Kerrie Le Tissier of Collas Crill in Guernsey on why clients choose Guernsey because of its sensible and robust estate and succession planning offering.
As one of the first places in the world to regulate the provision of trust services, and indeed to recognise the crucial significance of the fiduciary sector plays in the wider finance world, Guernsey has always been well ahead in the game of wealth management.
There are approximately 200 fiduciary licensees in Guernsey, ranging from small and very private family offices that administer limited numbers of family trusts, foundations and companies for one or two families to very large trust and corporate service providers with very many international clients. Many of the latter group are owned by banks or, increasingly, private equity houses that recognise the investment opportunities inherent in such businesses. The trust business of Guernsey is therefore rich in variety.
The sector's experience and dynamism has stood it in good stead since Guernsey's finance industry began more than 50 years ago. Back then, people set up private wealth structures for significantly different reasons. Tax-planning is no longer the most important factor. More and more nations are criticising lawful tax avoidance and/or tax mitigation and anyone who is involved in setting up structures to take advantage of favourable tax loopholes. This is good for Guernsey because its fiduciary sector has moved with the times and evolved to offer much more than tax-neutral structuring options. It is now very rare for our clients' reasons for considering Guernsey to have anything to do with tax.
ESTATE AND SUCCESSION PLANNING
Our clients' motivations for setting up a private wealth structure in Guernsey usually have sensible and robust estate and succession planning at their heart. Typically, the family's wealth-creator is looking for certainty and peace of mind and wants to plan 'succession' to family wealth, assets and businesses before a 'succession event' (such as his own death, or a marriage or even a divorce) occurs. A simple, but common and effective, example of this is the practice of putting assets such as shares, real property or family heirlooms into a Guernsey trust (whose assets are legally owned by the trustee) so that they fall outside the settlor's personal estate, the better to exclude them from the terms of his will or the forced heirship rules in his place of domicile.
Guernsey has tough 'firewall' legislation which, amongst other things, protects Guernsey trusts, and any disposition of property to them, from claims made under foreign forced heirship rights (and other claims made under foreign law by reason of a personal relationship with the settlor or a beneficiary). This was upheld triumphantly in a recent Guernsey case.
Another strategy is to hold family businesses in a Guernsey foundation (which has no owner and may or may not have beneficiaries, as well as purposes). The Guernsey foundations legislation also contains 'firewall' provisions that protect foundations' assets from foreign claims. This usually reassures the founder (i.e. the person who sets up the foundation in question) that the business will continue beyond his death without anyone in the family being able to claim ownership of it or its assets.
Guernsey trust structures are popular with clients from all over the world. Middle Eastern clients use them to hand wealth onto the next generation in compliance with Sharia'h principles or, as is often the case in the experience of our Middle Eastern practice, to sidestep these principles by keeping a proportion of family assets outside the Islamic world. Sometimes they do this to distribute wealth equally between male and female family members. Clients from the Far East who have generated wealth outside that region and do not want to bring it home can use a Guernsey trust to preserve it and hand it on to the next generation. Guernsey trusts are also useful to people from outside the United Kingdom who are thinking of moving there at some point in the future. These people can set them up as excluded property trusts that hold non-UK assets. This prevents those assets from becoming subject to UK inheritance tax should their original owners move to the UK. It also protects those assets from the forced heirship rights in the settlors' countries of domicile and allows them to segregate their assets in the UK from their assets elsewhere so that 'succession' to them can occur in different ways.
We expect to see an increasing number of such structures being set up towards the end of 2016 in advance of changes to the UK tax regime. These changes are going to affect non-domiciled residents from April 2017 onwards and many are reviewing their structures as a consequence.
Discretion is another good reason for setting up a structure in Guernsey. Clients often have good reason to worry about their privacy because, for example, they are high profile individuals (such as well-known entrepreneurs, politicians or celebrities) or because the size of their wealth would put their security at risk if details of the identity, location and nature of their structure were made available to the public. Trusts are not registered in Guernsey, so there is no public record of their settlors or beneficiaries (or even their existence). Although companies and foundations are registered, and a limited amount of information in respect of each is available publicly, the identities of their shareholders/beneficial owners (in the case of companies) and beneficiaries or purposes (in the case of foundations) remains confidential.
Regulated service-providers in Guernsey that manage and administer the structures record the identities of beneficiaries (of trusts and foundations) and shareholders and beneficial owners (of companies). They also hold information that verifies their identities and sources of wealth. They have a legal duty to disclose such information to law enforcement agencies and tax and regulatory authorities, both locally and internationally (for example, in line with Guernsey's own regulatory laws, FATCA, the Common Reporting Standard or the 58 Tax Information Exchange Agreements to which Guernsey is party) but, all these things aside, they have a duty to keep the information confidential.
A breach of that duty has serious regulatory consequences and also gives service providers' clients the right to sue them. In a small island, such events have serious reputational ramifications for service providers. As a consequence, confidential information is in very safe hands with the Guernsey service providers who manage and administer structures.
FLEXIBLE AND ROBUST LEGISLATION
Another very good reason wealthy families and individuals go to Guernsey to set up their private wealth structures is that Guernsey has modern, robust and flexible laws that govern trusts, foundations and corporations. These laws allow wealth managers to tailor private wealth structures to their clients' requirements, no matter how unique they might be. Even a fairly simple trust structure can be put to a number of uses. A discretionary trust can give its trustee the widest discretion over investments and distributions, with perhaps the settlor giving the trustee a non-binding letter of wishes offering guidance. In a fixed trust, by contrast, the proportions in which distributions are to be made to beneficiaries are specified in the trust instrument and investments are dictated by the settlor, with investment powers being reserved to him.
In Guernsey, a solution can usually be found even for the most complex and bespoke requirements. For example, a family that has generated significant wealth from its business might want to set up its own private trust company (PTC) or private trust foundation (PTF) to act as trustee of several trusts, with one or more family members sitting on the board or council in order to retain a measure of control. (PTFs are gaining in popularity at the moment, as there are no shares for which an owner has to be found.) It could set up a trust for one of its members, or groups of them, adding a separate charitable trust or foundation to pursue its chosen causes. Below each trust or foundation could sit various assets (which could be held in a holding company or holding companies) such as the family's principal residence, cars, artwork and shares in its business, the income from which would flow up to the trust or foundation and then onwards to the family or charity in accordance with the terms of the trust or foundation. As long as this is carefully planned according to sound legal and tax advice, the possibilities for such a structure are vast.
Private wealth structuring is becoming more and more sophisticated with structures such as protected cell companies (PCCs) (which were pioneered in Guernsey), limited partnerships and unit trusts being used and many structures looking more like investment fund structures than traditional private wealth structures. Terms such as 'private family funds' and 'investment clubs' (where the participants may not necessarily be family members but rather friends and associates) are frequently used for these structures which draw on the expertise and flexibility of the industry. Our private funds practice (which comprises members of our fiduciary and corporate teams because of the cross-over in what have traditionally been more distinct areas of practice) have seen a rise in such structures in recent years.
LOCATION AND ADAPTATION
Other key reasons for setting up a private wealth structure in Guernsey include its long history of political stability and good governance and its independence in legislative and fiscal matters (it is not part of the United Kingdom or the European Union).
It speaks English, shares the same time zone as London and it is easy to travel to London and other parts of the UK and continental Europe from the island. Indeed, Guernsey service providers are used to the Middle East and further afield to meet clients or prospective clients.
The island's fiduciary sector has always been innovative and forward-thinking and continues to thrive. By adapting to change and continuously evolving and diversifying, it is well-placed to meet the changing needs of the world's wealthy individuals and families.
An original version of this article was published in the WealthBriefing's IFC World 2016 Guide, April 2016.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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.