THE AUSTRIAN PRIVATE TRUST – A LEGAL ENTITY AS POTENTIAL RESPONSIBLE BODY FOR LARGE ART COLLECTIONS.
According to the Austrian Law on Private Trusts, a private trust is a legal entity beneficiary of capital from its creator. The trust must be used and managed to fulfil the purpose determined by its creator. The private trust represents total assets without an owner that serve a specific purpose. Assigning capital to a private trust occurs using a process of donation or via a legal transaction triggered by a death. Right of ownership of the assets is transferred to the private trust from the personal sphere of its creator. From this moment on the assets are subject to the will of a Trust Board whose task is to regularly manage the assets to fulfil the trust’s goal.
The reasons to establish a private trust are numerous. It’s an alternative to inheritance law and provides another option to the often unwanted consequences of asset distribution. The capital of the trustor can be maintained as a single unit even after their death and doesn’t necessarily have to be divided in the wake of reading the will. However, the proceeds from the assets can be used to support family members and a select number of people by including a beneficiary clause. Today, a private trust is rarely created for purely fiscal reasons; the taxation reforms carried out over recent years have strongly limited the beneficiaries of private trusts, thus losing most of their allure from a fiscal perspective.
A private trust is a legal entity. The private trust’s assets are transferred upon being approved by the trustor. The minimum assets in a trust are 70,000 EUR. Creating a private trust and transferring capital are carried out via a trust certificate – a notarial instrument registered at the commercial register court which can be viewed by everyone. The trust amendment certificate isn’t public; that’s why, normally, trusts are created with the bare minimum and all other decisions are excluded from public view. The purpose of the trust is determined in the trust certificate. The Trust Board is responsible for managing it. The trustor or trustors can be members of the Trust Board. The proceeds from the trust can, as long as the purpose of the trust foresees it, be used to support the beneficiaries. A beneficiary cannot be a member of the Trust Board.
The transfer of assets to the trust triggers a 2.5% incoming trust tax. This equals a capital transfer tax: the transfer of capital isn’t currently collected in Austria by natural entities. You also have to consider the transfer of tangible assets which isn’t such an easy matter to solve, especially on the art market. The trust, representing one’s total assets, and its income are subject to a 25% corporate tax – unless it follows an approved or common goal. The allowance for the beneficiaries is subject to a 27.5% capital gains tax and is taxed like the payment of dividends by a limited company, interest on savings, or proceeds from bonds. When analysing these fiscal elements, it becomes clear that fiscal advantages aren’t the only reason to create a private trust.
However, thanks to private trust, it’s still possible to maintain large art collections preserved as one single unit. Moreover, the art objects are subject to the management and responsibility of experts appointed to the Trust Board. When transferring the assets, the trustor will describe the goal to be reached with said assets. The art ceases to belong to the collector, yet it’s still subject to the trustor’s will until the goal of the trust is changed. Amending the trust’s goal can be carried out by the trustors and triggered by the death of the trustor. If the trustor wishes to have his rights and will respected even after passing away, he should protect them by relying on a further legal entity.
The private trust is therefore a suitable legal institution to protect and maintain one’s total assets. The trustor can define the trust’s goal and have his will respected even after passing away.