EDGE Magazine | Q3 2011


Part II - A New Appreciation For Robust Trust Management


Having concluded that offshore trusts are indeed still relevant in the modern world, I will now address what measures should be taken to ensure that they remain relevant, demonstrate best practice and compete vigorously with their onshore peers.


I believe that international wealth structuring at the highest level of value is a growing business and that the role of international trusts will logically continue to provide a centralized service platform for inter- generational asset management on a tax effective basis. But that type of business must be built around legitimacy, and not rely simply on secrecy. It must be able to be held up to scrutiny and as a result to be able to sustain what is likely to be an increased level of transparency going forward.


Technology simply will not allow the client who is relying on banking secrecy to hide money indefinitely, with the possible exception that he never accesses the funds that he has hidden! If the client is simply looking to hide money, then I would suggest that a trust vehicle used for this purpose will frankly not help much and is a misuse of the intended function of offshore trustee services. Where used legitimately and managed responsibly, trusts can be method of managing funds offshore, but robust management requires more effort, more discipline and more expertise than simply hiding money. The result is that there is already and will continue to be an increasing cost for sustainability to meet these higher standards and correspondingly higher fees. This robust trust and company management is a more


intense and more expensive "value added" business. It will imply a cost of service delivery that less wealthy families may not be willing or able to bear.


Private financial affairs should however remain private if legal and legitimate, and creating a trust can of course have the effect of creating an enhanced level of confidentiality with the disposition of assets by a settlor into a trust maintaining a distance between the maker of the fortune and the fortune itself. The settlor however then ceases to be owner of the assets and therefore ceases to exercise any direct control over them. Robust trust management must demonstrate and document this fact. Furthermore, as we are assuming that at some point the assets and the workings of the trust will become, or could become, transparent to all - including possible taxing authorities - the accounting records and the documentation of the decision- making of trustees and their company directors may be called upon to be justified and scrutinized.


I will now address what is required of trust practitioners to demonstrate the higher standard.


Robust processes


To state the obvious, with higher expectations for information, systems will need to be correspondingly more sophisticated. Accounting systems, electronic filing and archiving system will need to assessed for their capacity to retain and retrieve records in an efficient way to assist their clients, and to corroborate what trustees have done and how they have done it. Systems and processes will need to deliver high quality and quick response, all with proper documentation to withstand scrutiny if questioned or challenged. The


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trustee may need to be called upon to show correspondence and documentation that demonstrates that he has in fact been involved in exercising real control, not just affixing a rubber stamp of acquiescence for activities and decisions that for the most part are being carried out onshore.


Real people, in real places, doing real activities


In the management of significant wealth, some simple questions may need to be answered: who is managing the assets, where are they located and what are they actually doing? If these questions cannot be answered with some level of believability, perhaps, under scrutiny the structure will simply not be credible. Are the managers of the assets qualified and experienced? Have they ever met with the settler and the beneficiaries? Have they ever actually seen the assets (if they are physical assets)? Are they involved in the active management? What information do they use to base their decisions on? If the trustees are actually junior clerks in a far off island who have never met with the family and have never laid their eyes on the property, is this really going to convince anyone that the trustee has control over the assets? If not, who is in control? If the answer to that question is or appears to be the settler, then how much value can the trust structure have?


High levels of professional, technical resources


International trust management has always required a certain amount of professional skill and training. Legal, accounting and investment issues are a significant and recurring part of the job if responsibly managing significant trust assets.


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