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for more information on managing ageing structures
It is always incumbent on trustees and advisory boards to ensure that any trust structure is serving a useful purpose. At some point it may also be appropriate to consider whether a trust has come to the end of its useful life.
When trustees are considering the future of a trust, they must review why it was set up initially. Generally, this will be by reference to initial advice, early file notes of family meetings, the trust terms and the settlor’s letter of wishes. Unless the beneficial class has closed and all the beneficiaries agree that the time has come for the trust to be wound up (Saunders v Vautier), consideration of the future of the trust should generally be instigated by the trustees working together with advisers and family. Courts will not look favourably upon trustees who appear to have been prolonging the trusteeship where only they seem to be profiting.
Given the impacts of the global pandemic, we are at something of an industry crossroads. Wealthy families recognise that COVID-19 driven fiscal constraints are leading to an increasing focus on offshore structures. Families have been impacted by COVID-19 and clients, wealthy or otherwise, want to ensure that they are getting value for money and have unexpectedly had time to review their affairs over the last year.
As trustees, it is vital that we are on the front foot, making proactive recommendations – this is one way that the trust industry in Jersey sets itself apart from competitors. The level of expertise here in Jersey is second to none which brings about unparalleled expertise, another differentiating factor that sets the Island apart.
In practice, it is very easy when administering a busy trust, or indeed one that may be relatively dormant, to overlook whether a trust is actually providing sufficient benefit to justify its existence. Assuming that the trustees are either giving routine thought to this question (it is sensible to diarise and consider this annually), or alternatively have been prompted to consider it, the trustees must take into account many factors.
Questions raised during Hawksford’s internal review process can be the catalyst to a health check, as can a change in family circumstances, and a concern that the fee / benefit ratio might not be appropriate from a client’s perspective. As trustees we must be comfortable advising clients that we do not recommend keeping structures where there are no longer sufficiently justifiable benefits.
With this in mind, at Hawksford we have customised trusts to make them US compliant where we have US beneficiaries and we have simplified trusts by paying out portions of the trust funds to certain beneficiaries when it seems appropriate. As part of our ongoing reviews, we have simplified book-keeping processes e.g., block book-keeping where there are no adverse tax implications, repatriated trusts to the UK and elsewhere on receipt of tax advice, thereby reducing the costs of administration, as well as simplified trust terms with legal advice to reduce administrative burden and costs.
Ageing structures should be carefully considered from all perspectives, but in all ways such as not to invite any criticism of the trustees of self-interest. Global uncertainty and the pandemic have given rise to more UHNWs taking stock of their wealth and structures. This gives trustees and intermediaries the impetus to take a proactive stance by reviewing clients’ structures, ensuring they are meeting their initial obligations and suggesting practical changes where necessary.
We should not however underestimate the skill sets and experience that a jurisdiction like Jersey offers, when considering the future of the trust structure with the beneficial class. In family office situations, for example, many families do not necessarily consider tax saving to be a top priority. They instead recognise that the traditional rationales of asset protection, succession and estate planning, when combined with extensive commercial, corporate and people skills, in themselves more than justify retention of offshore structures, even if in simplified or varied form.
Published with eprivateclient June 2021 > https://www.paminsight.com/epc/article/the-complexities-and-responsibilities-of-managing-ageing-structures
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