Why is the trust the only asset protection and tax planning solution in Argentina?

In times of electoral uncertainty, many people think about protecting their assets from legal insecurity and fiscal greed. Thanks to the advancement of automatic exchange of bank account information worldwide, tax authorities have the power to inspect assets worldwide. The last tax reform in Argentina in 2017 determined that legal structures of any nature, where Argentine taxpayers maintain direct or indirect control, will be considered transparent and the assets and earnings are taxed in the head of the taxpayer with control. The same reform clarifies that the Fiscal Authority will not have tax authority over an irrevocable foreign trust, with independent trustees and discretionary beneficiaries. In consecuense,

We have discussed the change of Fiscal Residence in previous Newsletters (see reports in our news section: https://insight-trust.com/noticias_blog/). Today we will dedicate ourselves to analyzing in depth the structure and operation of the Trust.

What is the Trust and how does it work?

Trust is the English translation of trust, in this case we will analyze the family trusts. It is a contract where the Founder hires a professional Trustee to manage assets for certain beneficiaries. There are two types of trusts, the revocable ones, where the Founder can request revocations of the assets held by the Trust, and the irrevocable one where only the beneficiaries can receive funds from the Trust.

We will analyze the irrevocable Trust that is the one that has tax effects in Argentina. Unlike a real estate trust where money is contributed and real estate is received, a contribution to an irrevocable trust can be compared to a donation to a Charitable Institution, where those assets do not return and are managed by a third party for the benefit of someone. In this case, the contribution to a Trust will be used to benefit the heirs and other beneficiaries appointed by the Founder, being a great succession planning tool.

There is a very important figure in this contract called Protector, the Protector is appointed by the Founder to inspect the Trustee. It has veto powers over its decisions and can dismiss it in case of maladministration, only by signing. In this regard, it is important to clarify that the Tax Reform in Argentina (art. 71) made it clear that the position of Protector cannot be filled by the Founder or his relatives until the third degree, therefore, although it is a figure that grants guarantees to the Founder, it is necessary to be very prudent when choosing the person who will occupy this role.

What happens to the Trust if future governments decide to increase taxes, repatriate capital or impose stocks?

Going back to the example of the Charitable Institution, imagine that a donation to the Geneva-based Red Cross could never be subject to local laws in third countries. In the case of the Trust, it works the same, since it is a legal figure subject to the laws of another country, a foreign government cannot apply local laws on the assets administered by it, once the contribution of the same has been documented and the assets have been transferred to a independent entity from abroad. 

On the other hand, the Trust has other intrinsic advantages of its legal regulations, even being revocable, since it is an independent patrimony administered trustee, it is segregated from the patrimony of both the Founder, the Trustee and the Beneficiaries making it unattachable and fully protected against third parties.

What are the Argentine tax benefits of the Trust?

The Argentine taxpayer Founder who contributes assets to a Trust abroad, alienates them reducing his patrimony, that is, in his next declaration of Personal Assets those assets no longer appear. The profits generated from that moment are imputed in the head of the Trust and the income tax is deferred until the moment of the effective distribution to beneficiaries resident in Argentina

Can I form a Trust abroad without losing control of the assets?

When an irrevocable Trust is established abroad, the Founder can choose his trusted Financial Advisor and also the bank where to keep the Trust’s assets. You can contribute money, financial assets, real estate, companies, intangible assets, etc., there are no limits on the assets to be contributed. However, only irrevocable Trust beneficiaries can request capital withdrawals or profits from it.

If the Founder does not lose control, we would be before the figure of a revocable type Trust, where, as explained above, it has tax implications in Argentina, since if the Founder has his tax residence in that country it will be understood that this exercises control over the structure and therefore must pay both personal property and profits if any.

Can beneficiaries request distributions from the Trust at any time?

Yes, unless the Founder prohibits it in writing from the foundation of the Trust, there are no restrictions for the beneficiaries to request distributions. It is important to clarify that in the Argentine income tax law it considers that in case the Trust has accumulated earnings, the distributions will be considered taxed earnings until they are exhausted.

Can the beneficiaries be changed?

Beneficiaries may be increased, decreased or changed while the Founder is alive and with the authorization of the Protector. They can be included as family or non-family beneficiaries, the spouse is disabled unless they have a legal separation of assets. The Founder is also prevented from being named beneficiary, in case this point is not clear in the Trust contract, AFIP will automatically ignore the irrevocability of the Trust, considering it revocable and understanding that the Founder must pay both personal property and earnings if any.

What happens in the event of the Founder’s death? What kind of wishes can be stipulated?

Along with the signature of the Trust, the “Letter of wishes” is signed, it is a letter where the Founder specifies his wishes in case of illness or death. It is a “luck” of Testament, the wishes can be as wide as the Founder wishes, there are no limitations. The most common wishes of our clients have to do with the fact that beneficiaries have access to Trust resources while they are minors for housing, education, health and emergency expenses. Many request that the funds under the Trust be divided equally between their heirs or their children’s children. Sometimes there is a request for the partial distribution of assets up to a certain age, caregivers or administrators can be appointed in the case of children with special abilities or minors, etc.

What international law and principles protect the Trust?

The laws that regulate the Trust abroad depend on the country of the Trust and often also on the country of the Trustee. In the case of Insight Trust, our Company with a Professional Trustee license is located in the United States. To learn more about the Trusts, and how they work, read our Brochure here .

To request more information, a more personalized recommendation, a face-to-face meeting with one of our advisers or a budget, contact info@insight-trust.com

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