bermuda captive | 2010
31
MISCONCEPTION: The trust set-up process is
more difficult I have heard it a number of times: “I was running out of time so I just
went with the LOC.” “I was advised that the trust was too much work to set up.” “The trust is a 20-page document and the LOC is only two, so I went with the LOC.”
The response to such statements is this:
All things considered, the trust is no more work than an LOC. It is often less work.
I say this for a few reasons. Yes, the trust is often 20 pages and the LOC is often two pages. However, the amount of work involved in obtaining that two-page LOC is substantial. You must go through the bank in question’s credit review process. Anyone who has ever bought a home knows how difficult that can be (and the home loan is also fully collateralised by the home itself). But when the credit request is from a captive, then the review process only gets worse. This is not to say that the banks are wrong for doing such due diligence, but it is to say that collecting your company info, submitting it in the proper format, filling out the forms and generally going through a credit review process will be a lot more work than establishing a trust.
Here is why: while the trust agreement is indeed a comprehensive legal document, it has already been pre-negotiated between Wells Fargo, the relevant regulators and just about all of the primary fronting carriers out there (for both captive programmes and deductible programmes). Our ‘information requests’ are simple and are sent to you in an email.
The best evidence I have that trusts are actually easier than LOCs is
that we have established trusts in less than 24 hours for clients that had no previous relationship with Wells Fargo. While that isn’t always the case, I challenge any LOC issuer that claims LOCs are easier to establish than trusts to demonstrate that they can set up LOCs this quickly.
Wrapping up the first 10 years Clearly, and in almost every situation where the LOC is above
$1 million, the trust is less expensive than LOCs (often 95 percent less). There should be no foregone investment income by using a trust in lieu of an LOC. And to be sure, the trust is actually less work than an LOC to establish.
So much to say and so little time. Let me just finish by saying that
this whole ‘Bermuda gig’ has been great. Great people, great weather and great business opportunities. But above all, I am most proud of the friends I have made in Bermuda. Thanks to those who have been so helpful to me in the past, and I am really looking forward to contributing to the domicile in the future.
Robert Quinn is the vice president of the collateral trust division at Wells Fargo Bank. He can be contacted at:
robert.g.quinn@wellsfargo.com.
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