A Swiss colleague notified me today that the Swiss Federal Administrative Court recently held that the beneficiary of an irrevocable discretionary trust is not the beneficial owner of the trust’s assets. Based on that holding, the Swiss Federal Administrative Court ruled that the Swiss tax authorities would not give administrative assistance to the IRS under the US-Swiss treaty.
This is consistent with a 2005 decision by a French court, which denied the French fisc the right to tax the assets of an irrevocable discretionary trust set up by the father of a US national residing in France. The basis of the holding was that the beneficiary did not have sufficient control over the trust assets to make them taxable.
This has led to tax planning for incoming Americans, who are advised to create such trusts prior to taking up residence. Naturally, this requires skillful drafting and the determination of who should be the settlor of the trust and the trustee.
NOTE: THE REFERENCE IN THIS POST TO THE USE OF A DISCRETIONARY TRUST TO POSSIBLY AVOID FRENCH WEALTH TAX HAS BEEN MADE MOOT BY THE LAW OF JULY 6, 2011. YOU MAY WISH TO SEE MY RECENTLY-CREATED MEMO CONCERNING THE NEW LAW, BY REQUESTING IT AT MAIL@OKOSHKEN.COM. SEE MORE RECENT POSTS FOR UPDATES ON THIS IMPORTANT SUBJECT.