TRUST AND RETROCESSION OF ASSETS: TAX NEUTRALITY AND IMPACT ON BENEFICIARIES

Common practice in family trusts sees the settlor also listed as beneficiary, thus allowing a link to be maintained with the assets transferred to the trustee. This practice, consistent with the purpose of the trust, does not render the entity invalid in the eyes of taxation.

An illustrative example is the transfer of a portion of the assets to ensure the wealth of the settlor in old age or in the event of illness. In such circumstances, the assets revert indirectly or directly to the settlor, ensuring adherence to the original intentions of the trust.

The total retrocession of assets to the settlor, such as as a result of beneficiary waivers, has recently been confirmed by the Supreme Court as fiscally irrelevant for inheritance and gift tax purposes. Indeed, taxation depends on the gratuitous enrichment of third parties, which does not occur in the case of retrocession to the settlor.

The dynamic management of the estate by the trustee, who can change its original composition to suit the needs of the beneficiaries, is also tax neutral. The Supreme Court emphasizes that the transfer back to the settlor is independent of the original nature of the assets segregated in trust.

The use of assets in trust in the settlor's interest retains its tax neutrality, extending to income taxes. Any increases in the assets due to income have already been taxed, while latent capital gains will be taxed once they are retroceded to the settlor, ensuring continuity in tax consistency.

In conclusion, the retrocession of assets into trusts is a tax-neutral process, preserving the integrity of the trust and complying with relevant laws.

We are available for further details.