“All that is gold does not glitter. Not all those who wander are lost”
J.R.R Tolkien
We are delighted to present Issue 11 of Private Client Magazine, our 2023 Offshore Edition. This edition features articles on topics such as legal developments in the Middle East, international transparency, non-dom tax regime and more. Our authors will take you travelling across different jurisdictions and advise upon how to oversee international clients.
We would like to thank our community partners and contributors for sharing their perspective on balancing foreign jurisdictions and the client’s needs.
Paul Barford
Founder / Managing Director 020 3398 8510
email Paul
Danushka De Alwis
Founder / Chief Operating Officer 020 3580 5891
email Danushka
Maddi Briggs Strategic Partnership Manager 020 3398 8545
email Maddi
Chris Leese Founder / Chief Commercial Officer 020 3398 8554
email Chris
James Baldwin-Webb Director, Private Client Partnerships 07739 311749
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Naomi O’Higgins, Howard Kennedy
Angela Calnan, Collas Crill Nick Vamos, Peters & Peters Diana Czugler, Peters & Peters Jennifer Ronz, McDermott Will & Emery
& Partners
We are a London based law firm specialising in providing straightforward advice to entrepreneurial businesses and individuals on domestic and international matters, whatever the challenges they face.
We simplify what others complicate, giving useful advice in language you understand. We look to complete projects and deals quickly and efficiently so that you don’t miss out on important opportunities.
60-SECONDS WITH: NAOMI O’HIGGINS PARTNER HOWARD KENNEDY
Imagine you no longer have to work. How would you spend your weekdays?
Difficult to imagine! But after a few months off travelling, probably in Canada where my mother is from and where I’d like to explore more, I would like to go back to university to study psychology. Trusts and estates disputes often involve complex emotional and interpersonal dynamics. As a solicitor specializing in this area of law, I am very interested in developing a greater understanding of the human behavior and motivations underlying litigation.
What do you see as the most important thing about your job?
The most important part of my job is supporting my clients to navigate their disputes and working with them to achieve the best outcome. Ideally, although not always possible, my objective is to do so with the least damaging long-term impact to their family relationships. Experience and expertise need to be coupled with empathy. This is central to working with private clients, many of whom are often recently bereaved or are going through huge turmoil in their lives. It’s so important never to lose sight of the bigger picture for clients.
What motivates you most about your work?
No two cases are the same and the variety of different legal points which arise from case to case is endlessly fascinating. I have always loved trusts law going right back to when I was studying for my law degree at University College Dublin. It is a real privilege to work in a job where I get to apply my knowledge and expertise of trusts and estates law, working with colleagues and other experts such as counsel to help our clients.
What is one work related goal you would like to achieve in the next five years?
As Head of Howard Kennedy’s Trusts and Estates Disputes Team, my five-year goal is to continue to grow and develop with my talented team. Having expanded significantly in the past couple of years, we have recruited exceptional people. It’s a really exciting time for us
What has been the best piece of advice you have been given in your career?
It sounds trite but the best advice that was given to me was something I was told as a first seat trainee and that is to pay attention to detail. If you don’t pay attention to the small things, you will undermine your client’s faith in the bigger things. Plus, details are what can win or lose cases.
What the most significant trend in your practice today?
It has to be the rapid growth of the use of AI. As its use expands in the legal industry it is inevitable that it will play an increasing role in automating some of the processes of case management, which will in turn save time and costs for clients. That said, given the highly personal and bespoke nature of this area of law, I think it will be a while until it replaces humans entirely…
Who has been your biggest role model in the industry?
I don’t have any one industry role model but I and other women coming up through the ranks owe a huge debt of gratitude to the female solicitors and barristers who have gone before us and helped pave the way to a far more equal industry. The drive toward a more inclusive and diverse profession at all levels in law brings so much to the industry. On a more personal level, I come from a long line of professional women, including my great-grandmother who was one of the first women to be elected to local government in the Irish Free State. Although I never got to meet her, she is a real role model for me.
What is one important skill that you think everyone should have?
The ability to listen is so important and to try to allow everyone in the room a voice, not just those who shout loudest. I’ve learned that everyone in the team has a role to play and some of the best tactical ideas I have ever heard have come from junior colleagues.
What cause are you passionate about?
I am passionate about equality. I am fortunate and privileged enough not to have experienced significant discrimination personally but having seen family members and others suffer, I believe strongly that the rights of all individuals should be protected regardless of their gender, race, religion, ethnicity or sexual orientation.
Where has been your favorite holiday destination and why?
Having grown up close to the sea in Dublin, I love to go to the coast whenever I can. My favorite holiday destination is Longboat Key, Florida where I have been going on and off since the age of five. Closer to home, I love Deal in Kent. It’s a picturesque seaside town with a beautiful conservation area and a great high street full of independent shops, cafes, and restaurants. Close to London but feels a world away!
What book do you recommend for everyone to read and why?
I am an avid reader and have very eclectic tastes so I would be loath to impose my choices on anyone. I have recently read and very much enjoyed Deborah Levy’s Living Autobiography trilogy. She draws on her own fascinating life experiences to explore broader themes about personal identity, one’s place in society and “what does it take for a woman to be the main character in her life?”
Dead or alive, which famous person would you most like to have dinner with, and why?
Following on from the above, I would say Ruth Bader Ginsburg. I would love to have the opportunity to hear firsthand about her life and work.
If she was busy, I would say Mikel Arteta and Jonas Eidevall so I could share some of my opinions about Arsenal’s tactics and the players they should bring in in the upcoming summer transfer window!
SUCCESSION PLANNING FOR MIDDLE EASTERN FAMILIES SOLUTIONS THAT ARE FIT FOR A KING
In this article Angela reflects on what is a significant period of accelerated growth for Middle Eastern private clients and how business-critical it is for us, as advisors, to adapt or die.
When we used to discuss acting for Middle Eastern clients, we would often talk about ‘the education piece’ –meeting the family five to ten times to talk about the nature of trusts and the concept and benefits of separating legal and beneficial ownership.
Many of those conversations would be with the patriarch of the family and his gatekeeper and, all too often, those conversations would never materialise into a structure as (a) it was too soon –everyone was very much alive and well; (b) the trust concept was simply too alien; (c) there was suspicion around offshore in general; and (d) the benefits of succession planning did not feel material.
Wind on a few years and we have seen the death of a significant number of these patriarchs where structuring did not get over the line. The fallout has been incredible.
We have seen shares in the family business passing, often very slowly, by Shariah to numerous heirs – many of whom have no knowledge of (or desire to become involved in) the family business. This has resulted in fragmented boards, businesses becoming hamstrung during the inheritance process and ultimately business failure in many cases.
Other areas of fallout from the failure to structure and succession plan have included loss to trophy assets – we have seen large family villas passing by Sharia to 40 - 50 third-generation heirs – too many stakeholders to come to a coherent decision as to renovation or sale so these sizeable assets simply fall into disrepair and neglect.
We have also seen this fragmentation of business and other assets causing friction in the family and disharmony which could have been avoided had the family been brought into the succession plan and enfranchised earlier – for example by way of a Family Constitution.
In addition to this we have seen the consequences of failing to tax plan effectively (or at all), resulting in the erosion of family wealth overall.
With the pain of the failure to plan fresh in the minds of a lot of families, our conversations are now much more dynamic and purposeful. We are no longer regarded as a speculative salesforce selling untested wares; we are part of the muchneeded solution.
Pursuant to this, our toolkit has expanded exponentially. As well as having traditional offshore structures for global wealth, we now have local Gulf Cooperation Council (GCC) trusts and foundations, thus finally being able to
take a truly holistic approach to wealth planning for regional assets as we can now even bring in local GCC real estate which previously was relegated to the ‘too difficult’ box.
We have seen a resurgence in the popularity of Family Charters/Family Constitutions which all front-line heirs contribute to and sign. These have become hugely bespoke and interesting documents in recent years. Of particular interest are areas such as avoiding nepotism in the family business – the rigour around the interview process and qualification for roles in the family enterprise.
There is a huge amount of change in the services that we are able to offer and the demand for those services.
It is absolutely critical for offshore and UK advisors alike to have at least a baseline level of familiarity with GCC structures and when and how to deploy them in order to deliver the very best of breed for the client. We cannot simply stay in lane without keeping pace with the legal developments in the clients’ own territories or we will be left on the side lines.
professional advisors and their ability to deliver services.
This is, perhaps, most apparent in Saudi Arabia.
Saudi clients have structured wealth offshore for many years now but professional advisors would often meet them at the family office in London, Dubai or Bahrain rather than travelling into Saudi itself – particularly if a female advisor.
This has changed dramatically in the last couple of years with Western advisors tripping into Saudi to see clients at home. This has, in large part, been possible due to Saudi Vision 2030.
Vision 2030 sets out the Crown Prince Mohammed bin Salman (MbS)’s flagship development plan for diversifying and improving the jurisdiction’s competitiveness globally –particularly diversification into non-oil revenue. This is built around three main themes or pillars: a vibrant society, thriving economy and ambitious nation.
The vision was set out in 2016 so we are now halfway through its lifecycle and a huge amount of progress has already been made.
A core part of the vision is to increase the participation rate of women in the workforce, the targets for which have been exceeded.
Cultural change
Evolution in succession planning for Middle Eastern families isn’t just limited to legal change. We have seen a huge shift in the region in terms of cultural change and that has also impacted
There is also a key focus in building out Saudi’s non-oil economy which is positive for those providing professional services.
We are seeing service providers not only visiting the region but actually opening offices there to be closer to clients.
The focus on having a ‘vibrant society’ has also meant that Saudi is no longer perceived as a hardship posting with the leisure and hospitality sectors booming.
Setting the right pace
Great care must, however, be taken and this cannot be stressed strongly enough.
Although the changes in the region are bold and fast-paced, we as Western advisors still need to be very mindful and respectful of the deep-rooted history and traditions of the region. It is not appropriate for us to talk about the region ‘opening up’ or ‘liberalising’ as the region’s deep roots remain fundamentally unchanged. We must always take our cue from the client and continue at their pace and in line with their values in order to deliver solutions that are truly fit for a king.
BAILED BY THE POLICE
WHAT YOU NEED TO KNOW
by: Nick Vamos
When someone has been arrested and detained by the police on suspicion of a criminal offence, the police have the power to release that person – who is now considered a suspect – pending further enquiries. In doing so, they will need to decide whether to impose any restrictions on the suspect’s ability to abscond, prejudice the investigation or commit further offences – this is known as “police bail”.
Following reforms introduced in 2022, the police have been making increased use of their power to bail suspects before deciding whether criminal charges will be brought, as shown by a recent House of Commons Library research paper.
or prevent harm to others) call for it, the police have the power to arrest suspects in accordance with the relevant Codes of Conduct issued under the Police and Criminal Evidence Act 1984. Arrests can take place for several reasons and are ordinarily followed by a period of detention (limited in law to no more than 24 hours, extendable to up to 96 hours) in police custody, allowing officers to question the suspect, preserve, seize, and analyse evidence and conduct other enquiries – as may be necessary. This phase is crucial to most investigations for the simple reason that the evidential threshold for an arrest – that there are “reasonable grounds to suspect” the commission of an offence – is lower than the threshold for a charge – that there is a “realistic prospect of conviction”.
The police will use the time the suspect is in custody to try and obtain sufficient evidence to bridge that gap.
A crucial phase
During any law enforcement investigation into allegations of criminal wrongdoing, investigating authorities (including, but not restricted to, the police) may choose to question potential suspects on a voluntary basis.
Alternatively, where the circumstances (such as the need to preserve evidence
However, in many cases, once the deadline on police detention runs out, officers will not yet have sufficient evidence to meet the higher test.
Without a charging decision, no case can reach court and be tried. Therefore, to allow authorities to conduct further enquiries and to come to a final view on the potential offence, suspects will need to be released. Legislation allows for this to be done in one of two
ways: either by imposing police (also known as pre-charge) bail or releasing the suspect without bail but under investigation (referred to as “RUI”).
RUI implications
To understand the implications of the imposition of police bail, it is easier first to examine RUI.
RUI allows a suspect to go free without any police oversight and no restrictions or conditions imposed on their movement and activities. RUI-d suspconduct, under no obligation to report to the authorities, remain in the country or account for their conduct; they simply remain a person of interest until the police decide otherwise.
Authored
(Partner) and Diana Czugler (Senior Associate) - Peters & Peters
Crucially, the police may take as long as they need to complete the investigation – RUI has no time limits. However, suspects may be under an employment, immigration or other professional obligation to disclose to certain third parties the very fact of the ongoing investigation.
Conversely, getting bailed by the police is not only a matter of status but comes with very real, practical consequences.
Firstly, everyone on police bail will be ordered to physically report at the investigating police station at a date and time determined by the police (the “bail return date”) – as a form of monitoring. During the bail return date, suspects may be re-interviewed, either followed by a further bail extension or the charging decision itself.
Secondly, one or more bail conditions may be imposed on suspects at the police’s discretion (where deemed necessary to preserve evidence, protect victims or prevent interference with the investigation).
Such conditions can restrict a suspect’s movements and who they associate with, as well as severely impacting their everyday lives – through the imposition of a curfew, the removal of a suspect’s passport or the prevention of the suspect’s return to the family home, among the available tools. Breach of these conditions without a reasonable excuse can lead to the suspect being arrested again.
Failure to attend the bail return date without reasonable excuse is a criminal offence in its own right, carrying a maximum sentence of 12 months’ imprisonment. If the police consider a suspect to have breached their bail conditions, the suspect can be rearrested for the breach and brought in front of the police.
specific circumstances and only if deemed necessary by the police by up to another six months.
While police bail has many drawbacks for those under investigation, especially where no charges are brought, as set out above, the APB clock running is an incentive for the authorities to conduct their investigation expediently and to arrive at a charging decision as soon as reasonably possible.
APB time limits also provide certainty to those on police bail that their bail conditions will not last for longer than nine months at an absolute maximum (and typically less in most cases). On the other hand, there is nothing stopping the police from changing a suspect’s status from APB to RUI, meaning that the person may remain in a limbo for an indeterminate period of time.
victims by opting for RUI. While APB time limits remain in place, the level of internal police authorisation required for imposing and extending APB has also been lowered. The police’s professional body, the College of Policing, is also shortly expected to issue binding guidance on best practice.
Ticking clock
Due to its onerous nature, police bail can be granted only subject to authorisation by the police station’s custody sergeant and is subject to an absolute time limit of three months (called the applicable bail period or “APB”), which may be extended under
Origins of the current system
The current system (including the time limits on APB) was introduced in 2017, as part of a major overhaul of police bail following complaints from suspects, such as the DJ Paul Gambaccini, who had been kept on bail for many months, even years, before the police decided to close their investigation without bringing any charges. APB was put in place to ensure that bail was imposed only where truly necessary and with a firm end date.
Importantly, as part of the overhaul, a presumption against bail (and in favour of RUI) was introduced. However, in the intervening years, this has led to growing concerns about a failure by authorities to safeguard victims’ safety by not imposing bail (and thus, protective bail conditions) on suspects –in particular, in domestic violence cases.
Therefore, in late October 2022, further reforms were introduced to police bail, which replaced the presumption in favour of RUI with a neutral test of necessity and proportionality.
Now, when deciding whether to impose pre-charge bail, the police are legally required to take a list of statutory factors into account around the risk posed to
A return to routine?
It is expected that the latest reforms will see a return to the regular use of police bail, but now balanced with the protection offered by APB time limits. The test of necessity and proportionality should prevent police bail from once again becoming a routine and default option for police. Even when the tests are met, suspects or their legal advisors are able to make representations to the police on the appropriateness of imposing particular bail conditions, to ensure that the least restrictive measures necessary are put in place.
THE DRIVE FOR INTERNATIONAL TRANSPARENCY
SECRECY
IS DEAD AND GOOD RIDDANCE BUT WILL PRIVACY FOLLOW?
Authored by: Jennifer Ronz (Associate) - McDermott Will & Emery
The past thirteen or so years have seen an inexorable move against secrecy in the offshore jurisdictions. Governments, with an eye on tax evasion and avoidance, have moved to gather information about financial assets of their taxpayers held outside the home jurisdiction – starting with the Foreign Account Tax Compliance Act (FATCA) in the USA in 2010, followed by the Organization for Economic Cooperation for Development (the OECD)’s Common Reporting Standard (CRS) in 2014. Notwithstanding that FATCA’s primary focus is tax avoidance, it opened the floodgates for wider automatic exchange of information between governments and tax authorities on a near global scale1 in their efforts to additionally tackle corruption, money laundering, and organised crime.
In Europe, the various OECD/ EU regimes include:
1
CRS (of which many offshore jurisdictions are signatories such as the Cayman and the BVI) which compels the disclosure of information about trusts (including the name of the trust) details of the trustees and beneficiaries and other
2
power holders (including protectors) to home jurisdiction tax authorities, which is then automatically exchanged with other jurisdictions2
DAC 6 and the Mandatory Disclosure Regime3 which aim to provide tax administrations with information on arrangements (including cross border) that (purport to) circumvent CRS or disguise the beneficial owners of assets held offshore. These regimes are emphasizing the ‘nowhere to hide’ message. Trying to circumvent CRS is reportable in itself. So, trying to avoid it is not an option.
The UK has been and continues to be (post Brexit) an advocate for transparency and is known for taking a hard line on tax evasion and economic crime.
This is seen through:
1
The UK’s General Anti-Abuse Rule which was introduced in 2013,
2
followed by various transparency regimes and tools such as unexplained wealth orders and beneficial owner registers, including the Trust Registration Service (TRS), Register of People with Significant Control (PSC), and the Register of Beneficial Owners of Overseas Entities owning a UK property that came into force in March 2022 following the invasion of Ukraine by Russia under the Economic Crime (Transparency and Enforcement) 2022 Act. Information to be disclosed4 under these regimes may include (depending on the factual circumstances) details of offshore trusts, assets, and trust fiduciaries.
Not only do offshore jurisdictions signed up to FACTA and CRS participate in the automatic exchange of information between governments, but these jurisdictions are also impacted by other countries’ national reporting legislation (such as TRS).
Further, offshore jurisdictions such as Cayman and the BVI have also put in place their own national legislation to counter CRS or FATCA contravention, and they are also increasing their beneficial ownership reporting.
1 The US had entered bilateral FATCA agreements with over 115 other jurisdictions by 2015, including the UK, BVI and Cayman.
2 Over 100 countries have signed up to it (including the UK, Cayman, BVI, but notably not the USA). This information is not made public
3 The UK has now enacted legislation in the form of the International Tax Enforcement (Disclosable Arrangements) Regulations 2023 to give effect to MDR in the UK and replace the existing rules which implement part of the EU DAC6 rules
4 Also beneficial owners of trusts, including certain information about beneficiaries, trustees, settlors, grantors, interested persons. The latter two registers are publicly searchable on Companies House, and although not all trust information will be made public, it is still disclosable to Companies House (and to HMRC with regards to the TRS).
1
In Cayman, subject to certain prescribed exemptions, Cayman incorporated companies, LLCs and LLPs are required to keep a register of their beneficial ownership filed at their registered office address with a licensed service provider. The register is not public but can be searched by certain law enforcement and tax authorities. It can also be shared with the UK authorities on the basis of an agreement for sharing beneficial ownership information.
2
The BVI does not have a Trusts register – however, some BVI trusts will still need to be registered with the TRS e.g., if the trust has a UK tax liability. All title to real estate is evidenced by a central public register which is maintained at Land Registry Department5 and the Beneficial Ownership Secure Search System Act, 2017 (the BOSS Act) requires registered agents (RA) in the BVI to create a database of beneficial ownership information relating to in-scope entities for which they act as RA6
there is a lot more information on trusts making its way into the public domain (or is at risk of being disclosed), leading to a number of advantages and risks for private clients and trust fiduciaries, including:
1
2
safety and security concerns for those who legitimately set up structures in a jurisdiction such as the Cayman and BVI that is protected from corruption and political unrest (and who now worry about potential kidnapping and ransom risks for their family members);
attacks from within structures by younger family members and often beneficiaries if they find out details of trust assets and disagree with the manner in which wealth was generated.
3 the exposure of family secrets leading to inter-family strife and cultural rifts, often in circumstances where families have structured wealth not for tax reasons but because confidentiality is important to their way of life;
4
5
Impact on Private Clients
As we can see from the above, secrecy is nearly dead. However, currently privacy remains very much alive as access is generally limited to governmental enquiries rather than journalists or the public more generally. However, many argue that the end of secrecy is not sufficient to properly tackle money laundering, organized crime and corruption. The future is another country and they do things differently there. Nevertheless, we expect that the next decade will continue to see the drive for public access to information on trusts and beneficial owner registers.
This drive for transparency coupled with data exposure risks (such as data leaks and hacks including the widely publicized Pandora, Panama and Paradise Papers), have meant that
efforts to disrupt corruption and crime may reduce business expense and oligopolistic behaviors.
greater certainty as to the legitimacy of their counterparts and their source of wealth; and
6 the increased likelihood that looted artifacts and art will be returned to their rightful owners.
2
Top tips:
1
When establishing a structure for clients, emphasize and advocate greater transparency from the outset. Too many trust disputes arise because of secrecy amongst family members that could be avoided if information is shared during their lifetime, rather than fearing inevitable confrontation post death of the economic settlor.
3
Consider:
Understand and manage how and where your clients’ information is reported and exchanged to avoid high risk and targeted jurisdictions.
Caution is advised and good advice is itself necessary when navigating disclosure regimes and requests.
• The basis on which the information is requested i.e., if under the PSC regime (e.g., do you agree they are a PSC on a proper analysis)?
• Who is in possession or control of the information requested?
• Is the information subject to privilege?
• Is there is a risk of sanctions including financial penalty and/or criminal prosecution for failure to comply?
• The form of disclosure, and whether it is appropriate to redact any third party or irrelevant subsidiary material contained in the documents?
• Appropriate levels of security on disclosure (including encryption) and safe custody of files?
• Whether complying with the request give rise to any obligations to report under applicable anti-money laundering or anti-bribery regulations?
• Whether information disclosed in one jurisdiction might give rise to exposure in any other jurisdiction?
4
In times of increased geographical uncertainty, the evolving social landscape and modern familial objectives, clients and practitioners must ensure that the right and expectation to privacy remains an important part of the discussion if trusts are to remain a vital and flexible vehicle.
60-SECONDS WITH: SAM JEFFRIES PARTNER
SARASIN & PARTNERS
Imagine you no longer have to work. How would you spend your weekdays?
Swimming, cycling, running, gardening, playing golf, travelling extensively with my wife, and seeing family and friends as often as possible.
What do you see as the most important thing about your job?
Client service. In particular, managing clients’ expectations - ensuring they are comfortable with their investment strategy and truly understand risk.
What motivates you most about your work?
From a client perspective, achieving or exceeding their expectations, both in investment performance and service. From a management perspective, the ongoing progress and development of my team.
What is one work related goal you would like to achieve in the next five years?
I would like to see all my team thrive and become leaders in our industry in their own right.
What has been the best piece of advice you have been given in your career?
“Always be yourself in front of your clients” has stood me in good stead over time. I have known some of my clients now for over twenty years.
What is the most significant trend in your practice today?
The increase of professionally intermediated private clients. This has raised the standard of investment
management for these clients by investment firms. The change has been driven not just by large investment consultancies but also an increasingly significant number of trusted individuals who perform this role for wealthy families.
Who has been your biggest role model in the industry?
There have been two: My immediate boss at Barings (now a Consultant at Sarasin), Andrew Stewart, and the same at Sarasin, Jamie Black. Both are natural leaders, who lead by example, give their staff every opportunity to develop and succeed on their own, but are there in support any time it is required. I have tried to follow their example when managing my own teams over the years.
What is one important skill that you think everyone should have?
In my particular job, being numerate is really important. Over and above this, being personable and able to show humility are important character traits. Investment is not an exact science so recognizing mistakes and learning from them is fundamental.
What cause are you passionate about?
I am very lucky to work with a grant giving charity which supports a wide range of causes I am passionate about. The ones I am particularly pleased to support are those helping children battling with terminal illness. Another is helping children from disadvantaged backgrounds gain access to learning, whether through better access to regular school meals, learning support in the classroom, or infrastructure support to provide better facilities.
Where has been your favorite holiday destination and why?
I took a short sabbatical in 2017 and spent the majority of time away with my family hiking in Utah and the surrounding States. The south west of America has a lot to offer holiday makers who like to travel and see different places.
What book do you recommend for everyone to read and why?
I really enjoy keeping abreast of the news and encourage new entrants in our industry to read it regularly and extensively. I generally only get to read books on holiday and like to take a business/educational book to read in between the novels. The most recent one I read was ‘The Undoing Project’ by Michael Lewis.
Dead or alive, which famous person would you most like to have dinner with, and why?
Can I have a dinner party of famous people instead? Sir Winston Churchill (or another political leader in power at a key moment in history), David Attenborough (or another environmentalist/scientist who has seen the extent and speed of climate change), and Steve Jobs (I have always been fascinated by business leaders who have been successful and what it is that has made them so) as a starting point would be incredibly interesting.
Sophie Spencer
E: sophie.spencer@sarasin.co.uk
T: (0)20 7038 7289
www.sarasinandpartners.com
Stephen
E: stephen.rothwell@sarasin.co.uk
T: (0)20 7038 7015
Our clients’ needs are at the heart of JHA’s business; our unique structure was born out of a belief that an effective case strategy could be delivered more efficiently if lawyers, barristers, and forensic accountants worked side by side from the outset.
THE END IS NIGH FOR THE NON-DOM REGIME
Authored by: Helen McGhee (Partner) - JHA
The so-called non-dom regime that has played a significant role in the UK’s tax framework for decades may be on its way out. This perhaps somewhat antiquated and arguably no longer fit for purpose regime has for many years allowed wealthy “foreigners” living in the UK to benefit from favourable tax treatment on their foreign income. The approximately 70,000 non-UK domiciled individuals currently claiming such tax status on their UK tax returns (broadly speaking those who reside here for a fixed period and ultimately intend to leave the UK) are only liable for UK taxes on UK source income and gains; their foreign income and gains are subject to the remittance basis of taxation meaning they are taxed only to the extent that they bring this wealth to the UK. A system which encourages wealthy individuals to accumulate wealth outside of the UK and punitively taxes them for bringing funds to the UK seems counterintuitive (leaving aside a discussion around the complex Business Investment Relief rules introduced in April 2012).
The story so far
Recent public scrutiny around Akshata Murphy (Mrs Sunak) has called the effectiveness of this regime once again to the forefront (there were significant attempts at reform back in 2008 fervently opposed by Greek shipowners and again sweeping changes came in in 2017) with political promises to enhance transparency and equality in the tax system- an undeniably challenging objective to achieve whilst also importantly not compromising the attractiveness of the UK (London primarily) as a wellpositioned and well established global
financial hub. Migrants represent a significant percentage of high income, high productivity occupations in financial and professional services in banks/ hospitals alike and there is no desire to haemorrhage worker bees.
Reportedly wealthy individuals are already leaving the UK in favour of establishing domicile status in tax havens like Monaco, Switzerland, and Dubai. Migration consultancy Henley & Partners and data firm New World Wealth say more than 12,000 rich individuals have left the UK since 2017. The 2017 reforms significantly limited the tax advantages for long-term nondoms by introducing the concept of deemed domicile for income tax and capital gains tax so once UK resident for more than 15 of the previous 20 tax years, individuals could no longer shelter wealth from these taxes. The changes to the taxation of excluded property trusts (beyond the scope of this article) also further eroded the benefits for some long-term UK resident non-UK domiciled individuals.
Key fiscal objectives
It must be that we have moved away from a tax system pinned to an archaic concept of “foreignness” (the idea of “domicile” could easily just be put back into an area of law distinct from tax where Dicey originally did not intend for it to live!) and when we consider the two Chelsea bankers living next door to each other, one originally from Germany and one with strong ancestral roots in the UK, they ought to be taxed on the same basis. But what if one plans only to stay here for 5 years- should he be treated differently to the other? It is also true that we want wealth creation and investment in the UK and there is a balance to be struck.
Will abolishing the non-dom regime prompt a significant mobility response? And what ought we to replace it withsome kind of unwieldy (particularly when considering double tax treaty benefits) US style citizenship regime? A Canadian style exit tax on departure?
NEW TAX RULES
Or a Swiss style arbitrary annual charge to benefit from a more favourable tax regime?
There are many questions to engage with before significant steps are taken and considering the context of the regime and where it sits as part of a wider fiscal policy is vital. When raising questions around the future of the non-dom regime one might consider its long-term usefulness as a potential mechanism to tax and encourage wealth re-distribution in this country? Any reform of the non-dom rules ought to interrelate to the proposed review of IHT- a tax on the transfer of wealth. What will no question cause a non-dom to flee the UK would be a 40% tax on death on his worldwide estate not long after he arrives here!
What about an all-round more effective system of taxation around accumulated wealth rather than income creation. That would prompt serious consideration around trust protectionseven since 2017 it is still possible for well advised non-UK doms to shelter significant wealth in trust wrappers. The non-dom regime should not be reviewed or reformed in a vacuumthere is a wider conversation to be had and the atmosphere is as ripe as it ever has been for whole scale long lasting reform. It must be that to protect the future of our position on the global stage there needs to be serious political and economic certainty.
Conclusion
Striking the right balance between maintaining competitiveness on the global stage (keeping a keen eye on regimes promoted in competing jurisdictions) and amending a somewhat broken non-dom regime to make it fit for purpose in the modern world will require careful consideration and even more careful drafting of any new rules with the correct amount of attention paid to any transitional period. What is needed is a cross party consensus and not faux attempts at lazily drafted legislative reform carrying a distinct whiff of vote winning by simply saying what the often-ill-informed populace want to hear.
It often happens that the courts of one jurisdiction are asked to apply the law of a different jurisdiction, especially in contentious trust cases, where there can be a divergence of proper law, centre of administration and location of assets. In England, foreign law must be proved to the English court as a matter of fact. A recent Supreme Court case and the latest edition of the Chancery Guide now offer some flexibility in how foreign law is proved and, hopefully, will inject some realism into cases applying the law of offshore jurisdictions.
In the Sussex Peerage (1844) 11 C. & F. 85, Lord Brougham said: “… the proper mode of proving a foreign law is not by showing to the House the book of the law; for the House has not organs to know and to deal with the text of that law, and therefore requires the assistance of a lawyer who knows how to interpret it. If the Code Napoleon was before a French Court, that Court would know how to deal with and construe its provisions; but in England we have no such knowledge, and the English Judges must therefore have the assistance of foreign lawyers.”
If the relevant foreign law is truly unfamiliar, the rule makes good
sense. Foreign legal systems may operate in different ways and apply different concepts in otherwise-familiar situations. For example, some legal systems recognise constructs that look like trusts, but which consist only of fiduciary obligations, or which involve creating a new legal entity. Another example might be a usufruct, which bears an uncomfortable resemblance to a life interest (which is how HMRC treats it: IHTM27054), but which is something different, as the editors of Lewin on Trusts explain at 1-027. Lord Brougham’s example of the Code Napoleon may be an apt one.
where trusts law is codified by statute, the underlying principles may be the same as in England. Any differences are only departures from the basic body of English law.
As the Royal Court of Jersey put it in Re Esteem Settlement [2002 JLR 53]:
In the offshore world, particularly when dealing with trusts, the law is often not so different from that of England. Even
“Trusts were recognized and enforced by the Jersey courts well before the passing of the 1984 Law and, in doing so, they looked to English law for guidance on trust matters and, by and large, adopted English principles save where it was appropriate to differ. A Jersey trust is essentially the same animal as is found in English law, subject to certain local modifications.”
The rigid traditional application of the requirement of proof of foreign law can lead to a costly and cumbersome process. Points of foreign law must be pleaded at the beginning of the case, at a time when the factual picture is still murky. Evidence of foreign law has to be given by expert report. Reports produced early can assist with the pleadings but may not focus on the fuller facts as they emerge through disclosure and exchange of witness evidence. At trial, if points of foreign law are in dispute, the experts have to be cross-examined, not an ideal process for testing propositions of law. Experts give their evidence before the lay witnesses of fact, and the reports are not normally permitted to evolve to meet developments at trial.
The Evidence (Colonial Statutes) Act 1907 provides a limited exception for statutes of “British possessions”, which may be admitted in evidence without proof. But the exception does not extend to foreign case law, and in R. v. Governor of Brixton Prison ex p. Shuter [1960] Q.B. 89, Lord Parker C.J. noted
that “no one except an expert can be sure that the statute or other document of which the printer’s copy is tendered is the latest version of the local law.”
More recently, though, the Supreme Court took a softer line in Brownlie v. FS Cairo (Nile Plaza) [2022] A.C. 995. The consequence of not proving foreign law is that the court will presume that foreign law is the same as English law. Lord Leggatt, with whom the other justices agreed on this issue, suggested that the requirement for an expert witness in all cases was outdated.
He proposed a more nuanced approach: “In an age when so much information is readily available through the internet, there may be no need to consult a foreign lawyer in order to find the text of a relevant foreign law. On some occasions the text may require skilled exegesis of a kind which only a lawyer expert in the foreign system of law can provide. But in other cases it may be sufficient to know what the text says.”
The Supreme Court has thus given apparent licence to prove foreign law by any appropriate means. The lower courts have largely adopted that open-textured approach. The latest Chancery Guide restates the rule that “foreign law is a matter of fact to be proved by evidence” at 9.46. It then gives examples of approaches that parties might take. At the top end, there is the familiar spectacle of treating a foreign legal expert as any other expert. But the Guide also suggests the more interesting prospect of the parties identifying the sources of foreign law by expert evidence but leaving the trial advocates to make submissions based on those materials. Thus, when the source materials are readily available and verifiable, foreign law can be treated in a way much closer to English law.
Happily, none of this means that our friends around the world are obsolete. As the Supreme Court recognises, foreign lawyers will be essential in explaining local nuances. Even if trial advocates are English, our offshore colleagues can be central to the trial team when formulating submissions, and we can all look forward to our more flexible future.
Radcliffe Chambers Private Client
(Chancery:
We
Traditional, Chambers High Net Worth 2022)
THE SURREAL WORLD OF THE PROFESSIONAL TRUSTEE THE UNCANNY VALLEY OF THE CLIENT
Authored by: Joe Donohoe (Director) - Asset Risk Consultants
For the past few years, I have delivered a talk at the excellent TL4 Summer School entitled ‘What a Trustee Needs to Know Apart from the Law’. This sounds like an enormously wide topic and indeed it could be. Given the range of assets and activities that a typical professional trustee has to deal with, the range of knowledge required of them knows no bounds. From dealing with complex real estate matters to navigating the investment markets of the world to buying and selling fine art, the list goes on and on. My talk, however, does not seek to address the knowledge that a trustee might require to carry out all of these duties but rather the more fundamental knowledge that they need to bridge the gap between the rules laid down by trust law and how trust relationships work in the real world.
The central issue for a trustee is that unlike other professionals dealing with a wealthy individual or family, the trustee does not have a clearly identifiable client. Consider the characteristics of the client of a law firm. The relationship will be governed by a client agreement or letter of engagement. The client will instruct the lawyer who, within the bounds of what is legal, will follow the client’s instructions. And periodically the lawyer will present a bill to the client which the client will pay. For a trustee dealing with the same individual, none of these things apply. For now, I am going to refer to this individual as the client but as we will see that can be something of a misnomer. The relationship between the trustee
and client will be governed by a combination of a trust instrument and trust law. The client might be the settlor of the trust but with a normal discretionary trust will have no ongoing formal role in what happens once the trust is established. The client might be a beneficiary of the trust in which case the trustee will owe certain duties to the client but on a day-to-day basis the client will not have any power to compel the trustee to action. In neither situation can the client instruct the trustee although they can make requests which the trustee may choose to follow. Or not. When the trustee raises an invoice, it is to the trust, not the client, and it is settled from trust funds.
gives a framework of service levels analogous to a more regular client/ advisor relationship. Indeed, regulatory authorities will identify various parties connected to a trust arrangement as clients of the trustee for the purposes of KYC and AML requirements.
So, it is clear that while an individual might consider themselves a client of the trustee, their relationship is very different to the one they might enjoy with a lawyer, or indeed any other professional advisor. If the client is the settlor but not a beneficiary, then essentially, they have no formal role in proceedings once the trust is established. All of this can be understood by studying trust law. But that is not particularly helpful when it comes to the business of being a professional trustee.
Taking assets from someone and then informing them that they have no further role to play is unlikely to lead to a long and prosperous career as a trustee.
Most if not all professional trustees will routinely refer to “their clients”. This group might include settlors, beneficiaries, and even other family members. This is helpful when dealing with the individuals as it
There is nothing essentially wrong in a trustee treating the settlor of a trust as a client. Indeed, this is probably what the settlor expects when they first establish the relationship. The danger of course is if the trustee forgets the distinction between the de facto relationship and the legal standing of the client. Unlike other advisors, the trustee cannot explain their actions by saying ‘it is what the client wanted’. As an example, if an individual is buying a house, they can instruct their lawyer or agent to proceed with the purchase even if, for example, the seller is refusing to give certain warranties or is asking for more than the house is worth. It is the client’s decision whether or not to make the purchase. If, however,
the client has previously established a trust and is now asking the trustee to purchase a property, the trustee must proceed diligently and not complete the purchase if there are unanswered questions or the price becomes inflated. The fact that the settlor tells the trustee to go ahead as they are not concerned is not a justification for the trustee to proceed against their better judgement. Knowing this requires the trustee to understand the law.
Managing
the client’s expectations and dealing with their reactions is something else. Simply telling the disgruntled settlor or beneficiary that the trustee is not following their wishes because trust law demands a different approach by them is seldom enough.
A trustee must fully understand the requirements of trust law as set down in statute and case law but beyond that a successful professional trustee will also possess the skills, knowledge, and ability to build and maintain relationships without the formal strictures of a normal client relationship to help them. To complicate matters further, to maintain a good relationship they must achieve this balancing act without the client really noticing.
Providing private clients and business owners with the insight and experience needed to solve complex UK and US tax and compliance issues
ey.com/ey-frank-hirth
60-SECONDS WITH: KRISTINA VOLODEVA PARTNER
Imagine you no longer have to work. How would you spend your weekdays?
Getting very, very bored! I suspect I would last a week and then be in search of a new gainful activity. Opening a cocktail bar in Lisbon is an idea which might appeal to me.
What do you see as the most important thing about your job?
The most important thing about my job is that I do the right thing for my clients – undertake planning taking into account their personal and commercial objectives whilst making sure they pay the correct amount of tax, and all their disclosure and reporting requirements are dealt with correctly. The most important thing for my job is the ability to listen. No amount of technical knowledge or practical experience can help if one cannot listen and, more importantly actually hear what is being asked of them.
What motivates you most about your work?
The daily challenge of meeting and getting on with people from very different walks of life.
What is one work related goal you would like to achieve in the next five years?
That is something I would rather keep to myself for now! There are a few milestones to hit on the way though, e.g. becoming a full TEP.
What has been the best piece of advice you have been given in your career?
You get out what you put in.
What is the most significant trend in your practice today?
A lot of my clients are currently concerned with the consequences of an impending general election and what this may bring in principle, rather than only in terms of a direct tax impact on them. Looking from the perspective of an employer, the key issue for us remains the sourcing, development and retention of talent.
Who has been your biggest role model in the industry?
I am not sure I believe in the concept of a role model. During my career I have been very fortunate to meet some fantastic people that inspired me in many different ways.
What is one important skill that you think everyone should have?
I must repeat myself and say it is the ability to listen.
What cause are you passionate about?
Cancer research. This is a cause very close to my heart and something that unfortunately increasingly frequently touches the lives of my friends and colleagues
and their loved ones - as well as many people globally of course. I would very much like to hope that we will see some tangible achievements in curing this in my lifetime.
Where has been your favorite holiday destination and why?
Japan, hands down. In my opinion, this is how the world should be –orderly, clean, respectful - but rarely is; and the food is just amazing! I cannot wait to go there again, hopefully next year.
What book do you recommend for everyone to read and why?
The Master and Margarita by Mikhail Bulgakov. There is fantasy, history, satire, humor, good and evil, love. It is brilliantly written.
Dead or alive, which famous person would you most like to have dinner with, and why?
George Clooney – do I really need to explain?
DRIVEN BY VISION
THE PATH TO WEALTH PRESERVATION IN UNCERTAIN TIMES
Authored by: Paul Tucknott (Managing Director) - Saffery
How to get rich. It is the subject of new Netflix series and the topic of a recent Forbes article. WikiHow provides a 19-step answer and Google offers 180 pages of search results to the question. While how to accumulate wealth has, and will likely always be, a ‘hot topic’ globally, for those individuals and families who have found the answers for themselves, the question becomes how to protect their hard-earned gains.
In May, the news that luxury brand business mogul, Bernard Arnault, “lost $11bn in one day”, dominated global headlines. With a reported net worth of around US$200bn, the loss – attributed to a 5% fall in shares of his LVMH business – was not substantial enough to knock Arnault off the top spot on the world’s rich list, but it did highlight that no one is immune to financial loss.
There comes a point on the wealth journey of high-net-worth families where wealth preservation must be considered. Last year, “research collected from over 380 single and private multi-family offices” showed an increase in ultrahigh-net-worth families prioritising wealth preservation over growth, compared to the prior year. In the same period, the net worth of the UHNW global population
fell by 11%. While it would be impossible to know exactly why wealthy families are focusing more on safeguarding their assets, it would not be too much of a leap to assume that the loss of existing wealth could be a contributing factor.
The
world’s wealthiest are not immune to financial risk factors including inflation, economic downturn, and the ongoing challenges of geopolitical issues. When prospects of growth diminish, the focus tends to turn towards preserving what you have.
In a world where wealth invested in theoretically “safer” assets, including property and gold, is no longer a guaranteed protection against global risk factors and highly fluctuating market conditions – such families may well consider what extra they can do to manage and mitigate their risks. It is especially at these moments that wealth protection services, such as
those provided by trustees, have an opportunity to shine.
In contrast to the global risks, factors which they cannot control, these families also experience a high level of risks closer to home which, with sensitive structuring by experienced trustees, can be mitigated. These risks are varied and numerous. Amongst them you can count interfamily conflicts, business succession issues, family governance and crossgenerational communication challenges, the heavy responsibility of wealth on the next-generation, vulnerable family members, wealth loss through attacks from within and outside the family (e.g., divorce, aggressive creditors), privacy issues, and fiscal traps for global families with global assets.
Champness
The reliable framework of a well thought out structure run by capable trustees to protect and preserve wealth loss not only provides solutions to all of the above challenges, but it also gives families a feeling of control and certainty over their assets and long-term destiny.
Of course, this is not the only factor helping to reassure clients about preserving their wealth in an uncertain climate. The quality of interaction between a trustee and the family they act for is a crucial element. For family members, who may be used to managing their own assets and have a strong view on the future of the family business or wealth, it may be difficult to relinquish legal ownerships of their assets. It takes time; decades even, to build confidence and trust with high-net worth families.
managing diverse assets classes and be curious and open minded about new and emerging asset types which appeal to younger generations. They should aim to be present in jurisdictions convenient to the families they work with. The trustees who achieve these goals will naturally be in a position to add far more value to preserving the wealth of a multi-generational family with a global footprint than one that can only provide traditional trust and company structures.
The strength of a firm’s network of professional advisors also plays a significant role in the path to wealth preservation.
themselves with a sturdy eco-system of advisors to fulfil specialist remits and work collaboratively with them to achieve their shared client goals. As the adage goes, ‘a chain is only as strong as its weakest link’, therefore in facilitating connections between clients and intermediaries, it is only by undertaking rigorous due diligence and research that a trustee can be confident that the advisors they appoint are capable of meeting, or exceeding, expectations.
Therefore, a trustee must look to building relationships with the wider family – where appropriate – to understand the individual and collective objectives for the family wealth. They should seek to gain experience in
Yahoo Finance CEO, Adam Torres, identified the appointment of financial service providers as playing a key part in maintaining wealth, stating: “They [HNW individuals] understand that the cost of hiring and working with professionals far outweighs the cost of ignorance. It takes a team to build wealth. But more importantly, it takes a team to grow and preserve it.”
Torres’ comments perfectly highlight that even independent trustees do not work alone. Successful trustees will equip
Given the current global economic and political climate it is no surprise that the trend is shifting from “how to get rich” to “how to stay rich” for clients with established substantial wealth. It is at these times, more than any other, when experienced trustees have an opportunity to add value to the high-networth families they serve.
Alan Milgate
Philippa Stokes Partner PStokes@RHTrust.ky
Amanda Bako Partner ABako@RHTrust.ky
Tamara Corbin Partner TCorbin@RHTrust.ky
BLUE-SKY ESG THINKING
IN AN OFFSHORE CONTEXT
by:
The interest of some trust settlors and beneficiaries in environmental, social, and governance (ESG) investing is perhaps the hottest current topic in our industry conferences and periodicals. You will have doubtless read a substantial amount about the principle of ESG in trusts, and we, as offshore lawyers, are occasionally less involved in that initial client discussion which tends to be with their onshore advisors or trust company.
But on the implementation side, we sometimes see onshore lawyers
attempting to force offshore trusts into an inflexible onshore-style arrangement, even when there is no tax requirement. As such, we want to sketch some hopefully liberating concepts that dovetail with ESG investment (or other specialised investment approaches like cryptocurrency or art/wine investment). We shall focus on the British Virgin Islands (BVI) and Cayman Islands, which we think combine a flexible approach to this area while staying in the mainstream of English-style common law.
The problem we must overcome will be familiar, that of the trustee needing to be a ‘prudent investor’ who always acts in the best interests of their beneficiaries. Can a professional trustee or their investment advisor feel reassured that they have the freedom to make ESGfavouring investment choices when asked to do so by the family? Would the trustee be safe if hindsight proves such choices to have been less profitable? There are two main ways to deal with this concern: reserved powers or explicit trust purposes.
Authored
Henry Mander (Partner) and Matthew Howson (Counsel) - Harneys
Allowing the family to make the decision
The reader will know that most offshore trust regimes allow the trustee’s duties of investment and management to be partly or wholly delegated away to family members, who then have the freedom to develop ESG investments. There are different ways to achieve this. Powers can be reserved by the simple invocation of the BVI’s Virgin Islands Special Trusts Act (VISTA) legislation which delegates the trustee’s duties of investment and management (although note, not its powers over distributions which remain with the trustee) to the directors of an underlying BVI company which then holds the substantive assets underneath. Or powers can be reserved through numerous permutations of bespoke drafting: mechanisms such as investment committees (which, despite their name, are often made up of family members) or specified companies over which the trustee must accept investment directions.
It is possible to have such reserved powers (including VISTA) over only a portion of the trust fund, or ‘sub fund,’ for example, if only one beneficiary wants to experiment with ESG and its impact on returns – eg if a trust holds one BVI company (which holds the ESG assets) and one Delaware company (which holds everything else), VISTA will apply to only the BVI company. It is also possible to have trigger points that switch reserved powers/ESG off or on.
Whether and which reserved powers regimes are available in any given situation will largely depend on onshore factors. However, it is as well to remind those who act as trusted advisor to HNW clients that VISTA, a regime enshrined in statute, works extremely well for clients in a hugely wide range of countries around the globe. There is a reason why VISTA trusts are so popular, after all.
commercial meaning (for example, the purpose of furthering the interests of X company) or a more philanthropic meaning (for example, furthering the interests of Y cause) and to combine those two meanings dovetails nicely with ESG investment (for example the purpose of furthering the interests of companies which pursue Z objectives).
A client could choose a “pure” purpose trust. Any returns from the investments could be reinvested or, for example, donated to philanthropic but not explicitly charitable aims. Its trust deed could have trigger mechanisms for when assets could be fed back into the wider family structure. We recently drafted, in conjunction with onshore lawyers, a trust deed for a substantial family philanthropic trust, which has purposes that strongly reflect the family’s beliefs in responsible business.
Making ESG a purpose of the trust
Instead of reserved powers, it is also possible to use a variation of purpose trust with the explicit aim of furthering ESG objectives. In all the variations we will discuss, ‘purpose’ can take a
Or, the client could choose a Cayman Special Trusts (Alternative Regime) (STAR) trust. This concept, currently unique to Cayman, allows a combination of beneficiaries and purposes in the same trust. This form of trust is the ultimate in flexibility because it is even possible to make one of the purposes, that of following the family’s wishes over investments (thus bringing in a form of reserved powers mechanism). The STAR legislation also removes the beneficiaries’ rights to enforce the trust or to information, passing those to the enforcer, which can be beneficial to families who are conscious of the future possibility of dispute over their chosen ESG approach.
Finally, it is possible to have an offshore charitable trust. These have increased in popularity over recent years, and we do see private families, particularly from regions such as Asia and Latin America, setting them up as part of their dynastic planning. A multi-branch family may set up a structure where a Private Trust Company (with all the branches represented on the board) is trustee of several family trusts and one charitable trust, for example.
The mention of Private Trust Companies reminds us that there are yet further ways for families to take a more active role in trust management. However, for those who wish for asset protection or other reasons to stay with a professional third-party trustee, it is possible to do good for people and the planet too.
Protecting what matters to
We are dedicated to advocating for your interests. With comprehensive expertise, full service and decades of experience we always remain focused on your goals. Learn more about our passionate way of providing legal excellence.
They are a first-class set, particularly in offshore trust and commercial chancery work Chambers High Net Worth
@Serle_ Court Serle Court
WHEN CAN A CREDITOR GET A PIECE OF THE PIE? LA DOLCE VITA
In the recent case of La Dolce Vita Fine Dining v Zhang Lan and others [2022] SGHC 278, the General Division of the High Court of Singapore (the ‘Court’) held that funds in bank accounts within a family trust structure were the property of the settlor, and therefore capable of being recovered by creditors of the settlor.
Understandably, any decision of a court to lift the curtain on a trust structure and allow creditors to access trust assets will raise concerns for private wealth practitioners and their clients. This article examines the Court’s decision in La Dolce Vita and considers the potential impact on trust establishment and management and what conclusions practitioners can draw from this case.
South Beauty restaurant chain. She had sold a majority stake (83%) of the South Beauty business to CVC Capital in 2013 for the sum of US$254,419,156. These funds had been paid into Mdm Zhang’s personal account at Bank Safra Sarasin Hong Kong.
The fourth defendant, Success Elegant Trading Limited (‘SETL’), is a BVI company which had been wholly owned by Mdm Zhang until June 2014. At that point, Mdm Zhang established the Success Elegant Trust (the ‘Trust’), an irrevocable Cook Islands family trust that she settled for the benefit of her son, grandchildren and remoter issue. She then immediately transferred the sole share of SETL to the trustee of the Trust. She also transferred US$142,051,618 from her personal Safra Sarasin account to two bank accounts held in the name of SETL at Credit Suisse and Deutsche Bank (the ‘SETL Banks Accounts’).
Background
The first defendant, Mdm Zhang Lan (‘Mdm Zhang’), was a highly successful businesswoman and founder of the
Since then, Mdm Zhang has been embroiled in arbitration proceedings with La Dolce Vita Fine Dining Co Ltd (‘LDVL’), an investment vehicle of CVC Capital and the plaintiff in this case, over claims of fraudulent and negligent misrepresentation. In March 2015, LDVL was successful in obtaining a freezing order against Mdm Zhang in her personal capacity. Although the freezing order only named Mdm Zhang, Credit
Suisse and Deutsche Bank froze the respective SETL Bank Accounts upon being served with the order.
In May 2020, LDVL succeeded in registering arbitral awards in its favour in the Hong Kong and Singapore courts. LDVL then proceeded to enforce its judgment debts, including through an application to the Court to appoint a receiver over the SETL Bank Accounts.
The Role of Receivers
The purpose of a receiver is to stand in the shoes of a debtor and do what the debtor should have done, in good conscience, to discharge the debt. In common law jurisdictions, the court has the power to appoint a receiver when it is just and equitable to do so.
Receivers usually appear in cases where alternative enforcement methods are ineffective or not possible. For example, receivers can be appointed to preserve property at risk of dissipation, such as in the high profile English Supreme Court case of JSC BTA Bank v Ablyazov [2015] UKSC 64, where a freezing order was thought to be inadequate in circumstances where the defendant’s disclosure of assets had been incomplete.
Further, a creditor may seek appointment of a receiver to pursue the equitable interests of a debtor, as seen in a few previous English High Court decisions. These include JSC VTB Bank v Pavel Skurikhin & Others [2015] EWHC 2131 (Comm), where the High Court appointed a receiver over trust assets over which the settlor had de facto control.
is tantamount to a factual control which may not be reflected in the actual rights of the debtor. As LDVL did not contend that Mdm Zhang had rights over the SETL Bank Accounts other than via her beneficial ownership, the Court turned to the second issue.
The Court’s Decision
LDVL sought an order from the Court appointing receivers over the SETL Bank Accounts on the basis that, notwithstanding SETL’s legal ownership of the funds within those accounts, either (i) Mdm Zhang was the beneficial owner of the funds in the SETL Bank Accounts by way of resulting trust; or (ii) Mdm Zhang exercised a level of control over the assets tantamount to ownership.
Mdm Zhang opposed the appointment, contending that the funds in the SETL Bank Accounts were held for the benefit of her son and his issue once they had been transferred from her Safra Sarasin account.
The Court was required to determine two issues:
(1) Could receivers be appointed over property in which the debtor has effective control but no equitable interest; and
(2) Were the funds in the SETL Bank Accounts beneficially owned by Mdm Zhang (by way of resulting trust or otherwise)?
On the first issue, the Court drew a distinction between the notion of de facto control and beneficial interest. The key point made by the Court was that even if a debtor had de facto control over an asset, the actions that a receiver may take would be limited by the rights of the debtor. Receivers are not able to compel third parties (such as trustees) to take certain actions if those third parties are not obliged to comply with the debtor’s instructions. If, as a matter of fact, that third party would have complied in any event, this
On the second issue, the Court noted that a resulting trust arises where one party transfers property to another without the intention to benefit the other, and that it was required to assess Mdm Zhang’s intention at the time of transfer to the SETL Bank Accounts. The evidence before the Court included instances of Mdm Zhang interfering with the SETL Bank Accounts (such as the transfer of funds in November 2014 to purchase a property in New York) and a letter from her lawyers stating that she ‘maintained’ the Deutsche Bank account. The Court inferred that Mdm Zhang was motivated by a desire to protect her funds from potential claims by LDVL without giving up her ability to use those funds for her own benefit and held that she therefore retained a beneficial interest. The court subsequently made the order for appointment of receivers over the SETL Bank Accounts.
Comment
The judgment in favour of the plaintiff, whilst somewhat alarming to trust lawyers at first sight, is not particularly surprising in light of the facts of the case. Rather than lifting the curtain on a trust, the decision held that the funds were not truly trust assets as they were still beneficially retained by the settlor. Therefore, it is our view that this case should not raise significant concerns about the viability of trusts in Singapore, or elsewhere.
Nevertheless, there are some practical points arising from this case which practitioners should bear in mind:
(1) how much control a settlor may have over trust assetsas we have seen in recent years, courts are willing to find that a settlor’s beneficial interest has
not been effectively alienated if they have retained too much control over a trust structure or its assets (see JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch)). While certain jurisdictions have reserved powers legislation which permits the reservation of certain powers to the settlor, La Dolce Vita is another reminder that it is always prudent to assess and limit the amount of control that a settlor has over the trust assets, particularly where the settlor is concerned about asset protection risks.
(2) role of the trustee – the trustee of the trust should ensure that it exercises its powers and duties properly and independently and that it does not slavishly follow the wishes of the settlor.
(3) ensuring that the settlor understands the purpose and function of the trust – it is important that the settlor should be properly advised when setting up a trust structure, so that they understand that they are relinquishing control and ownership of the assets to the trustee.
(4) property comprised in the trust – as a matter of best practice, the trustee and settlor should keep an appropriate record of the property that is comprised in the trust and, if there is involvement from a third party in dealing with trust assets, there should be clarity over the capacity in which that third party is acting.
Trusts are still important vehicles for asset protection and wealth and succession planning. The judgment in La Dolce Vita is a salutary reminder of the importance of respecting the integrity of the trust and operating the trust appropriately to ensure that it offers robust protection to the settlor and beneficiaries.
BALANCE IS IN OUR NATURE
Suntera Global Private Wealth meets the needs and ambitions of high- and ultra-high-net-worth individuals, families and entrepreneurs across the globe.
Our expert teams protect and nurture every stage of wealth creation, providing a tailored approach to succession and estate planning, supported with full trustee and management services, governance, administration and accounting.
Your Private Wealth Partner
To learn how we can meet your needs and ambitions, please contact Anne Baggesen – Managing Director, Private Wealth
T: +44 (0)1624 683242
E: anne.baggesen@suntera.com
60-SECONDS WITH: EMMA HARGREAVES BARRISTER SERLE COURT
Imagine you no longer have to work. How would you spend your weekdays?
Travelling the world.
What do you see as the most important thing about your job?
Assisting people in difficult times.
What motivates you most about your work?
The intellectual challenge.
What is the most significant trend in your practice today?
Hybrid/remote working thanks to my partner’s decision to work abroad for a year!
Who has been your biggest role model in the industry?
There have been so many that I cannot name just one.
What is one important skill that you think everyone should have?
Empathy.
What is one work related goal you would like to achieve in the next five years?
Very trivial, but I have been talking about buying a standing desk for the past year and I am still yet to do so, so hopefully I’ll achieve that within the next 5 years!
What has been the best piece of advice you have been given in your career?
No matter how busy you are, always take some time for yourself over the weekend; you’ll think better in the week if you take a break at the weekend.
What cause are you passionate about?
Increased diversity and social mobility at the Commercial Chancery Bar.
Where has been your favorite holiday destination and why?
The Everest trail in Nepal –unbeatable scenery and the hiking provides a complete escape from normal life.
What book do you recommend for everyone to read and why?
Ottolenghi – Simple. Recipes for absolutely delicious food, even if you are short on time.
Dead or alive, which famous person would you most like to have dinner with, and why?
David Attenborough. He is such a brilliant storyteller and hopefully, therefore, a great dinner guest.
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As a UK tax adviser with many international clients, lately I find I am increasingly frequently asked to advise on UK tax residence or, actually, UK tax non-residence. One of the main reasons for this is a growing disquiet over the future of the UK tax regime for nondomiciled persons, a subject covered by my fellow Partner, Paul Huggins, in ‘The Remittance Basis of Taxation in the UK – A Future in the Balance’, in ThoughtLeaders4 Private Client Tax Magazine 2023 Tax Special.
No one likes to disrupt their lives more than they must, so advice on ceasing UK tax residence is often linked with an important (to the client) question:
What is the maximum number of days which I can spend in the UK and still escape the UK tax net?
The UK’s Statutory Residence Test (“SRT”) has been effective since April 2013, so we are all, as advisers, familiar with how it operates. It is an intricate test with a lot of detail to
IS A HEARTBREAKER!
navigate past, but with careful advice (and careful implementation!) and a full understanding by the client as to what needs doing, it is possible to achieve non-residence status with certainty. This is a vast improvement on the (not so) ‘good old days’ – minimal legislation, over a century of case law and chameleon-like HMRC guidance.
The problem, however, is that when applying the SRT to a UK resident client seeking to become non-resident, the answer to the above question is often a disappointingly low number of days, particularly in the first couple of tax years. A more attractive alternative may then emerge, or at least become worthy of exploration, where the client asks:
What if I establish tax residence in another country but remain UK tax resident under the SRT?
This is a question which can only be answered with another question‘where exactly are you intending to go?’!
It is certainly perfectly possible to be tax resident in two (or more) countries at once if you satisfy the necessary conditions under the domestic tax law of each jurisdiction. If the client intends to establish tax residence in a country with which the UK shares a (standard) Double Taxation Agreement (DTA), it may indeed be possible to be resident for the purposes thereof in that other country. Various types of income and capital gains taxed under the DTA exclusively in the country of deemed residence would then not be taxed in the UK (subject to the treaty recognising the UK’s ‘temporary non-resident’ antiavoidance provisions). But how difficult is this, and what risks are involved?
The standard treaty tie-breaker clause contains a number of sequential tests to determine the matter of residence:
(1) in which of the two countries does the individual have a permanent home? If both, then;
(2) with which country are the individual’s personal and economic ties closer? If this cannot be determined, then;
(3) in which country does the individual have a habitual abode? If in both, then;
(4) of which country is the individual a national? If both or neither, then;
(5) the matter is settled by mutual consent of the tax authorities of the two countries.
Over my career, I have on a number of occasions filed UK tax returns for clients on the basis that they are UK resident under the SRT but treaty resident in another country. This requires addressing the four-treaty tie-breaker clause questions and disclosing income and gains in respect of which treaty exemption is claimed on Helpsheet 302. Obviously, such a claim should be approached with considerable caution and only be made if fully corroborated by evidence - the consequences of it being subsequently rejected by HMRC, e.g., through an enquiry, may (will?) be dire in terms of penalties.
Perhaps I have been fortunate in the sense that none of my clients claiming treaty non-residence have been the subject of HMRC enquiry on this point. I say ‘fortunate’ because recent cases have revealed more about how the matter is addressed in an enquiry and, if unresolved, by the Court.
The First Tier Tribunal case Oppenheimer v Revenue and Customs provides ample illustration of the way the enquiry which preceded it was conducted, and the detail involved in probing into all facets of the taxpayer’s personal and business life, over many years, to establish the country with which the taxpayer’s personal and economic ties were closer (the UK or RSA). It is also very clear that ‘actions speak louder than words’, given the Court’s increasing tendency to qualify witness evidence for conscious or unconscious bias (applying the ‘Gestmin principles’). The word limit precludes a proper summary of the findings here, but anyone interested would be welladvised to read the full judgment (in the taxpayer’s favour) since some important points of principle emerged.
of his UK activities: close involvement in the same businesses as before, spending much of his UK time in his family home and watching his beloved Sheffield United play football. These same factors then proved fatal when the Tribunal considered whether he should be resident in the UK or Belgium for the purposes of the treaty under the ‘centre of personal and economic interests’ test.
Although these cases produced different results for the taxpayers concerned, they share certain aspects any adviser should note when considering a treaty non-residence claim on a client’s behalf. Firstly, such a claim should only be made where the facts genuinely support the likelihood of a successful outcome. Secondly, if there is an enquiry (very likely where there is significant tax at stake), the client should be primed to expect an invasive and potentially costly exploration of their personal life and business affairs, which can be unsettling. Finally, there can be no guarantee of a successful outcome altogether! So the tie-breaker can swiftly escalate to a heart-breaker – and perhaps it is preferable to play safe and rely on the SRT to become non-resident after all.
The issue of treaty residence also fell under scrutiny in McCabe v Revenue and Customs Commissioners in September 2022. The first issue was whether the taxpayer remained UK resident under the old pre-SRT rules. Even with only 33 and 43 nights in the UK in 2006/07 and 2007/08 respectively, the taxpayer was found to have been UK resident as he had failed to make a ‘clean break’ with the country. This was decided based on the quality
Resolving private client disputes
Our aim is to work collaboratively and strategically with legal teams to achieve the best possible outcome for clients.
We know that when clients are dealing with personal disputes, whether this is following the death of a family member or a family fall out, they often become emotionally charged and sometimes extremely acrimonious. But we also know that with the right team in place, who have experience in assisting and managing these complex and sensitive matters, resolution and recovery strategies can be implemented to ensure the dispute is successful resolved for your client.
To find out more about resolving these disputes and our work in high value asset recovery and enforcement, please do get in touch.
We help you resolve disputes through:
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A CAUTIONARY TALE ON THE ROLE OF THE PROTECTOR
Authored by: Wendy Lategan (Legal Specialist) - Standard Bank
The story of the X-trust is worth sharing. It started like any other story about a trust with a protector. The late settlor, Ms Goodness,1 with sound intentions appointed a protector to the discretionary trust that she settled. The protector, an accountant by profession that was well known to her, called Rudy, was an Australian resident. Ms Goodness did not have any children, and the beneficiaries of the trust as per the trust instrument were her nephews and nieces. Her desire for her nephews and nieces to benefit was also expressed in her letter of wishes that the trustee held on record.
Rudy held certain negative powers under the trust instrument, which meant that the trustee could only exercise certain powers by obtaining Rudy’s prior written consent. In particular, the trustee had to obtain Rudy’s consent to bring the trust period to an end, to distribute income or capital to the beneficiaries, to add beneficiaries, to change the proper law, and to invest the
trust property. Rudy held one positive power as a trump card, namely that he could remove the incumbent trustee and appoint successor trustees.
Perhaps
it is fortunate that Rudy held no further powers of veto whereby he could direct the trustee to act in a certain way.
For many years, the trust was administered by the trustee without incident, and all went well. The powers that Rudy held appeared appropriate and if anything should happen to Rudy, the trustee would still be able to administer the trust, as the deed contained appropriate provisions to cater for such a scenario (having appropriate fallback provisions and a thought-through succession plan are always important in relation to trust protectors). Rudy clearly did not hold too many powers to invalidate the trust or render it too
cumbersome to properly administer. Further, Rudy could not be deemed to be a quasi-trustee (considering the powers that he held were mostly negative by nature), which could impact the tax residency of the trust. Rudy’s fees to act as the protector of the trust were reasonable. The trustee and the protector maintained a professional relationship. So far so good.
Despite many years of the status quo in terms of the trust’s administration, matters eventually became rather more
complicated. The trustee received an original certified copy of the late settlor’s death certificate together with an original certified copy of a new letter of wishes, that the trustee had never seen before, purporting to supersede and replace the letter of wishes that the trustee held on record. In this new letter of wishes, the trustee was requested to remove the current beneficiaries and to appoint Rudy’s children as beneficiaries instead.
As any professional trustee would do, the trustee endeavoured to verify the authenticity of the letter of wishes, including consulting with a handwriting forensic expert – who unfortunately was unable to assist as they needed a substantial number of signature samples of the settlor to authenticate the new letter of wishes. The trustee was still not comfortable with the situation, and, adding to the discomfort, the protector started to exert pressure on the trustee to amend the beneficial class and distribute the assets from the trust. The trustee held several meetings with the protector to voice its concern and to attempt to agree on a way forward, but all was in vain. As expected, Rudy did not appreciate the trustee’s resolute position that it would not merely act on the new letter of wishes and consequently threatened to remove the trustee.
Thankfully, the settlor had been robust with her choice of trustee and had appointed a trustee that would do the right thing and not blindly follow the path of least resistance. Sensing the pending conflict with Rudy, and in response to his threats and demands, the trustee brought an application to the relevant Supreme Court. The Application requested an injunction to prevent the protector from removing it as trustee. Simultaneous to the injunction application, the trustee sought the Supreme Court’s direction on considering the contents of the new letter of wishes which purported to appoint Rudy’s children as beneficiaries as opposed to appoint the entirety of the income and capital of the trust fund to the existing beneficiaries of the X-trust in line with the trust deed and the existing letter of wishes. Finally, the trustee also requested that the Court remove the protector to allow for the good execution, administration, and enforcement of the X-trust.
After the injunction and directions application were duly issued and served on Rudy, through his lawyer, he advised the trustee that he no longer opposed the way in which the trustee wished to distribute the trust assets. He also agreed that the trustee did not have to appoint his children as beneficiaries.
Thankfully, this story has a happy ending and the trustee acted resolutely and in a manner that would be expected of a professional trustee. The beneficiaries were able to benefit from trust assets in the manner that their elderly aunt had intended rather than a manner attempted by a deviant protector. The distributions were so unexpected that one of the beneficiaries assumed that the trustee’s call was a prank and slammed down the phone in anger upon hearing that she would benefit from the trust. Once over the shock, the beneficiary conveyed her sincere thanks to the trustee.
So, what can we learn from this almost unfortunate situation? If a settlor does decide that they wish to appoint a protector, then it is important to always ensure that the powers of the protector are appropriate.
Ensure that the trust can be administered, and decisions made if a successor protector is not immediately appointed and ensure that appropriate and well-thought-out succession mechanisms are drafted into the trust deed. Always verify that there are not any adverse tax consequences to the protector’s appointment and the powers they may hold. Consider if the protector’s fees incurred are appropriate, and lastly and most importantly, select the right protector who can be relied upon and is known to the beneficiaries.
The X-trust arguably demonstrates that, if a trust has a robust professional trustee who is willing to make proper fiduciary decisions and act in the best interests of its beneficiaries, there is a reduced need for a protector, especially if the intended protector powers hinder and complicate a trustee’s ability to make decisions and administer a trust. A protector can never replace or erode the requirement to select a reputable and appropriate trustee, as Ms Goodness has done, to ensure that the best interests of the beneficiaries are served.
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We are recognised nationally and internationally as a dynamic and strategic team of family lawyers, known for our expertise in both complex finance and high profile children cases.
We assist clients at all stages of their lives, whether at the beginning of a relationship and planning a future (for example before a wedding or when relocating to the UK) or at the end. Many of our clients or their spouses have international connections, are high net worth individuals and city professionals, or individuals with a public profile.
For further information about our practice, please use the contact details below.
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60-SECONDS WITH: THOMAS DUMONT KC
KING’S COUNSEL RADCLIFFE CHAMBERS
Imagine you no longer have to work. How would you spend your weekdays?
Have to work? Please! With a glass of elegant cava eating tapas with my wife at Pizarro at the Royal Academy. Or at Lords, for the First day of the Test match, with a couple of old friends.
What has been the best piece of advice you have been given in your career?
Polish your shoes – before I advised three generals and two colonels.
What is the most significant trend in your practice today?
Challenging trustees’ decisions.
What cause are you passionate about?
Species extinction
Where has been your favorite holiday destination and why?
The Lycian Coast. The ancient Greek ruins take your breath away, as does the view from the Yediburunlar Lighthouse. Go there!
What do you see as the most important thing about your job?
Helping people to find solutions, and to maintain their faith in humanity (and lawyers).
What motivates you most about your work?
The sheer fascination of human life: its drama, its truths and its lies.
What is one work related goal you would like to achieve in the next five years?
Win my next case. You are only as good as your next case. My work goals involve my clients, not me.
Who has been your biggest role model in the industry?
I don’t do role models – but Terry Etherton is the complete package: Commonwealth Games gold medalist, refused to compete in the Olympics over the Russian invasion of Afghanistan, consummate silk, excellent judge, and as the red tops said, openly gay.
What is one important skill that you think everyone should have?
See things through another’s eyes
What book do you recommend for everyone to read and why?
Brensham Village, by John Moore. An elegy for an almost vanished England
Dead or alive, which famous person would you most like to have dinner with, and why?
Thais of Athens. She was a lover of Alexander and inspiration for the party that resulted in Persepolis being burned to the ground. Wife of Ptolemy, so Queen of Egypt and ancestor of Cleopatra. Alexander “liked to keep Thais with him”. Good enough recommendation.
WHAT DOES YOUR OFFSHORE SAY ABOUT YOU?
JURISDICTIONS THROUGH THE LENS OF REPUTATION AND COMPLIANCE
Authored by: Jessica Miller (Founder and Director) - Strela Advisory
In recent years, the use of offshore jurisdictions as part of private wealth structuring has been subject to rising public scrutiny, viewed with anything from scepticism to suspicion. Rarely, however, are the connotations positive.
“Privacy” is conflated with “secrecy” and
the corresponding implication that users of offshore jurisdictions do so because they have something to hide.
Leaks of client information into the public domain have bolstered this narrative, whereby legitimate wealth becomes tarnished by association and proximity to autocrats and money launderers in corporate registries.
However, offshore jurisdictions are not a homogenous group. There are vast differences in their own reputations, legal frameworks, and standing within the private wealth world. This in turn impacts the clientele to whom they are willing, or unwilling, to offer services.
With this in mind, if a HNW finds their structures publicly exposed, can an informed, active choice in offshore jurisdiction mitigate the worst conclusions being drawn? Or even send a positive message about a client’s source of wealth and commitment to compliance?
consciousness. Subsequent leaks, for example the 2021 Pandora Papers, have continued to fuel journalistic interest in the usage of offshores, the assets owned through them, and the identity of ultimate beneficial owners.
The implementation of the Register of Overseas Entities in the UK in 2022 has led to further reporting, particularly regarding who owns which properties in London. With headlines such as: “UK for sale: how the wealthy hold British property via offshore firms1.”
Rarely is the reporting positive, the message – sometimes implicit other times explicit – is that of wrongdoing. This interest is unlikely to change; there is nothing so tantalising as a secret. And offshore jurisdictions are deemed to excel at hoarding those.
The Landscape
Since the leak of the Panama Papers in 2016, the notions of “tax havens” and offshore jurisdictions enabling the world’s wealthiest to hide their assets has cemented itself in the public
Further, certain jurisdictions cannot be said to have helped themselves. Amongst the disclosure of private information about legitimate wealth, journalists have unearthed multijurisdictional money laundering schemes and outed corrupt officials for assets they are unlikely to have legally obtained.
The consequence is thus: a need to err on the side of caution and factor in the potential for information about HNW clients and their assets surfacing in the public domain. How so? By asserting some self-determination in how this might play out.
Namely, vetting jurisdictions according to their integrity. Hereby offering some insurance that the worst offenders amongst offshore users won’t have made a home on the same island and lowering the risk of the old “you are the company you keep.”
The former is comprised of Iran, Myanmar, and the Democratic People’s Republic of North Korea2. The latter (more important to this article) is the Grey List. These are jurisdictions which “under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing3.” There currently 23 countries on the list, of which four are offshore jurisdictions: Barbados, the Cayman Islands, Gibraltar, and Panama4
The FTAF is not the only organisation monitoring and/or expecting a commitment to certain standards as regards flows of finance. The EU, for example, maintains a list of “non-cooperative jurisdictions for tax purposes5”. The list “is composed of countries which have failed to fulfil their commitments to comply with tax good governance criteria within a specific timeframe, and countries which have refused to do so6.” Of the 16 countries currently on the list, the majority are offshore jurisdictions7
Not all offshores
There is a tendency for offshore jurisdictions to be publicly viewed as a singular group, particularly as regards allegations of tax evasion or criminality. In substance they occupy a vast spectrum.
This spectrum is determined by factors such as robustness of legal system, tax transparency or levels of compliance and scrutiny applied to in-coming wealth. It is maintained and monitored by international organisations and commitments made by the jurisdictions themselves.
And so, if you are looking for a reputational and compliance litmus test for a jurisdiction? Similarly to the various financial ratings for offshore financial centres, there are several bodies of information to which one can refer when seeking an informed external opinion.
The FATF (Financial Action Task Force) is an intergovernmental organisation intended to develop policies combatting money laundering. The organisation is probably best known for its Black and Grey Lists.
While these organisations highlight jurisdictions with some less desirable practices, there are others through which one can identify those performing better. For example, the OECD maintains a list of countries which have “committed to improving transparency and establishing effective exchange of information in tax matters”8. The list currently has 38 jurisdictions, of which many are offshores9. The FATF too rates 205 countries which have committed to implementing FATF recommendations; these are found on their consolidated ratings (albeit a significantly longer read than the Grey List!)10
In sum, when one is considering an offshore jurisdiction for suitability, there are matrices which can be applied, and sources of information available, which quickly and simply allow one to determine how an association with a particular jurisdiction could be viewed by third parties and may disadvantage (or not) a HNW’s reputation.
If your offshore speaks for you, what is it saying?
There are many factors which will come into play when the choice for offshore jurisdiction is made. Purpose, privacy, citizenship or residency, to name but a few. But within that, space can be made to consider: does this reflect who we are?
There is security to be found in submitting yourself to the elevated levels of scrutiny and due diligence required from the more highly-regarded offshore jurisdictions. Not solely because this speaks volumes of you, but because it limits the chance of you finding yourself in a newspaper amongst some very poor company.
7 The complete list: American Samoa, Anguilla, Bahamas, British Virgin Islands, Costa Rica, Fiji, Guam, Marshall Islands, Palau, Panama, Russia, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, and Vanuatu
For over 40 years we have provided our sophisticated clientele with professional expertise in multi-jurisdictional wealth and asset protection, succession planning and wealth transfer solutions. With offices in key locations around the world, Equiom is ideally placed to meet the often complex challenges presented by an increasingly global client base, enabling our private wealth clients to ‘live their best lives’.
For more information about our Private Wealth solutions please contact Graham Marsh at GrahamMarsh@equiomgroup.com or visit www.equiomgroup.com/privatewealth
For information on the regulatory status of our companies, please visit www.equiomgroup.com/regulatory
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12 -14 November 2023
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Shangri-La Hotel, Dubai
OFFSHORE, FAMILIES AND THE GOVERNANCE CONVERSATION
When we talk about offshore experiences for family businesses, it’s important to remember that “offshore” doesn’t only refer to offshore assets or wealth. It can also refer to family members who decide to relocate or marry abroad, which can significantly impact the family’s governance and succession dynamics.
When family members move or marry abroad, it can create a number of challenges and complexities for the family. For example, it can lead to differences in cultural norms, values, and expectations, which can create tensions and conflicts within the family. This can be especially true when it comes to succession planning and governance, as the family may need to navigate different legal systems, tax laws, and cultural norms in different countries.
In addition, when family members move or marry abroad, it can create a sense of distance and disconnection between family members, which can make it more difficult to maintain open communication and collaboration. This can be especially challenging for family businesses, which rely on strong relationships and trust between family members to succeed.
To navigate these challenges, families need to be proactive in their approach to governance and succession planning. They need to be open and transparent about the impact of offshore experiences on the family and work together to develop strategies for addressing any potential conflicts or issues that may arise.
Authored by: Tsitsi Mutendi (Co-Founder) – African Family Firms
This may involve creating clear policies and procedures for how family members who live or marry abroad will be involved in the family’s businesses or assets and how decisions will be made across different countries and legal systems. It may also involve investing in cross-cultural training and education for family members to help them better understand and appreciate the diversity within the family.
Five ways in which families can be proactive in their family governance and succession planning:
(1) Start Early: One of the most important ways for families to be proactive in their family governance and succession planning is to start early. Discussing the family’s values, goals, and vision for the future as early as possible is important. This allows for a long-term approach to governance and succession planning, which can help ensure that the family’s wealth and legacy are preserved for future generations.
(2) Develop a Governance Structure: Another important way for families to be proactive in their family governance and succession planning is to develop a governance structure. This structure can include a family council, a board of directors, or other types of committees or groups that can help manage the family’s affairs. The governance structure should be designed to promote transparency, communication, and decisionmaking by consensus.
(3) Create a Succession Plan: Developing a succession plan is critical to ensuring the continuity of the family’s wealth and legacy. The plan should identify potential successors, outline their roles and responsibilities, and establish a timeline for their transition into leadership positions. The plan should also address issues related to estate planning, tax planning, and asset protection.
(4) Establish Clear Communication Channels: Effective communication is essential for successful family governance and succession planning. Families should establish clear communication channels that allow for open and honest dialogue between family members. This can include regular family meetings, newsletters, and other forms of communication that keep family members informed about the family’s affairs.
(5) Seek Professional Advice: Families should seek professional advice when developing their family governance and succession plans. This can include working with lawyers, accountants, financial advisors, and other professionals who have experience in family governance and succession planning. These professionals can help families navigate complex legal and financial issues and ensure their plans align with their goals and values.
Three ways families of wealth can mitigate the risk that comes from marrying into different cultures and jurisdictions:
(1) Pre-Nuptial Agreements: Oneway families of wealth can mitigate risks associated with marrying into different cultures and jurisdictions through pre-nuptial agreements. These agreements can help protect family assets and ensure that they are not subject to distribution in the event of a divorce. Pre-nuptial agreements can be particularly useful when dealing with crossborder marriages, as they can help address issues related to jurisdiction and asset ownership.
(2) Estate Planning: Another way families of wealth can mitigate risks associated with marrying into different cultures and jurisdictions is through estate planning. This can involve creating trusts, establishing offshore entities, and other measures that can help protect family assets from potential legal disputes or claims. Effective estate planning can also help minimize tax liabilities and ensure that family assets are distributed according to the family’s wishes.
(3) Cultural Education and Sensitivity Training: Finally, families of wealth can mitigate risks associated with marrying into different cultures and jurisdictions by investing in cultural education and sensitivity training. This can help family members better understand the customs, traditions, and legal systems of different cultures and develop the skills necessary for effective cross-cultural communication and collaboration. Cultural education and sensitivity training can also help mitigate potential conflicts that may arise from differences in cultural norms and expectations.
Overall, when it comes to offshore experiences for family businesses, it’s important to remember that the challenges and complexities go beyond just offshore assets and wealth. By recognizing and addressing the impact of offshore experiences on family dynamics and governance, families can build stronger, more resilient, and more successful businesses across generations.
