Foreign trusts and holding structures under Spanish succession law

Key rules

• Recognition: Spain has no trust law, so a foreign trust is recognised only in part.
• Forced heirs: Forced heirs can challenge a trust that reduces their reserved shares.
• Tax: Revocable and irrevocable trusts are taxed differently, and Spanish residents may have reporting duties.
• Advice: Take specialist advice and make a Spanish will for Spanish assets.

Trust recognition and tax treatment vary by case, so confirm your situation with a Spanish adviser and the AEAT.

Does a foreign trust work in Spain?

Only partly. Spain has no trust law and has not signed the international convention on trusts. A foreign trust therefore has no full legal recognition here.

In practice, courts and the Land Registry accept foreign trusts to some extent. They do so as long as the trust does not clash with Spanish public policy. Some cases have been decided this way, but outcomes depend on the trust and the facts.

Can forced heirship override the trust?

Yes, it can. The legítima is the share of an estate that Spanish law reserves for close family, such as children. If a trust cuts those shares, the legítima can override it. Forced heirs may claim against trust assets in Spain.

There is one open point. If the deceased chose a foreign law to govern their succession under the EU succession rules, the legítima may not apply. Do not count on this. Get advice before relying on it.

How is a trust taxed?

Spain has no trust tax rules of its own. Tax authorities apply general rules and their own rulings case by case. In broad terms:

• Revocable trust: the settlor (the person who set it up) is generally treated as the owner. Income is taxed as the settlor's own.
• Irrevocable trust: a gift into the trust may be taxed as a gift. Payments to beneficiaries are taxed as income, gift or inheritance, depending on the case.
• Reporting: if you or a beneficiary live in Spain, you may need to report assets held abroad on the Modelo 720, and to declare your rights in the trust.
• Non-resident trustees: they are generally taxed only on Spanish-source income.

Treatment varies from trust to trust. Check current rules with the AEAT before acting.

What to do

1. Get advice from a Spanish adviser who knows trusts, before you buy or inherit Spanish assets through one.
2. Make a Spanish will for your Spanish assets.
3. Check whether any heir living in Spain could claim a legítima.
4. Ask the adviser whether you must file a Modelo 720 or other declarations.

The FAQ below answers common questions on heirs' claims, reporting and revocable trusts.

Frequently asked questions

Can the heirs claim against trust assets in Spain?

Yes, forced heirs can claim against trust assets in Spain if the trust reduces the shares the legítima (forced heirship) protects for them. If the deceased chose a foreign law under the EU succession rules, the legítima may not apply, but that question remains open. Get a Spanish will and professional advice for any Spanish assets held by a trust.

Do I need to report a foreign trust to Spanish tax authorities?

Yes, if you are a Spanish-resident settlor or beneficiary, you may need to report the assets abroad (Modelo 720) and your rights in the trust. Non-resident trustees are generally taxed only on Spanish-source income. Ask a tax adviser which filings apply to your trust.

Is a revocable trust taxed differently from an irrevocable one?

Yes, a revocable trust is generally treated as still owned by the settlor, so the income is taxed as the settlor's own. With an irrevocable trust, a gift to the trust may be taxed as a gift. Distributions to beneficiaries are then taxed as income, gifts or inheritances, depending on the case.