencies and citizenships:

A Matter of Some Discretion: Controlling your Trust

Two common reasons for the use of trusts in estate planning are to achieve tax efficiencies and to protect assets from potential creditors and claims.  These are by no means the only reasons that trusts are utilized, but they are important benefits and are sometimes the primary focus of trust structure.  Generally speaking, trusts that provide tax and asset protection benefits need to be structured so as to grant the trustees very wide discretion as to when distributions are to be made, to which beneficiaries, in what amounts, and in which circumstances.  The language used in trust deeds usually gives trustees “absolute discretion” or “unfettered discretion” or similar.  Consider the following two examples of why discretion is important:


Example A (tax efficiency):  If a family trust is established with many family members as potential beneficiaries (e.g., “all of my issue”, which would include children, grandchildren, and you may include corporations owned by them, etc.), one of the goals of the trust is probably to take advantage of income splitting opportunities among the beneficiaries.  The trustee needs to be able to assess the individual tax brackets of the beneficiaries so they can “income sprinkle” across the beneficiaries in a tax efficient manner.  If the beneficiaries had fixed entitlements to a specified proportion of trust income or capital, the trustees could not achieve a tax efficient result.  Thus, discretion is needed.


Example B (asset protection):  Consider the same example again, but this time one of the beneficiaries has been successfully sued and his/her assets are subject to attachment by the judgment creditor.  If the beneficiary has a fixed entitlement under the terms of the trust, the creditors will be able to attach that interest as well and that beneficiary’s interest is effectively lost.  If the beneficiary’s entitlements are entirely subject to the trustee’s discretion, then the beneficiary has no vested interest at all unless and until the trustee declares each new distribution.  The trustee can confirm before making a distribution whether any beneficiary is subject to creditor claims, and if so, it can exercise its discretion in favour of another beneficiary (or none at all), until the claims are dealt with, keeping the trust assets out of the creditor’s hands.  Accordingly, discretion is again an essential component.[1]


With the necessity for a trustee to be granted such broad discretion, the question is often asked:  how do you know the trustee is going to exercise its discretion in the manner you would have intended?  There are essentially three approaches available:  include terms in the trust instrument itself, issue a letter of wishes, and/or the appointment of trust “protectors”.  We will briefly discuss each in turn.


(i) Terms of the Trust Deed


Some terms can be included in the trust deed itself without unduly constraining the trustee’s discretion.  These may include directions to the trustee not to make distributions to beneficiaries whose assets are subject to attachment; or a term which excludes the trust property from any beneficiary’s net family property to help protect it from being included in equalization payments upon marriage breakdown; or even a direction that requires certain minimum payments or expenses to be paid out of the trust so that the broad discretion only applies to the funds remaining after that.  A trust deed is a very flexible instrument and can be prepared with as many, or as few, specific constraints on a trustee as desired.  However, for the most part, if tax and asset protection benefits are to be maintained, the hard constraints need to be kept to a minimum.  It is more common to do the opposite; that is, explicitly oust duties that trustees would otherwise have as a matter of law that would potentially constrain them.


(ii) Letter of Wishes


A letter of wishes is separate from the trust deed and is just what its name suggests:  a letter from the settlor to the trustee setting out guidance for the trustee as to how the settlor wishes the trustee to exercise its discretion.  The trustee is not legally bound by the letter of wishes, but in practice trustees do give effect to them, and if a beneficiary challenges the trustee’s choices a court will take letters of wishes into account as relevant context.  Letters of wishes are sometimes very brief and provide simply that the trustees should take into account the views of another person when exercising their discretion (and that person is sometimes the settlor).  This is a potentially acceptable approach in the short term, but it has its drawbacks:  a court may find that the settlor is the person who is “in fact” making trust decisions as a de facto trustee, a finding that would almost certainly have detrimental consequences for any plan for which the trust was needed; and, upon the settlor’s death (or to whomever the letter of wishes referred), the settlor obviously then loses whatever influence he/she had.  Thoughtful, detailed, foresightful letters of wishes are strongly recommended.  Note that the trust deed should oust any default duties that trustees must comply with as a matter of law which may prevent compliance with a letter of wishes (the obligation to treat all beneficiaries equally, for example, should be ousted in the trust deed, along with others).


(iii) Appointing a Protector


Finally, there is the role of the trust “protector”.  A protector is someone (or multiple persons) who is granted a number of key powers in the trust deed, but who is not a trustee and, typically, has no fiduciary duties to beneficiaries.[2] They are supposed to provide oversight of trust administration and decision making from the perspective of someone close to the settlor who presumably knows what the settlor would have wanted.  Protectors are often granted powers to approve certain decisions of the trustees, to veto certain decisions, to remove and replace the trustee, or to terminate the trust, among other key powers.  The protector provides a significant check on trustee discretion.  The choice of protector is therefore important:  not only should the protector be someone close to you and who understands your wishes, they should be trustworthy and reliable, and without a conflict of interest (e.g., a beneficiary, or a spouse of a beneficiary).  Care must be taken so as not to usurp the role of the trustees altogether, either in the trust deed or in practice, or there will be a risk that the protector will be found to be the de facto trustee, with potentially disastrous consequences.[3]


In addition to the above, where a trust is created as part of a plan intended to have specific tax consequences, it is common for trustees to obtain professional advice before making a distribution, to ensure that it is being made in a manner that will not upset the plan.  This is not a limit on the discretion of the trustees, per se, but it does function as one.  Sometimes, detailed tax-driven instructions are provided to the trustees by professional legal advisors when the trust is created, setting out guidelines for how distributions are to be made, when, and also to whom they must not be made.  Such advice has similar status to a letter of wishes, but is arguably even more likely to be adhered to as the trustees will not wish to be responsible for triggering negative tax consequences in the face of having received such advice.


The above tools to control the discretion of a trustee are very useful, but they still leave some discretion to the trustee, which is unavoidable if the structure is to be robust enough to withstand a challenge by tax authorities or disgruntled beneficiaries.[4]  On a practical level, these tools are quite effective as professional trustees are motivated to serve their clients (i.e., settlors) as best they can, and to avoid litigation that may arise from ignoring letters of wishes, or professional advice, or contravening a protector’s decision. ■


[1] For asset protection trusts, note that it is important that the beneficiary whose interest is being protected is not also the sole trustee (or ideally even one of multiple trustees), as a court may order the beneficiary/trustee to exercise its control over the trust to satisfy the creditor’s claim.  The beneficiary must not have any control over trust decisions.

[2] The issue of whether a protector does have, or should have, fiduciary obligations to beneficiaries similar to the obligations of trustees is an unresolved issue in Canadian law.  Care should be taken to specify the settlor’s intent in the trust deed as to the duties expected of a protector.

[3] Garron Family Trust v. Her Majesty the Queen (2012 SCC 14) is the leading case in Canada on trust residency.  In that case, the courts “looked through” the exercise of powers by a protector, where the protector was in turn subject to replacement by the beneficiaries, and this was one of the reasons that court found that the beneficiaries were effectively functioning as the trust decision makers, with negative consequences for the trust in that case.

[4] This note focussed on trustee discretion with respect to distributions of trust income and capital.  It is important to bear in mind that a trustee’s discretion with respect to managing the trust’s investments can be controlled as well, to a greater degree of certainty and detail than controlling discretion as to distributions.



International Estate Administration for Canadian Executors

The administration of an estate can be a complex and intimidating process at the best of times.  If the estate in question has international components to it, the complexity increases and professional guidance will almost certainly be essential.  This article will provide an overview of some of the issues that arise in the context of estate administration with international elements, from the perspective of a Canadian executor or a Canadian beneficiary.


There are a number of things that can make an estate administration “international”.  These include:  foreign assets that form part of the estate; the existence of foreign beneficiaries; the non-Canadian domicile[1] of the deceased at the time of death or at the time of making his/her will; a foreign executor; or some combination of the foregoing.  When an estate has one or more of these characteristics, there are certain questions that need to be addressed.  The remainder of this article will be guided by these key questions and answers.


What laws apply to the estate?


As a starting point, movables in an estate are governed by the laws of domicile at the time of death, and immovables (real property and certain intangible assets) are governed by the laws of the place in which they are located.  The practical application of this concept can be much more complex than it appears at first blush, particularly if there is a will that was executed during an earlier stage of life when the deceased may have been domiciled elsewhere, or if the will only addresses part of the estate assets (partial intestacy), or where outcomes based on the laws of one country must be enforced in another country which may have its own administrative or substantive requirements. The issue of which country’s laws apply is very important, as it determines the scheme of distribution (on intestacy) or how the will will be applied and how it may be challenged (if there is a will). This includes spousal or dependant relief claims and other challenges to a will or intestate distribution. For example, if the deceased was found to be domiciled outside of Canada at the time of death, the Canadian (provincial) laws that give preferential rights to spouses and dependents would not apply.  The issue of domicile and determining whose laws apply is therefore central and must be considered as a first step.  Note that a Canadian court may still agree to take jurisdiction and issue a grant of probate for the estate even if the deceased was not domiciled in Canada, but whether this would be appropriate is a case by case decision based largely on where the deceased’s assets are located (more on issues of probate and asset location below).  The issue of which laws apply to which aspects of an international estate can be difficult and do not always have perfect solutions, particularly when the laws of multiple countries need to work together. The cooperative efforts of professional legal advisors in all relevant countries is usually a necessity in order to agree on how to achieve the best practical outcomes.


Where should you apply for probate?


Where to apply for the “original grant” of probate will be driven largely by which assets in the estate require probate in order to enable the executor to deal with them, and where those assets are located.  Assets that require probate are usually assets that are subject to a third party’s control or consent, like bank accounts (the bank), land (land registry), public company shares (the company or the relevant exchange).  As such, once an inventory of assets and their locations has been taken, inquiries should be made with the foreign third parties and authorities in order to confirm their particular requirements.  Those requirements will be one of the following:  a certified copy of the will; a fully attested copy of the will (possibly translated)[2]; a grant of probate in the jurisdiction of domicile; or, the original grant of probate submitted to the local courts to obtain a local court endorsement to enable local parties to rely on it; a local ancillary grant of probate (i.e., a fresh probate application in the local courts).  Which of these documents will be required in each instance will need to be confirmed with each relevant asset registry or authority.  Note that assets that do not require probate in Canada may require it in other jurisdictions.  If there is foreign real property to deal with, local probate will almost certainly be required (either re-sealing an original grant or issuing an ancillary grant locally).  Probate fees may therefore apply in more than one jurisdiction as well.


In most cases, obtaining the original grant of probate in the place of the deceased’s domicile at the time of death is advisable as that is normally where the majority of matters requiring administration emanate from.


In general, even if probate is not strictly required, it is often advisable for an executor to obtain a grant of probate anyway as it offers protection against claims against the executor.  In the context of an international estate administration this should be a material consideration for any executor.


Are there special tax issues with an international estate?


From the perspective of a Canadian executor that needs to distribute assets to foreign heirs, there are some additional tax compliance requirements.  Most importantly there is an obligation on the executor to withhold what is known as Part XIII withholding tax (referring to Part XIII of the Income Tax Act) of 25 percent, or less if reduced by a tax treaty between Canada and the other country.  If the distribution of assets consists of Canadian real property or amounts derived from it, the executor may also need to obtain a special clearance certificate from the CRA before making the distribution (a section 116 clearance certificate). Note  this  is  different  from  the  clearance  certificate  that  the  executor should obtain from the CRA to protect him/herself from liability for tax in respect of estate distributions in any event, even domestically[3].


For assets located in other jurisdictions, local advice will be required as to whether any tax liabilities or filing obligations are applicable in respect of such assets, such as estate tax (as in the United States) or transfer taxes or stamp duties or similar.


For a Canadian beneficiary that receives distributions from a foreign estate, there are generally no tax consequences of the receipt itself.  However, an information return may still need to be filed with the CRA[4].  If the distribution results in the Canadian owning foreign assets worth CAD 100,000 or more, this will give rise to an additional filing requirement with the CRA[5].  Note that if a Canadian resident owns (or acquires by inheritance) any foreign asset that generates income, that income will be taxable in Canada and will need to be declared going forward.


It is worth pointing out an opportunity for tax planning when a foreign benefactor wishes to leave an inheritance for a Canadian resident.  If the foreign benefactor is not a Canadian resident, and has not been a Canadian resident for the past 18 months prior to death[6], then they will be able to establish a trust in their will in a foreign jurisdiction (i.e., a low/no tax jurisdiction) using the inheritance.  The Canadian beneficiary(ies) can receive distributions from the trust tax free, forever.  The benefit of this structure is with respect to the income generated by the trust settlement, not the trust capital itself (which would not have been taxed in Canada in any event when transferred to the heirs).  The income generated by the trust can be accumulated, capitalized, and paid out to Canadian beneficiaries as capital on an ongoing basis, attracting no tax.


What should you do to plan your international estate in advance?


Having a well-planned estate will make its administration much easier on your executors, and will help to ensure your wishes are in fact carried out in the way you intended and not thwarted by unforeseen legal or administrative obstacles.  Some key elements of good planning that you may wish to consider are:


1. Keep your will(s) up to date as your assets grow or change in type, value or location, or your family (or other beneficiary) circumstances change, or as your country of residence changes.  An out of date will can result in unnecessary and entirely avoidable difficulties and a distribution of your estate in a manner you did not intend.


2. Have multiple wills where appropriate on a country by country basis, or sometimes by asset type, so they can be probated and administered locally, or so that probate can be avoided for some assets.  This can help to avoid the international attestation requirements, translation requirements, and international recognition or enforcement issues that can arise and which can be very time consuming.  If multiple wills are used, be sure they are drafted in express contemplation of one another and do not operate to invalidate the other(s).  Consider preparing an explanatory note to your executor regarding how the multiple wills are intended to operate, and what formalities are expected to be required to implement them so your executor does not need to struggle to work out your intentions.


3. Confirm whether you are subject to any forced heirship regime, as is the case for some EU nationals  (e.g. Germany, France),  and  Middle  Eastern  nationals  (e.g. Saudi Arabia, the UAE), and plan your estate with an awareness of which assets, if any, will be subject to the forced heirship regime.  You can plan your will(s) accordingly so as to avoid a conflict between your wishes and what is required by law, or, you may be able to plan to effectively exclude some or all of your assets from the regime.


4. Keep a document that will be easily located by your heirs upon your death which sets out what documents you have prepared (i.e. your wills and any instructional memos) and where they can be located, and the best lawyers or other professionals who were involved in their preparation or other estate planning.


5. Consider establishing a trust during your lifetime which can hold some of your assets in order to avoid the probate and estate administration issues that would otherwise arise.  Since ownership of the assets will have passed to the trust already, the only administration that is necessary is to provide the trustees with proof of death, whereupon the trustees will deal with the trust assets in whatever manner is provided in the trust deed.  This provides ease of administration, avoidance of probate (and probate fees), and immediate access to assets for your heirs (or limited or delayed or conditional access, according to what you had provided in the trust deed).  The use of trusts can dramatically ease the burden on your estate administrators.


International estate administration can be daunting.  The support of professionals who are experienced in dealing with international issues and who are part of a strong network of professionals in other jurisdictions is essential.  If you require assistance or have any questions about domestic or international estate administration issues, please do not hesitate to reach out to us. ■



[1] The term “domicile” is not always the same as “residence”, although they usually are the same.  Domicile requires a higher level of permanence, where one has their permanent home.  For many people the answer is obvious, but for recent immigrants or emigrants of Canada, or for people with significant residential ties in multiple countries, the determination of domicile can require further analysis.

[2] The attestation process typically consists of notarization in the place of origin, attestation by the Ministry of Foreign Affairs or equivalent, then finally attestation (or legalization) by the consulate or embassy of the country in which the document will be used.  This can be an onerous process for those unaccustomed to it.  Consideration should be given to the translation requirements in the local jurisdiction, which may include the necessity to use only licensed translators in that jurisdiction.  It is usually more efficient to have the translation done in the foreign jurisdiction.

[3] Such clearance certificates are required under section 159(2) of the Income Tax Act, as opposed to the section 116 clearance certificates for distributions of taxable Canadian property (mainly real property) to foreign beneficiaries.

[4] Form T1142 (Information Return in Respect of Distributions from and Indebtedness to a Non-Resident Trust).

[5] Form T1135 (Foreign Income Verification Statement).

[6] Note the same tax-efficient offshore trust structure can be used during the life of the benefactor too, but they must have been non-resident for at least 5 years rather than 18 months.

Onshore UAE Trusts Law – Refresher and Overview

UAE Federal Decree Law 19 of 2020 Regarding Trusts (the UAE Trusts Law) was issued in September of 2020. As there was no comparable law previously, the UAE Trusts Law opened the door to trusts in the UAE for the first time (not including DIFC and ADGM trusts, the UAE’s two financial free zones). This is a potentially significant development that holds great promise, although some key questions remain. 


Trusts and Some Examples

In short, a trust is an arrangement whereby a third party (trustee) is entrusted with assets given over by a person who establishes the trust (settlor or contributor) for the trustee to manage and distribute for the benefit of specified beneficiaries (or sometimes specified purposes). The settlor transfers legal ownership and (usually) control of the trust assets, which are legally owned and controlled by the trustee, subject only to the trustee’s duties at law, and duties under the trust instrument. The concept of trusts was developed by the English common law, although similar divisions of legal and beneficial ownership have long existed in the civil law world as well (civil law foundations being a well-known example).


Trusts can be a useful tool in business structures, as an investment vehicle, as a tool in estate/wealth planning for both tax and non-tax reasons, as an asset protection tool (from creditors or other third parties), and as a succession tool upon a person’s death, among many other uses. A few words about each of the above may be in order:


1. Business structures: trusts are used for many different reasons in business structures. Examples include ensuring continuity of ownership without disruption on succession; using trusts as a form of security in lending transactions to bypass local security registration mechanics; or simply a convenient and permanent method of managing divided rights among beneficiaries (beneficiaries instead of shareholders), as there may also be some significant advantages in terms of privacy.


2. Investment vehicle: a trust is a popular vehicle through which to solicit investment from third parties for the purpose of acquiring and managing underlying investments, whether in the form of real property, active businesses, or passive investments. The advantage of using a trust structure instead of a conventional corporate structure is largely tax driven, but there are other potential advantages in terms of the ability to manage rights of “unit” holders as opposed to the rights of shareholders (i.e., you can often limit their rights further). The UAE Trusts Law specifically contemplates the use of UAE trusts for this purpose. Note that the UAE’s laws regulating solicitation of investment from third parties should be assumed to apply as usual, whether or not the investment is structured as a trust (the UAE’s securities regulator, the Securities and Commodities Authority, has not commented on the UAE Trusts Law as of the date of writing, to our knowledge).


3. Estate/Wealth Planning: this is perhaps what trusts are best known for. Trusts can be invaluable tools for both tax and non-tax reasons in a person’s estate planning, both during life and after death. Income sheltering, income splitting, avoidance of probate, avoidance of estate administration burdens and delays, and control over one’s legacy are all common goals with trust-based planning. As a zero-income-tax jurisdiction, the UAE may begin to compete among the conventional low or no tax jurisdictions for the creation of trust-driven estate planning structures. Foreign assets, from foreign settlors, for the benefit of foreign beneficiaries, are all permissible under the UAE Trusts Law.


4. Asset protection: since the assets transferred to a trust are no longer the legal property of the settlor, creditors of the settlor cannot attach or recover them. Creditors can still attach and recover a beneficiary’s interest in the trust if and to the extent it is vested. This is addressed by granting trustees discretion as to the timing and amount of any distribution to any beneficiary, so that beneficiaries do not actually have any vested entitlement (and therefore nothing to attach or recover) unless and until the trustees resolve to make a distribution to any given beneficiary. The UAE Trusts Law contains provisions that specifically contemplate and support the use of UAE trusts for this purpose. Note that a disposition of assets into a trust on the eve of insolvency or to deliberately prejudice a particular creditor will not be effective as the UAE’s insolvency law permits recovery of assets disposed of up to two years prior to the date insolvency proceedings are commenced under that law[1].


As mentioned, the above list is indicative only and by no means exhaustive. Trusts are vehicles which, by their nature, allow for a great deal of creativity and flexibility, and particularly so in a zero-income-tax jurisdiction like the UAE.


UAE Trusts Law – Selective Overview

The UAE Trusts Law contains several provisions that will be familiar to trusts and estates practitioners in common law jurisdictions, such as the duties of a trustee to “preserve” the trust assets, and to manage the assets and make distributions in a manner that is “neutral between the beneficiaries” (even hand rule). How these and other provisions of the law, upon which there is an enormous quantity of jurisprudence in the common law world, will be applied and enforced by UAE courts remains to be seen.


The role of the trustee should not be taken on lightly, as the role comes with many duties and many possible sources of liability. Professional advice is essential for anyone considering acting as a trustee in the UAE. Individual trustees can be appointed without any particular qualifications, but corporate trustees must be licensed to provide trustee services (details of this licensing requirement are to follow). The duties of a trustee under the law, however, apply equally to all trustees, whether professional service providers or inexperienced individuals. While professional trustees will find the compliance burden imposed by the UAE to be light compared to many other jurisdictions (as so much of a trustee’s administrative burden and liability can relate to tax compliance, which is not a concern in the UAE), the duties are still a significant burden for the uninitiated and include regular report preparation, careful record keeping, asset management and supervision, interpreting and applying the terms of the trust instrument, knowing the law and key accounting principles around management and distribution of the trust assets, and appropriately documenting all actions taken as trustee. Failings can expose the trustee to liability, the source of which is not always obvious.


The UAE Trusts Law places a great deal of importance on the trust instrument itself, which is entirely appropriate. The trust instrument is the written document that establishes the trust and sets out its terms. It is very important to craft the terms carefully and thoughtfully, and with a view to several specific provisions of the law which allows for certain outcomes only if the trust instruments include certain language. For instance, the trust instrument should specifically empower a trustee to appoint auditors or else the settlor will have to amend the trust instrument or the trustee will have to make an application to the court; or, a trustee can only obtain a discharge of liability from the beneficiaries if this is contemplated in the trust instrument. The New Trusts Law contains several other similar “if/then” consequences, and careful drafting is therefore critical. If there are any foreign settlors or beneficiaries (very likely to be the case in a cosmopolitan jurisdiction like the UAE), it may be that specific drafting will be required to avoid unintended tax consequences in other jurisdictions as well (such as attribution rules that attribute assets or income back to an individual if they retain certain interests or control over trust property or governance, for example).


Note that a UAE trust will not exist until it is registered with the UAE Ministry of Finance, in a registry to be created for the purpose. The creation of, and rules governing, the register is one of the issues that will be addressed by the Cabinet Decision. While full disclosure of the identity of the settlor(s), trustee(s), protector(s) and beneficiary(ies) will be required, what this means in terms of specific submissions required remains a key question mark (ID copies? Proof of address? Proof of tax residency? CRS-style questionnaires? Ongoing reporting on a periodic basis?). This registration requirement differs from DIFC or ADGM trusts (and the common law world at large) and could act as a disincentive for the use of onshore UAE trusts given the reluctance of settlors to file potentially sensitive, personal details contained in trust instruments with a government body.


Finally, I will note that the New Trusts Law provides that UAE trusts are legal entities with their own legal personality, which is not the case with common law trusts. This means the trust itself, not the trustee, will have legal ownership of the trust property. While this is conceptually a major difference between common law trusts and a UAE trust, the practical implications of this will be relatively minimal. The trustee still carries liability for its failures, just as with a common law trust. One advantage may be that it will make the replacement of trustees easier, since ownership of property need not change hands.


Foreign Tax Considerations

Many high-tax jurisdictions apply “deemed residency” rules to foreign trusts where the foreign trust has connections to that jurisdiction, such as where there is a settlor that is a resident of the high-tax jurisdiction. In such cases, a UAE trust could be deemed tax resident in another country and made liable for payment of tax, as well as reporting and filing obligations in that other jurisdiction. Such laws tend to make the foreign trustee jointly liable with other parties (such as the settlor or beneficiaries that may be resident in the other country). Even if the tax authority collects from such other parties, joint liability means that the other parties may then be able to claim against the trustee for compensation.


Also, as a general matter, citizens and residents of other countries should be aware that a UAE trust could be “deemed resident” for tax purposes in that other country on the basis of there being a settlor, beneficiary, trustee, or on some other grounds.


The importance of professional advice cannot be overstated as dealings with trusts can be quite complex.



There are some questions that remain to be answered about the new regime and its practical implementation, many of which should be addressed in a Cabinet decision by which the UAE Trusts Law contemplates will follow, which will set out some further implementing rules (the Cabinet Decision). Among other things, the Cabinet Decision is expected to address:


  • The creation of, and rules applicable to, the trusts register;
  • how a trustee can become licensed to provide trustee services;
  • additional clarity on trustee duties; and
  • special provisions around charitable trusts, pension trusts, and investment trusts.


We will provide a further update once the Cabinet Decision is issued.


Note that many of the benefits, and accompanying risks, which are noted above apply equally to DIFC, ADGM and RAK foundations, and to DIFC and ADGM trusts. The question will be, in practice: what advantages, if any, does the UAE Trusts Law regime offer to distinguish itself from the DIFC, ADGM and RAK? The uses for DIFC, ADGM and RAK foundations to date has tended to be limited to holding UAE-based assets. If the UAE can establish itself among the traditional “offshore” financial structuring hubs by attracting foreign assets as well, the UAE stands to benefit greatly from the influx of capital, investment, and the growth of the professional service community that surrounds such activity (trustees, agents, investment managers, advisors). ■


[1] Articles 168 and 169 of the UAE Insolvency Law

Dubai Family Ownership of Common Property Law

On 13 August 2020, the Ruler of Dubai issued Law 9 of 2020 to regulate family ownership of common property in the Emirate of Dubai (the Law). The Law aims to establish a legal framework for family ownership of common property in Dubai and to facilitate its transmission among successive generations. This concept of undivided family assets introduced by the Law also exists in other jurisdictions.


There are many family run businesses in Dubai. These businesses have been in existence for many years and are often in the name of one or more senior family members even though other family members are beneficiaries of such businesses. This ownership of businesses and family assets in the name of a select few senior family members (without written agreement on ownership, management or succession) can create disputes between the family members, especially in case of the death of the owner of record of such assets.


The Law also aims to provide a legal framework for maintaining continuity of family ownership and avoiding division of businesses amongst family members to the detriment of the businesses and families.


Family Property


A family is defined under the Law to include the spouse, blood-relatives and lineage up to the fourth degree. Although the Law does not specifically mention that only UAE nationals can avail benefits under the Law, the Law has primarily been enacted for the benefit of UAE nationals. However, nationals of other countries and of any religion are not excluded from the Law.


The Law permits family members who have a common property to classify such common property as a family property. A family property may be contributed by any member of the family. The term family property in not restricted to real estate and can include shares/interest in companies (except public shareholding companies), assets in individual establishments, movable and immovable properties and other intellectual property.


Family Property Contract


A family property may be created, regulated and managed by a family property contract entered into between family members. Property subject to a family property contract shall be treated as common property of the family members. A family property contract is the fundamental document governing the family property and must be drafted carefully to avoid any ambiguity. It must meet the following conditions:


a) the parties (also referred as partners) to a family property contract must be members of one family;


b) the parties must have one business or common interest;


c) the share and interest of each party must be identified in the family property contract;


d) each property (which is part of the family property) must be owned by one or more persons who has the right to transfer the property;


e) the contract must be signed by all the parties in the presence of a UAE notary public; and


f) must not violate public order.


Amendment to a Family Property Contract


Any amendment to a family property contract requires the consent of persons holding at least 75 per cent of the family property. The family property contract may provide for a higher approval threshold.


Term of a Family Property Contract


The term of a family property contract can be a maximum of 15 years. The term may be renewed by unanimous consent of the partners provided that each such renewed term does not exceed 15 years.


Note that for renewal of any term, unanimous consent of the partners is required. A single partner (irrespective of the share of such a partner in the family property) can therefore withhold the renewal of a family property contract.


If partners fail to agree to a term for renewal of a family property contract, any partner may, by giving six months’ notice, apply to a committee (to be established pursuant to the Law to settle disputes arising out of a family property contract) for permission to take his shares out of the family property.


Management of Family Property


The family property is to be managed by one or more managers appointed by partners holding two thirds of the family property. The number of managers must be an odd number. The manager(s) can be a partner or a third party including a corporate entity.


A family property contract can also provide for formation of a board of directors to supervise the manager(s). The rules and regulations regarding appointment, governance and powers of board of directors may be included in the family property contract.


The manager(s) shall have general powers to manage the family property including but not limited to distribute profits to the partners, represent the family property before third parties and such other responsibilities and powers as may be specified in a family property contract.


The manager(s) can be held liable and be required to indemnify the partners for any losses caused due to his negligence or breach.


Partner’s Transfer of Shares in a Family Property


If a partner wishes to transfer his shares in a family property, he must offer such shares to the other partners in proportion to their shares. However, if such a transfer by a partner is an assignment of his shares to his spouse or any of his first-degree relatives or any specific partner, the partner transferring the shares is not obligated to offer the same to the other partners, unless otherwise agreed in the family property contract.


Additionally, a partner may transfer his/her shares to third parties (other than the partners) or impose a right in kind in favour of third parties, provided that he has the consent of partners holding at least 51 per cent of the family property. Although not expressly stated by the Law, such third parties must presumably be other family members who are eligible to be partners in the family property.


In case none of the partners are interested in purchasing the shares of a partner or an heir or the partners do not agree to a transfer to a third party, the affected partner or heir may approach the committee (discussed earlier) which may permit the transfer to a third party provided that (i) there is a strong justification for transfer of shares to a third party; and (ii) such transfer will not affect the continuity of the family property.


Acceptance by Government Authorities


The Law should bring order in the management and succession of family property and businesses in the Emirate of Dubai. All government authorities in Dubai are required to take appropriate steps (such as preparation and maintenance of commercial and real estate registers) to ensure acceptance and enforcement of the Law. It will be interesting to see how other Emirates will recognise a Dubai family property contract.


The Law is an effort to simplify succession issues and to prevent major family assets from being sold to generate liquidity for distribution among heirs upon the death of a patriarch. ■