Succession Planning in the Americas: Advanced Strategies with Trusts, Holdings and Foundations considering Jurisdictions in South America, the Caribbean and the USA

International Taxes
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Introduction:

International succession planning in the Americas has gained complexity and importance, especially with the increased mobility of wealth between the US, Caribbean and South America. With an estimated wealth of over $100 trillion circulating in these regions, sophisticated succession planning strategies have become essential.

This guide explores the use of trusts, holding companies and foundations in the context of the Americas, with a special focus on tax considerations for US residents and non-US tax residents. We will provide detailed insights and practical strategies for navigating this complex regional legal and tax landscape.

Part 1: Ready to Roll 🚀 – Basic Strategies and Practical Actions

Part 1, “Ready to Roll”, offers practical actions and immediate advice for entrepreneurs who need quick and effective guidance.

11. Trusts: Structures and Applications

Key Jurisdictions for Trusts

  • USA: Delaware, South Dakota
  • Caribbean: Cayman Islands, Bahamas, British Virgin Islands (BVI)

Relevant Types of Trusts

  • US Domestic Trusts: Revocable Living Trusts, Irrevocable Life Insurance Trusts (ILITs)
  • Offshore Trusts: Asset Protection Trusts (APTs), Purpose Trusts

Implementation:

  1. Choice of jurisdiction based on specific objectives (e.g. South Dakota for privacy, Cayman for asset protection)
  2. Selection of the type of trust suited to the client’s profile
  3. Appointment of trustees and protectors with experience in the region
  4. Transfer of assets considering cross-border tax implications

Example: A Brazilian businessman sets up an APT in the Cayman Islands to protect assets from litigation risks, while maintaining investments in the USA.

2. Holdings: Regional Strategies

Preferred Jurisdictions

  • USA: Delaware, Wyoming
  • South America: Uruguay, Chile
  • Caribbean: Panama, Bahamas

Types of Structures

  • USA: LLCs, S-Corporations
  • South America: Corporations, Limited Liability Companies
  • Caribbean: International Business Companies (IBCs)

Implementation:

  1. Choice of structure based on regional tax and operational objectives
  2. Incorporation in a jurisdiction aligned with the global strategy (e.g. Delaware LLC for US operations)
  3. Establishment of shareholder agreements adapted to local laws
  4. Structuring dividend flows taking into account regional tax treaties

Example: A Colombian family creates a holding company in Panama to centralize investments in the US and the Caribbean, taking advantage of Panama’s tax treaty network.

3. Foundations: Latin American alternative to trusts

Relevant Jurisdictions

  • Panama
  • Brazil (Private Law Foundations)

Specific Characteristics

  • Own legal personality
  • Flexible family governance
  • Variable tax treatment depending on jurisdiction

Implementation:

  1. Selection between Panamanian (more flexible) or Brazilian foundation (for domestic assets)
  2. Drafting of bylaws in line with local laws and family objectives
  3. Appointment of board considering regional expertise
  4. Endowment of assets observing international transfer rules

Example: A Peruvian family establishes a foundation in Panama to manage family assets distributed between Peru, the US and the Caribbean, facilitating succession and governance

Part 2: Deep Dive 🤿 – Technical Deepening in Advanced Strategies

Part 2, “Deep Dive”, provides in-depth analysis for those wishing to delve into the technical and complex aspects of international finance.

4. Tax Implications for US Tax Residents

Specific Rules for Regional Structures

  • Treatment of Controlled Foreign Corporations (CFCs) in South American holding companies
  • Passive Foreign Investment Company (PFIC) rules for investments in the Caribbean
  • Reporting requirements for foreign financial accounts (FBAR, FATCA)

Strategies:

  1. Use of check-the-box elections to optimize tax treatment of foreign entities
  2. Implementation of structuring to avoid PFIC status for Caribbean investments
  3. Careful planning of distributions from foreign trusts to avoid throwback taxes

Expatriation planning

  • Exit tax considerations for U.S. tax residents moving to the Caribbean or South America
  • Pre-immigration strategies for non-residents planning to move to the US

5. Considerations for Non-U.S. Tax Residents

Exposure to US Estate Tax

  • Reduced exemption limit ($60,000) for non-residents
  • Strategies to mitigate exposure to US investments

Strategies:

  1. Use of Panamanian or Bahamian holding companies to hold U.S. assets
  2. Implementation of Irrevocable Life Insurance Trusts (ILITs) in jurisdictions such as Bermuda to provide tax-free liquidity
  3. Structuring portfolio investments in the US through foreign entities to avoid estate tax

Planning for U.S. Beneficiaries

  • Qualified Domestic Trusts (QDOTs) considerations for non-citizen spouses
  • Structuring distributions to U.S. beneficiaries of foreign trusts

Part 3: Advanced Structures and Case Studies

6. Detailed Structure: Trust-Holding-Foundation Integration in the Americas

Structure Description:

  1. Top Level: Private Interest Foundation (Panama)
    • Purpose: Family governance and asset holding
    • Beneficiaries: Family members in multiple American jurisdictions
  2. Intermediate Level: Irrevocable Trust (Cayman Islands)
    • Settlor: Panamanian foundation
    • Trustee: Professional trustee in the Caymans
    • Beneficiaries: Underlying holdings and family members
  3. Operational Level: Regional Holdings
    • LLC in Delaware (USA): For assets and operations in the USA
    • Sociedad Anónima in Uruguay: For South American investments
    • IBC in the Bahamas: For investments in the Caribbean

How it works:

  • The Panamanian Foundation establishes governance and succession policies
  • Trust in Cayman provides asset protection and tax flexibility
  • Holdings manage assets and operations in their respective regions

Tax advantages:

  • Use of Panama tax treaties for efficient distributions
  • US estate tax protection through offshore structure
  • Flexibility for tax-efficient distributions to beneficiaries in different jurisdictions

Implementation:

  1. Establishment of the Foundation in Panama
  2. Creation of the Trust in the Cayman Islands
  3. Incorporation of the Holdings in the relevant jurisdictions
  4. Transfer of assets to the structure in a tax-efficient manner
  5. Implementation of FATCA/CRS compliance policies

7. Case Study: Multi-Jurisdictional Family in the Americas

Family Profile:

  • Patriarch: Brazilian citizen, non-US tax resident
  • Children: Mix of US, Brazilian and Caribbean residents
  • Assets: Businesses in Brazil and USA; properties in the Caribbean; global investment portfolios

Objectives:

  1. Protection of assets against regional political and economic risks
  2. Tax efficiency considering multiple jurisdictions in the Americas
  3. Orderly succession adapted to the laws of each country involved
  4. Regulatory compliance, especially with FATCA and CRS

Structured solution:

  1. Private Interest Foundation (Panama)
    • Governs the overall structure and defines distribution policies
    • Provides neutrality and legal stability
  2. Irrevocable Trust (Cayman Islands)
    • Holds shares in operating holding companies
    • Offers asset protection and flexible tax planning
  3. Operational Holdings:
    • LLC (Delaware): Business and investments in the USA
    • S.A. (Uruguay): Holding company for South American assets
    • IBC (Bahamas): Caribbean and global investments
  4. Specific Structures:
    • QDOT for non-US citizen spouse
    • Subtrusts in Cayman for US tax resident children

Tax Strategy:

  • Use of the Panama and Uruguay tax treaty network
  • Implementation of check-the-box structures for holding companies
  • Planning distributions via trust for tax optimization

Governance:

Compliance and reporting policies adapted to each jurisdictionContinuous legal and ethical compliance.

Family council overseeing the Foundation in Panama

Regional investment committees (USA, South America, Caribbean)

Conclusion

Succession planning in the Americas using trusts, holding companies and foundations offers powerful solutions for families with connections in these regions. The complexity of the legal and tax landscape between the US, Caribbean and South America requires a sophisticated, multi-jurisdictional approach.

Key points to remember:

  1. The choice of jurisdictions must consider not only tax benefits, but also political stability and regulatory compliance
  2. Integration between different structures (trusts, holdings, foundations) can provide optimized flexibility and protection
  3. Compliance with FATCA, CRS and local regulations is crucial for the sustainability of the structure
  4. Adaptability to legal and tax changes in different jurisdictions is essential

By implementing these advanced strategies, families can create a lasting legacy that transcends borders in the Americas, always within the limits of legality and ethics in each jurisdiction involved.

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