Many families establish trusts as part of their international family asset protection and tax planning. Generally, when establishing a trust, it is normal practice for the settlor to utilise a professional trust company as the trustee. There are good reasons for this, as it ensures the trustee are professionals with appropriate expertise to administer the trust and guide the involved parties appropriately. It does mean, however, that the settlor is essentially relinquishing all control of the assets transferred to the trust and therein lies a problem for many would be settlors.
There is another way.
Private Trust Companies
Whilst retaining a professional trustee is the most suitable way to proceed for many settlors, the use of a Private Trust Company (“PTC”) to act as a trustee is an alternative option that makes it possible for settlors and their families to retain control of any assets held in the trust, the effect being this provides the benefits of a trust without the perceived risks of trusting!
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. The directors of the PTC will usually comprise family members, trusted advisers of the family and members from the client’s family office or corporate service provider. The exact make-up of the board would be determined according to the client’s wishes, along with legal and tax advice.
So, what are the benefits of a PTC?
Retention of control:
Some individuals may be hesitant to cede complete control over their assets by settling them in a conventional trust and perhaps look to reserve certain powers within the trust deed. 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 need to be taken into account.
In respect of succession planning, the board of the PTC can be constructed to provide continuity through the involvement of family members and trusted advisers. Similarly, the board is likely to have a close understanding of the family business enabling more efficient and knowledgeable management of the trust’s assets. Board members may be added or removed to keep in line with changing requirements of the family.
Protection of family wealth and flexibility for the future:
The PTC enables family wealth to be safeguarded through the generations. The structure also offers a controlled yet flexible way of distributing benefit for future generations, including:
- The Trustees can make decisions instantaneously.
- Family members and/or trusted advisers can be appointed to the Board of the PTC.
Confidentiality and anonymity:
By transferring assets to a trust, the trust becomes the legal and named owner of the asset. Confidentiality is of particular concern today when information is readily available by means of the internet. This is also of benefit to those individuals who reside in jurisdictions where there is concern for their personal security.
The inheritance rules of some countries impose restrictions on a person’s ability to give assets to persons whom they wish to benefit whilst certain relatives are still alive. Depending on the circumstances, use of a trust may enable such benefit to be validly conferred.
Centralised holding and reporting:
The use of a trust enables assets to be held and maintained centrally. In addition, income generated as a result of the assets being held within the trust and underlying entities can be consolidated and reported back to the client in a concise and user-friendly manner.
Ability to bring in a wide variety of asset classes:
A wide variety of assets can be held in trust (many assets are held in underlying companies rather than directly by the trust), including, but not limited to:
- Yachts and private jets,
- Residential and commercial property,
- Private and operating companies,
- Single line stock,
- Intellectual property,
- Art and antiques.
Tax planning is usually secondary to succession planning as a reason for establishing a trust. That said, however, there may be some tax benefits in certain jurisdictions. In any event, tax advice will be important to ensure that adverse tax consequences do not arise by virtue of the place of management and control of the PTC.
In summary a PTC allows the settlor to settle assets in a trust without relinquishing all control and can provide a governance and succession planning result that is far greater than the sum of its constituent part.