Karen Grieve, a Senior Manager in Volaw's Wealth Structuring Group, discusses the benefits of a structure that may be attractive to wealthy families.
A Private Trust Company ("PTC") is a useful vehicle to consider in the planning and establishment of trust services for wealthy families, and is one of various vehicles including a Family Office, Family Limited Partnerships and Foundations that can be considered for alternative wealth planning solutions.
A PTC is a company that is set up for a single purpose, which is to be trustee of a particular trust or group of trusts for the same family. It has no value other than the value of its paid-up share capital, is administered by a board of Directors who may be chosen from the settlor, members of the settlor's family, the beneficiaries, the professional Trustees (such as Volaw) and advisors.
Benefits of Using a PTC
One of the benefits of establishing a PTC is that it shouldn't be necessary for the settlor to provide a letter of wishes to the trustee. Whilst letters of wishes are a useful guide to independent third-party trustees, they are a poor substitute for a thorough understanding of the needs and wishes of the settlor and beneficiaries. The board of directors of the PTC would normally include family members who are sufficiently close to the settlor and to other family members, to be able to ensure that the intentions of the settlor are observed. A PTC may also provide greater comfort for the settlor that his or her objectives in creating the trust will be met.
In choosing the board of directors of a PTC, the settlor may appoint family members who will at a future date become principal beneficiaries of the trust. In this way, the settlor is able to use the PTC as a vehicle to familiarise the family members with the wealth and business interests owned by the trusts and instruct them in the management of those assets.
There is another benefit of using a PTC that shouldn't be underestimated, particularly in cases where the underlying assets are invested in private companies that are actively trading, that is that a PTC is often better able to react promptly to a request for trustee approval for a major transaction (for example, a sale of an important part of the business owned by the trustees) than an independent, institutional trustee, which will often wish to examine the transaction in detail and probably take legal advice, before giving its approval. That can result in considerable delays to such transactions.
Directors of Jersey PTCs
As mentioned above, one of the benefits of establishing a PTC to act as trustee of a family trust is that it is possible to choose the directors of the PTC; these are the people who will make decisions about how the PTC will exercise its discretionary powers and how it will manage the trust assets. Whilst the settlor may be one of the directors, consideration will need to be given as to whether or not this is desirable, especially if it may adversely affect the fiscal position of the trust; likewise, whilst other beneficiaries and family members may also be appointed to the board of directors, advice should be sought as to whether or not this will affect the tax position of the PTC or cause the trust itself to suffer adverse tax consequences.
Commonly, other family advisers – legal advisers, accountants, tax advisers and so forth – may also be appointed to the board of directors; whilst it is usual to have at least one director from the Jersey trust company service provider that is responsible for the administration of the PTC.
The directors will need to consider the issue of their liabilities as trustees and whether it is necessary for them to seek Director & Officer insurance cover. Whilst Jersey's Trusts Law is being amended to remove the personal liability of directors of Jersey corporate trustees as guarantors in the event of a breach of trust by the corporate trustee, it is still theoretically possible for beneficiaries of a trust to seek to make the directors of a corporate trustee personally liable to make good losses incurred by the trust fund, if those losses arise from a breach of duty by the directors.
Administration From Jersey
Commonly, when the settlor of a trust chooses Jersey law as the proper law of the trust, the intention is that the trustee will be a Jersey person or entity and that the trust will be administered in Jersey. Jersey trustees generally have to be licensed and regulated by the Jersey Financial Services Commission (JFSC), under the provisions of the Financial Services (Jersey) Law 1998; however, if the trustee is a Jersey PTC it may be exempt from the requirement to be licensed and regulated, so long as it falls within the scope of the exemption set out in the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000. This Order provides that the PTC must act as trustee solely of a specific trust or group of trusts; must not solicit or provide trust company business from the public; and must itself be administered within Jersey by a registered trust company services provider.
Volaw, as a registered trust company services provider, is able to administer Jersey PTCs and has experience of doing so.
There is no requirement to submit to the JFSC or to any other statutory body in Jersey any reports or accounts of either the PTC itself or of the trusts of which it acts as trustee.
Ownership of a PTC
There are a number of ways in which a PTC may be owned: for example, the settlor may own it directly; or another member of the family may own it. A common solution is to have the shares of the PTC owned by Jersey trustees of a purpose trust, the sole purpose of which is to own the shares of the PTC for the benefit of the settlor and family members. The PTC has little or no intrinsic value; its sole purpose is to act as trustee of the family trust and so its value is usually no more than the amount of its paid-up share capital; which may be minimal.
Whilst the costs of establishing both a PTC and the trust or trusts of which it is to act as trustee, are generally higher than the cost of simply establishing a trust, the ongoing costs may be less than the trustee fees that would be charged by an independent third-party trustee, particularly if the trust assets are very substantial, as such independent trustees will often charge fees that reflect the risk element of acting as trustee, a risk that increases as the value of assets increase. Whilst fees and other costs must necessarily be calculated on a case by case basis, it is usually the case with substantial trust assets that the benefits of establishing and using a PTC outweigh the costs.
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.