EDGE Magazine | Q3 2011
If a client thought that he was able to count on bank secrecy, the myth is quickly evaporating and while some have suggested that trusts continue to offer greater levels of secrecy, I would discourage him from establishing a trust if hiding money was his primary objective.
Confidentiality in itself is surely not a bad thing. In fact, all very wealthy people would insist on privacy no matter how they organise their affairs. A free society should hold dear the right of its citizens to some reasonable level of privacy and that right should continue to be upheld in the future as long as the right is not abused for the concealment of ill-gotten gains.
So, if confidentiality should be looked at more as a by- product of the structure than the main objective, what are the main uses of a trust and do they still hold up in the modern world? Any budding trust officer studying for his STEP exams will be able reel off a dozen or so uses that trusts have legitimately provided for centuries, both onshore and offshore. Chief among them is the continuous management of assets over successive generations. Because trusts are such a logical and effective tool for the installation of a governance structure that will last beyond the first generation, many, and perhaps most, very large fortunes are organised around trusts in one way or other. The use of trusts is perhaps even more likely where an international family is involved and both assets and family members are located in multiple jurisdictions.
Organising a trust and company structure in a centralised location as a tax-neutral (not necessarily tax free) service platform for the management and administration of family wealth continues to be popular with very wealthy clients and as this segment of the market is actually growing, not shrinking, there will continue to be demand for trusts in the modern world. But will those trusts be located "offshore"? I would suggest that the definition of offshore is quickly transforming before our eyes. The "Offshore Centres" of old, have themselves been rebranding as "International Financial Centres" for a number of years.
Implied in the reference above to the "tax-neutral" management of assets is that the legitimate reduction of taxation on property will continue to be an important, albeit more technically challenging, aspect of international
trust
This will however be a more expensive "value added" business that will demand a cost infrastructure that less wealthy families may not be willing or able to bear.
Trusts will continue to be used for transactions that fulfil business purposes whether that be for the legitimate limitation of liabilities for risky assets or for the tax efficiency of completing a transaction in a tax efficient jurisdiction or as pension schemes or collective investment funds. Similarly, trusts are used and will continue to be used for charities, both onshore and offshore to hold assets outside of the direct control of individuals in order to better accomplish their charitable purposes. Again, in these circumstances the structures are more likely to be complex and require sophisticated, robust business practices that add real value and not a superficial offshore veneer.
One indication to us of what the future might hold for the trust industry is to look at the US; perhaps the most sophisticated taxing jurisdiction, and almost certainly the most complex. In the US, trusts have not disappeared with racketing regulatory requirements and increased taxing pressures; trusts continue to be used for the purposes of
inter-generational asset management, commercial purposes and charitable giving.
Trusts have for centuries acted as a means of keeping assets out of the hands of minors, incompetents or feckless heirs. While one would hesitate to promote a business proposition built around the viability of this segment of the market, these are as aspects that can, and will continue to be, legitimate uses of trusts both on and offshore.
Offshore trusts in particular have been used as a safe harbour for fortunes that were created in less stable political and economic regions of the world to act as a safe pocket for families to plan their future economic security. In today's uncertain world, this aspect will surely still be a viable activity.
Perhaps a more important question for the viability of the offshore trust companies is not if its services are required in the future but how they must prepare for the new rigours that will be required of them.
the industry. With the cross-border
movement of property, activities and beneficiaries the opportunities for tax arbitrage and jurisdiction selection will continue not only to exist, but will continue to grow.
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