Estate Planning: Right of First Survivorship versus Trusts

In this article we will briefly mention the key points of two different approaches to estate planning: Issuing shares of a company to a single natural person with the right of first survivorship versus issuing shares of a company to a trust or similar entity such as a foundation.

While the intricate nature of estate planning varies depending on the jurisdiction, the key differences in terms of estate planning and the distinct implications of these means can be summarized as follows:

1. Ownership and Control:
   • Single Natural Person with Right of First Survivorship: If shares are issued to a single natural person with the right of first survivorship, that person becomes the sole owner of the shares. They have full control over the shares during their lifetime and can decide how to manage, transfer, or sell them.
   • Trust: When shares are issued to a trust, the legal ownership of the shares is held by the trust itself, not by the individual beneficiaries. The trustee of the trust manages the shares on behalf of the beneficiaries according to the terms of the trust document. This arrangement may provide more control and flexibility in how the shares are managed and distributed, especially in the case of incapacity or death of the original shareholder.
2. Probate and Privacy:
   • Single Natural Person with Right of First Survivorship: If shares are held by an individual, they will form part of the individual’s estate upon their death. This may lead to the shares going through the probate process, which can be time-consuming and costly. Additionally, the details of the estate, including the shares, become a matter of public record.
   • Trust: Holding shares in a trust can help avoid probate because the shares are owned by the trust, not the individual. This can lead to a smoother and more private transfer of ownership to the trust beneficiaries after the original shareholder’s death.
3. Asset Protection and Creditor Protection:
   • Single Natural Person with Right of First Survivorship: Shares owned by an individual are generally exposed to the individual’s personal creditors. In the event of a legal judgment or bankruptcy, the shares may be at risk.
   • Trust: Shares held in a trust may offer better asset protection because they are not owned by any individual. Depending on the type of trust used, the shares may be shielded from the creditors of the beneficiaries, providing an added layer of protection.
4. Tax Implications:
   • Single Natural Person with Right of First Survivorship: The transfer of shares to a single natural person with the right of first survivorship may have immediate tax implications, such as capital gains tax, depending on the value of the shares and the circumstances of the transfer.
   • Trust: Transferring shares to a trust may have different tax implications, depending on the type of trust and the specific tax laws in your jurisdiction. Trusts can sometimes offer tax advantages, such as the ability to distribute income in a tax-efficient manner.

In conclusion, issuing shares to a single natural person with the right of first survivorship and issuing shares to a trust are both viable estate planning options, each with its own set of advantages and considerations.

We invite you to consult with our legal professionals to determine the best approach based on your specific circumstances and goals.