Offshore trusts in Germany: estate planning and asset protection

Offshore asset protection with trusts and trust law in Germany

With our German mandates, we regularly develop complex estate planning with regard to assets, which is documented, among other things, in the USA. Again and again, the question arises as to whether a US trust or an offshore trust can be a suitable vehicle for the client. A trust is a structure in which a person (the “grantor”) of another person (the “trustee”) grants power of disposal through a contractual agreement (“trust agreement”) and associates this with instructions and restrictions. He is in the broadest sense comparable to a German foundation. However, the trust does not have its own legal personality, but represents a legal relationship between grantor and trustee, mostly in favor of third parties, the beneficiaries. There are revocable trusts and irrevocable trusts (so-called ” irrevocable trusts”).

There are different forms of trusts, each for different purposes. Such purposes may be, for example, estate planning or asset protection against third party access (“asset protection”). Often it is also asked whether such a trust helps the client in Germany with regard to tax law.

In principle, German law does not recognize the Trust and does not recognize it. In that regard, he is not tax-treated like a German foundation. German tax law is then applied to a trust if there is sufficient connection to Germany. This may be in the person of the grantor, the trustee or beneficiary or the location of the assets. In September 2012, the BFH decided on another dispute in this context ( ) and found that ongoing disbursements from an existing US trust to beneficiaries resident in Germany are subject to German gift tax. Distributions upon dissolution of a trust to such persons are in any case subject to German gift or inheritance tax. The provisions of the German double taxation convention (inheritance tax), in particular Art 11, Paragraph 3 b, are applicable in principle.

From a tax point of view, we generally advise our German clients not to hope for special tax benefits from a US trust. However, for estate planning purposes and also for protection against creditors, the trust is a suitable vehicle for such clients. Depending on the situation in each case, the Trust may be very tax-efficient in terms of US estate tax, especially if US real estate is involve.

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