Spanish land in settlor interested trust

Trusts Discussion
1

A married couple came to see me having established two settlor interested life interest trusts in 2003.

They had previously made a declaration of trust, which recorded that the legal title to a Spanish plot of land was transferred to their two sons, but the beneficial interest was held for them absolutely. The acquisition value of the land was around £100k.

In 2003, they were advised, for asset protection reasons, to settle their respective shares in the Spanish plot of land into the settlor interested life interest trusts.

Following this, cash sums were transferred to their sons who constructed a villa on the land. Construction was completed in 2004 and the villa is now worth over £1m.

They now want to ensure that the whole of the value of the Spanish property is outside of their estate for inheritance tax purposes (in addition to avoiding a very complicated situation on their deaths). The intention would be to appoint the land out of the settlor interested life interest trust to their two sons.

What are forum members views on my successfully arguing that the trust only owns the plot of land, and that the property subsequently constructed on the land is wholly owned by their sons, albeit constructed from cash sums gifted to them for that purpose?

This of course depends on whether I can get a current valuation of the land only, and an indication as to how the later construction of the villa now affects the value of the land, which is something I’m not clear on. This is obviously important in assessing the tax implications of the appointment out of the trust.

The only document transferring assets to the trusts is a declaration of trust, specifically describing the plot of land prior to construction of the property. All of the Spanish documents show the two sons as legal owners of the property.

Laura Green
Boyes Turner LLP

2

The answer may boil down to a simple question of conflict and Private International law.

Their attempt to set up the trusts may be a distraction, as they may already have put everything into their sons’ names under Spanish law. If you start from there you may find that you do not have to do anything at all.

The lex situs of the land is Spanish, not English, and no reference appears to have been made to Spanish law and what that law permits, in the analysis made by the parents or their advisers.

Were the sons signatories or party to the declaration of trust? Who are the trustees?

Even were they to have been, so long as the sons were the registered civil law owners of the plot in Spain, there was no real immovable right vested in the “trustees” as such. Were any “trust” to have been constituted, it would only have been under a personal obligation as opposed to a real right of the sons. I fail to see how a trust over the plots could have been registered in Spain, without being refused by the Registry.

Were the parents, or their advisors unaware of the old decision in Webb v Webb , following a reference to the ECJ (C-294/92, [1994] ECR I-1717) ?

If a constructive trust, it is no more than a remedy against the constructive trustee. The parents had no material interest in the land under Spanish law to transfer into any trust, that real immovable interest, governed by Spanish Law was purely in their sons, and no there is no explanation as to whether the sons made such a transfer back or recording of a burden or a charge on the land any Spanish Register.

The trustees may not even have an asset, certainly not in Spain. They do not own the plot as trustees, and it is arguable that there were no trusts constituted as the trustees did not have a title to the property in Spain. What is more, if you build on someone else’s land in a civil law country, unless there is a specific attribution of ownership of the construction to the constructor, would not the owner of the land become the owner of the construction by simple accretion or addition? you might need to check that with a Spanish lawyer.

You might simply be able to state that the trusts were not constituted with the land or the construction, and therefore do not exist in relation to those, or if they do exist, that they do merely insofar as some pecuniary interest can be claimed over the money transferred. In that case you may have the gift option, although given the “asset protection background”, that might be another issue entirely

I really fail to see how this engineering actually achieved anything but grant the plots of land to the sons, with the buildings built on it to the sons in any event. The Spanish civil law should be checked to see whether the buildings constructed are automatically owned by the owners of the plot, and whether there is any conveyancing mechanism or civilian indebtedness recording the ownership of the construction to the parents. The whole proposal was, frankly, ludicrous in relation to the land situated abroad, outside the jurisdiction of the English courts. There were many attempts to fill civil law voids by such fanciful mechanisms, whilst Spain came to Europe, but now it has, the Spanish are starting to set their cadastral records straight following what they perceive as abuses.

The question can only be defined in relation to the lex situs, which is Spain, not some quasi-beneficial unenforceable alchemy in England.

Peter Harris

3

Sorry, the set of decisions in question were not heard by the House of Lords.

The reference is WEBB v WEBB [1994] QB 696; and, were bankruptcy or insolvency to be concerned, which is not apparently the issue here, then RE HAYWARD (DECEASED) [1997] Ch 45 and ASHURST v POLLARD [2001] Ch 595 might then be marginally relevant.

How would you consider going about compelling the sons to reregister the property and the construction or go about constituting the trustees’ holding in Spain?

It would seem that the only mechanism available would be an order in personam, but how that would now match the Brussels Regulation is another issue.

Matters might become interesting after Brexit, were the Regulation no longer to be applicable as between the UK and EU in relation to jurisdictional allocation in matters in rem and in personam.

Reliance upon Ashworth etc to allege that a trust over foreign land is enforceable in rem in Spain remain far-fetched. But doubtless others will have a different opinion

Peter Harris

4

Certainly, under Spanish law, the sons are the owners of the villa, as in Spain the right of accession applies.

In fact as general provision, under article 353 of the Spanish Civil Code «Ownership of the property shall, pursuant to the right of accession, entitle the owner to everything produced thereby, or naturally or artificially joined or incorporated thereto.»; and under article 358 «Anything built, planted or sown on another’s plot of land and any improvements or repairs made therein shall belong to the owner thereof, subject to the provisions of the following articles.»

Daniele Muritano

Notaio Daniele Muritano

5

So, the sons should own the plot, with maybe some sort of limited reserved right consitued through the trust, which may have not accessed the Spanish Registry of Property. I would try to get a simple copy of the Registry regarding the property as soon as possible.

They also own the construction, again without much information about them owing back that money to anybody.

The “simple right of accession” basically states that the construction remains property of the land. The reversed right of accession, exceptional, states that the construction may get the property of the land in some defined cases: the construction holds a lot more value and I built a part of the house in my land and a part in yours, probably in good faith.

Personally, I would take a look at the Registry of Property, the cadastral information of the plot and then I would analyze the pros and cons of their former plan and how to patch it. Inheritance law in Spain assimilates trusts and our “fideicomiso” but living trusts are a bit weird in their treatment. When those “special vehicles” go contra tabulas, against what’s registered and could potentially harm the rights of third parties or any other vicissitude relevant to a public registry, you shall have issues to make any sort of ammendment or change.

So, even if you had the intent to find an umbrella under any other inheritance law maybe you would be best served finding out if the Registry is going to admit changes with relative ease.

For a current valuation, at least for tax filing purposes regarding to Spanish law, you can grab the last bill of IBI (Impuesto de Bienes Inmuebles, Inmovables Assets Tax). There you have a cadastral value, which usually is split on two concepts: value of the plot and value of the construction. Then, as that value is not usually up to date, you need to find the coefficient added by the relevant local council- sometimes it ranges between a x2 and a x3-. You can also find calculators in most Autonomous Communities where you can find out that value. When heirs are too lazy to go through an appraisal or we just want to save that money or the appraisal goes well over that value lawyers here are prone to use this value for liquidation purposes, if heirs are all amenable to that.

Jose Garriga

Jose Garriga Abogados

6

Many thanks for all your contributions, they have been very helpful.

Laura Green
Boyes Turner LLP