In the preceding parts of this blog series, which I would suggest you read first if you haven’t already, we explained the important role trusts and foundations can play in structuring middle eastern family wealth, and why they are often underappreciated by local advisors. In this final entry (for now!) we look at the role of private trust companies, otherwise known as PTCs.
We have already looked at the various benefits of trusts and foundations in terms of confidentiality and anonymity, family governance, wealth protection, and other aspects of succession planning. As both of these structure types require a relinquishing of control over assets, however, they are treated with a degree of mistrust by many Middle Eastern families. The concept of the PTC is important because it can in many cases affect something of a compromise in which the benefits of a trust or foundation can be realised, whilst retaining some control of the assets.
How Private Trust Companies Work
In general terms, a PTC is a special purpose vehicle established to act as trustee of a family trust or several related trusts. The board of directors of the PTC controls it and as such can direct the fiduciary function of trustee. Crucially, this can be done in many jurisdictions (such as the Isle of Man and Malta) without the need to hold a trustee licence, which would otherwise make the process incredibly complex and expensive. This is useful in instances where, for example, a family patriarch wishes to use a trust structure to manage the transfer of assets to family members in the event of his death, but wishes to retain a degree of control over those assets whilst he remains alive.
The use of a PTC to exert control over a trust ‘from the outside’ is significantly safer than attempting to retain individual control within a trust structure. Whilst certain powers can be reserved to settlors, the more influence the settlor exerts the greater the risk of prejudicing the objectives of the trust. This is particularly prevalent in civil law jurisdictions where trusts are not widely recognised and the concept of relinquishing control over family assets may be alien. Nevertheless, the requirement to put effective succession planning in place is as recognised in these jurisdictions as in common law jurisdictions, especially where there are, for example, forced heirship rules or Sharia law considerations which make succession planning problematic.
Complex Wealth Structuring
A PTC is a good example of complex structural planning, in which a combination of different structures, using the excellent legislative and regulatory frameworks of respected international financial centres, provides a governance and succession planning result that is far greater than the sum of its constituent parts. This sort of complex planning is the value that an international multi-family office, such as Boston, can bring to the wealth management process for Middle Eastern families.
This article is part 3 of 3 in a series on GCC succession planning. You can find the first blog on trusts here and the second on foundations here. For future information on family wealth planning, subscribe to our newsletter using the form to the right.
Alternatively, you can download our Complete Guide to Structuring Middle Eastern Family Wealth right now. It contains 26 pages of detailed explanation of the best uses of family office, trust, foundation, and company structures.