United States: Trustees, Are You Suffering From "Accountholder" Confusion?

Last Updated: November 23 2018
Article by Ivan Lu and John Shoemaker

Words Matter

So, you're cruising along in the pre-FATCA/CRS world, providing fiduciary services for your clients, setting up accounts in either the name of the trust, foundation, underlying company or other wealth planning structures and processing mandatory or discretionary "distributions." Depending upon the location of the client structure and the bank where the account is held, you have varying KYC/AML and similar rules to follow...a hodge-podge so to speak. But one thing remains consistent in the wealth planning conversations you have with the end-user client – that the fiduciary structure is the accountholder and that the client is the beneficial owner (the "BO").

Along came July 1st, 2014 and everything changed. If your fiduciary structure is a Foreign Financial Institution, you now have "accountholders" in your structure, separate from the structure itself as an "accountholder" as well. All of this "accountholder" talk now gets very confusing. Even if your structure is an NFFE or NFE, you now have "Controlling Persons" that may not exercise anything like what a layperson thinks of as control (we'll save that for another Blog Post).

Traditional Accounts

Up until FATCA began on July 1st, the term "account" in the global wealth planning industry referred to traditional financial accounts. These traditional accounts took the form of bank accounts, investment accounts, securities accounts and so on and so forth. These accounts held assets and securities (traditional bankable assets) kept in the fiduciary structures. These accounts were always held in the name of the fiduciary structure (for example, the ABC Trust company as trustee of the XYZ trust, The John Doe Foundation, Securities investments Limited). These accounts were only documented from a US perspective when they chose to hold US securities. This was done as part of the Qualified Intermediary (QI) regime.

For the most part, the system was simple and straightforward. The accountholder is the structure and the BOs are those individuals behind the structure. As the name entails, the BOs would eventually benefit from the assets held in the account, but they were not accountholders.

The New FATCA/CRS Accounts

Gone now are the days where "account" simply meant those traditional accounts. FATCA created the concept of "accounts" in a fiduciary wealth planning structure. CRS picked up this concept and spread it globally between most jurisdictions outside of the United States.

The quick and dirty explanation goes something like this: FATCA/CRS divide the world into Foreign Financial Institutions (FFI) and Non-Financial Foreign Entities (NFFE).1 FFI's responsibility under FATCA is to report certain data in regard to their U.S. Reportable Accounts. Obviously, this means they now have (up until now undefined) accounts and accountholders. The FATCA Regulations and the Intergovernmental Agreements2 define accounts for FFIs that are Investment Entities3 as an Equity Interest or a Debt Interest. Debt Interest is undefined (again, this is a subject for another Post), but Equity Interest is defined based on the type of entity, as follows:

" Partnerships: a capital or profits interest in the partnership (basically, a partner)
" Trusts: Owners (or Settlors), Beneficiaries and others "exercising ultimate effective control over the trust
" Companies: strangely, there is no direct definition of equity interest in a company (yet another Post topic, surely) but we'll assume shareholders fit the bill.

Regardless of the specifics that we will delve into later, now the term "accountholder" is used in ways that trustees, lawyers, financial advisors, accountants and – most importantly – clients are not necessarily familiar with, and that can lead to confusion.

How do we avoid confusion? The FATCA/CRS "Upstream-Downstream" Dimension

In the day-to-day interactions between trustees, lawyers, financial advisors, accountants and clients in the world of global wealth planning, the terms "accounts" and "accountholders" are key to communicating documentation requirements and accurately conveying the distributive intent of both the Trustee and the BOs. To avoid the confusion that FATCA/CRS creates, we typically suggest the use of the distinguishing terms "upstream account" and "downstream account".

Upstream accounts are the accounts held with traditional banking and investment companies in the name of the fiduciary wealth planning structure. Downstream accounts are the new accounts created by FATCA/CRS, held now by the BOs and others. Why upstream and downstream? Well, as Hal Holbrook so eloquently instructed us in All The President's Men, "follow the money"...the flow of assets, at the end of the day, is the simplest and easiest defining point for what our structures are often set up to achieve and also what FATCA/CRS reporting regimes are interested in. In this flow, interest, dividends, capital gains and other sources of increases in wealth flow into the upstream account, down through the structure eventually then out to the downstream accountholders. This is a simple, easy and elegant explanation that any layperson client can quickly grasp.

The Discussion Point

Are you experiencing client confusion in regard to these new FATCA/CRS accounts? Almost all participating FATCA/CRS jurisdictions have begun automatically exchanging information, so now is the time for a FATCA/CRS "health check" before home tax authorities begin follow-up enquiries and audits. High net worth individuals and families, their advisors and fiduciaries of multi-jurisdictional wealth planning structures should seek proper guidance to ensure that they meet all requirements ahead of these external and internal enquiries.

Footnotes

1 For CRS the "foreign" designator is removed and thus there is one less "F" in the acronyms. For simplicity's sake we'll stick with FFI and NFFE in this post.

2 I will go into more detail with specific citations on this subject in a subsequent Post.

3 "Investment Entities" is the most probable Entity Classification for fiduciary wealth planning structures with a corporate trustee or with assets that are professionally managed. See Peter Cotorceanu's excellent series of articles on the subject in The FATCA Elephant Series.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions