When a client is establishing trusts as part of his wealth and succession planning, one of the more difficult decisions can often be whom to appoint as trustee. Once the assets have been transferred into the trusts, they will cease to belong to the client and will be held by the trustee upon the terms of the trusts. Those terms will often confer wide discretions on the trustee as to the investment and distribution of the trust assets and the client may be reticent about such discretions being exercised by an independent professional trustee with whom he has not had any previous dealings.
The appointment of a protector with the power to remove and appoint trustees may be sufficient to reassure the client that his intentions will be respected. Alternatively, a client seeking an active continuing role may wish to reserve certain powers, such as the power to manage the investment of the trust fund. For some clients, particularly when the main asset being transferred to the trust is a family business and retaining an element of control is very important, establishing a private trust company may be the answer.
The greatest advantage of a private trust company structure is that every element can be tailor-made to best fit the client: how the ownership is structured, how trustee decisions are made as well as the scope of the trustee's power in the underlying trust(s). Where the client already has a family office, the private trust company can be designed to dovetail with it and so help streamline the administration of the client's affairs. There is also inherent flexibility to adapt to future changes in the family and the family's wealth.
Where tax and other considerations allow, the client or family members can own the shares of the private trust company directly. Where that is inappropriate, the shares can be held by a foundation or by a non-charitable purpose trust.
Foundations can already be established in Jersey and will very shortly also be available in Guernsey. Under Guernsey law, (and Jersey law - when the latest amendments to Jersey's trust legislation come into force), it is expressly provided that it is a valid purpose of a non-charitable purpose trust to hold assets or carry out functions so there is no scope for doubt that holding the shares of a private trust company and carrying out the functions of a shareholder are valid purposes.
The on-going role of the client in decision making will depend on his circumstances. Where the client cannot himself be on the board and so actively involved in decisions, he can ensure that the board comprises of trusted family advisers who will be familiar with and sensitive to the client's circumstances. Where an independent professional trustee is appointed, internal appointees dictated by internal policy rather than the client will determine who takes decisions.
Where dynastic planning is the goal, for the family wealth to successfully pass down through the generations, the client will have to give up control at some stage. The private trust company structure allows for control to be handed over gradually with following generations brought in as and when most appropriate and for the transition to be carefully managed.
The use of a private trust company can also be cost efficient, especially for high value trusts. Independent professional trustees, mindful always of their potential liabilities, will typically charge a responsibility fee in addition to their administration costs. It is usually advisable for a private trust company to involve a local licensed trust company in an administrative role which provides a registered office and secretarial services, as well as local directors if required. Such services are contractual and so, if necessary, the service provider can be changed more easily than it would be to change the service provider if it were acting as trustee.
Private trust companies offer discretion to clients anxious to protect their anonymity and the confidentiality of their wealth. Where the board of the private trust company is made up of trusted family advisors, the circulation of information is much more restricted and secure.
Although the provision of trust services is usually a regulated activity, a private trust company will normally be exempt and not itself subject to regulation.
In Guernsey a private trust company will only need to be licensed by the GFSC if it is receiving income or a fee. Although most private trust companies do not charge fees, it may nevertheless recover some its running costs (eg directors' fees and fees for providing a registered office) from the underlying trusts and thus an exemption should be sought under the Regulation of Fiduciaries Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000. The fees for an application for exemption are currently £860.
In Jersey, the private trust company will need to satisfy the requirements of the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000 which provides that (a) it must act as trustee solely of a specific trust or trusts; (b) it must not solicit trust company business from the public; and (c) it must itself be administered within Jersey by a registered trust company service provider.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.