International trust funds in Finland

I come across persons with commen law trust funds in my work more and more often. People who have put a great deal of time and effort in planning their inheritance in a common law country, and then move to a civil law country like Finland. Trusts are a very important part of the common law system. Actually, the trusts are that important to these countries that the UK did not want to be a part of the new EU-inheritance regulation. The regulation is scheduled to become applicable in the EU countries (excl. UK, Ireland and Denmark) on the 17th of August 2015.

The trust is a non-familiar scheme in practice, to a civil law country as Finland, but none the less recognized thru “the Hague Convention of the law Applicable to the Trust and on their Recognition”. There are bits and pieces that fit into our legal system, but if you haven’t run into trouble before, you will when it is time to divide the property in the trust and the Finnish tax authorities step into the Picture. In Finland you are taxed based on your portion of the inheritance right away, but a trust is usually created in order to provide the beneficiary/heir with an annual income, sometimes for live, after the founder/settlor has passed away.

The continuance of the trust is is usually the primary idea – since the trust invests it’s principal property and divides the income of the these investments. This way it is possible to secure the economical future of your spouse, children, grandchildren etc. In Finland the tax authorities do not acknowledge this kind of set up, and will for the most part tax the beneficiary for his/her portion of the inheritance right away. The division of property will probably be divided as set out in the trust deed, but the fiscal benefits sought will most certainly not be achieved. But, there have been exeptions to this practice, and much comes down to the wording and scheme of the trust deed.

I for one will be glad when the Finnish tax authorities take a final stand in this issue.

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