GUEST ARTICLE: Offshore Trusts, Their Uses And Complications
This article takes a look at offshore trusts, recent developments and some of the complications around them.
This article is written primarily for those individuals who are in the fortunate position of being beneficiaries of an offshore trust. It addresses both the need to understand and work with the existing trust structure so as to minimise the chances of third party attack and the possibility of change. The author is Frank Hinks QC; he is a member of Serle Court, Lincoln’s Inn in London. (Further details are below the article.)
This article examines some of the issues that come into play around offshore trusts; given all the developments in the offshore world in recent years, it is extremely valuable to be able to share such insights. Readers responses are most welcome.
Understanding and respecting the trust
It is important that persons interested in offshore trusts understand and respect the trust structure. A trust is not a bank account to be operated in accordance with the instructions of the settlor or beneficiary. It is a fiduciary relationship in which the trustees hold assets on trust for the beneficiaries.
If the trust is discretionary no beneficiary is entitled to income or capital as of right. Before the trustees make a payment they need to exercise their discretion taking into account all relevant factors. If from the outset the trust is administered in a manner inconsistent with its terms there is a danger of it being void as a sham.
Even if not a sham, if the trustees always do what a particular beneficiary requests there is a danger that on the divorce of that beneficiary, a London Family Division judge may treat the assets in the trust as available for the making of financial provision on divorce. Beneficiaries should cooperate with trustees to ensure that they have the information necessary to make properly informed decisions which are not open to attack, and trustees should ensure that they record the decisions properly.
The performance of the trustees should be reviewed regularly: investment returns, trustee charges, and the general efficiency and responsiveness to the family’s needs and circumstances (but keeping in mind that for the above reasons it is sometimes in the best interests of all interested in the trust that the trustees say no to requests).
PTCs (private trust companies) are a popular form of trusteeship for very wealthy families. PTCs are limited liability companies. They are not licensed to conduct trust business generally, but have authority to conduct the business of an individual trust or related trusts, and in consequence do not need to be regulated like normal trust companies. Normally the shares of the PTCs are held by a purpose trust and it is through the purpose trust that family influence is exerted, for example, by giving the protector or enforcer power to remove and appoint directors of the PTC. It is desirable that the directors are not beneficiaries but professionals experienced in trust administration.
PTCs are not appropriate for all, particularly as a custom made trusteeship of this nature is not cheap. Also existing individual trustees or trust company may not be prepared to retire in favour of PTCs without security and without court approval since PTCs are companies of straw with no assets.