Hong Kong

Geneva

London

Greenwich

New York

Milan

New Haven

Can I keep control and still protect my assets?

Justine Markovitz and Jay Rubinstein

Withers LLP

Overview

• Threats to family wealth

• Divorce

• Forced heirship

• Regulatory aspects

• Preserving family wealth • Will

• Joint accounts

• Foundations

• Corporate structures

• Trust structures

Threats to family wealth - Divorce

• Why is this important?

• In many countries, at least 4 in 10 marriages end in divorce

• Divorce can be very expensive

• Often no concept of separate property

• More applications to join trustees

• Assets available for division maximise

Threats to family wealth - Divorce

• Recent case law – the English Court’s new approach

• White v White (2000) – yardstick of equality. ‘Reasonable

requirements’ held to be discriminatory to homemakers (usually

women)

• Cowan v Cowan (2001) – departure from 50% justified on the basis

of husband’s exceptional contribution. Wife received 38%

• Lambert v Lambert (2002) – wife awarded 50%. Marriage of 23

years

• Miller v Miller (2006) – short marriage, no children. Wife awarded

£5m upheld by House of Lords

• Charman v Charman (2008) – family trust established by husband.

Trust treated as resource of husband. Wife awarded £48 million.

Threats to family wealth - Forced Heirship

• Testamentary freedom vs ‘reserved portions’

• Conflict of laws

• Clawback feature

Threats to family wealth - Regulation?

• Licensing requirement

• Required level of third party involvement

• Increasing amounts of disclosure

Keeping wealth in the family

• Will

• Joint accounts

• Foundations

• Corporate structures

• Private trust company (PTC)

• Trust structures

Will

• Advantages

• Full control during lifetime

• Control over who benefits

• Control over who administers

• But

• Forced heirship

• Marital regimes

• Tax

Joint accounts

• Advantages

• Full control during lifetime

• Control over who benefits during life and on death

• Avoid probate

• But

• Forced heirship

• Marital regimes

• Tax

Foundations

• What are they?

• Where are they?

• Civil law jurisdictions

• Evolving in common law jurisdictions

• Founder’s purpose

• Control

• Privacy

• Tax treatment?

Corporate structures

• Advantages

• Control during lifetime

• Control over who benefits during life and on death

• Restrict probate

• But

• Forced heirship

• Marital regimes

• Tax

• Corporate restrictions

Trust structures

• Tax planning

• To protect assets from …

• Creditors

• Disinherited heirs

• Financially unsophisticated heirs

• Ex-spouses

• Minimise impact of forced heirship rules?

Private Trust Company (PTC)

• What is a PTC?

• A company limited by shares created to act as a trustee of a

specific trust or trusts

• Advantages

• Legal personality

• Customisation

• Privacy

• Flexible ownership of shares (e.g. purpose trust)

• Settlor/beneficiaries as directors

Choice of trustee – Private Trust Company – merits / issues

• Tailor structure to family needs

• Combine input of professional trustee, family members and key

advisers

• Control of information

• Continuity

• Location

• Formalities

• Limitation of liability

Private trust company (PTC)

Family Trust

Directors of PTC exercise trustee powers

Protector has power to hire and fire trustees and block key decisions

Private Trust

Company

Purpose Trust

Trustee of purpose trust appoints directors of PTC

Protector has power to hire and fire trustees

AppointorTrustee

(Institution)

DirectorsManage

Trust company (as service provider)

Supports administration

Trustee of

Purpose Trust

Owns

Private Trust Company

Enforcer

Trustee of

Family Trust 1 Family Trust 2 Family Trust 3

Consents to key decisions of trusts• Appointment of trustees• Distributions of and/or income capital

Protector

Exercises overall control• Selects institutional trustee and therefore controls

directors of PTC• Appoints protector of trusts

appoints

Holding Company

AssetsAssets

Holding Company Holding Company

Assets

What about a US State as an APT orPTC jurisdiction?

• Must look to individual state law

• Complexity of regulations of PTCs

• Requirements of local activity

• Costs

• Trust perpetuities period

• Statute of limitations on claims

• “Directed trusts”

Jurisdiction PTC Regime Trust RulesCreditor Protection

Directed Trust Statutes

Delaware PTCs are regulated PTC statutes aimed at commercial rather than private trust companiesMin. capital required is $500,000PTC must employ at least 2 full-time staff who are resident in Delaware, one of whom must have trust expertise

4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer.

Yes, tested and upheld by Delaware courts. Trustees are relieved from liability for any loss resulting from following the direction of adviser except in the case of willful misconduct and from the duty to monitor the adviser and warn beneficiaries of potentially improperly conduct.

South Dakota PTCs are regulatedMin. capital require is $200,000 + a surety bond of $1 millionAt least one of the directors must be a resident of SD and 3/4 of the directors must be US citizens

4 years after the transfer is made or, If later, 1 year after the creditor made or reasonably should have discovered the transfer.

Yes. Although not yet tested by courts, SD statute relieves the directed trustee from liability and at the same time designates the advisor as a “fiduciary” for trust law purposes. SD also codified the concept of investment trust advisor and distribution trust advisor.

Alaska PTCs are regulatedPTC statutes aimed at commercial rather than private trust companiesMin. cap. required $400,000 + paid in surplus equal to 20% of paid-in capitalApplicant must provide a statement of assets and liabilities. AK Banking Department may examine or investigate applicantAnnual certification requiredMinimum contact with AK is required

4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer.

Yes, but not tested by courts yet. The trustee is not relieved from any liability for actions or decisions taken upon the advice of an advisor unless the trust instrument exonerates such liability. The advisor has no fiduciary duty, unless the instrument provides otherwise.

New Hampshire PTCs are regulated, but statute is new and untestedMin. capital requirement - $ 500,000

4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer.

Yes, not yet tested by courts. The trustee is relieved from liability unless the direction is contrary to terms of trust or trustee knows direction is serious breach of fiduciary duty of advisor. The advisor is considered a fiduciary.

Wyoming PTCs are not regulated No license required provided the PTC does not offer its services to the general public and acts as trustee of trusts for a specific familyNo min. capital requirementMinimum contacts with WY is requiredTrustee activities can take place outside of WY

4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer.

Yes, not yet tested by courts. The statute requires the trustee to follow the direction of an advisor but is silent as to whether the directed trustee is relieved of liability. Advisor is considered a fiduciary.

Conclusion

• Too much control is dangerous

• Planning is essential

• Identify the issues involved and understand family dynamics

• Identify the appropriate solution

• Identify the pitfalls and problems

• Establish the structure

• Monitor the structure

Getting in touch

Justine Markovitz

Geneva Office Managing Partner

Withers LLP

63 rue du Rhône

CH-1204 Geneva

Switzerland

Direct telephone: +41 (0)22 593 7711

Fax: +41 (0)22 593 7778

Mobile phone: +41 (0)79 590 8665

Email: justine.markovitz@withersworldwide.com

Jay Rubinstein

Partner

Withers LLP

63 rue du Rhône

CH-1204 Geneva

Switzerland

Direct telephone: +41 (0)22 593 7704

Fax: +41 (0)22 593 7778

Mobile phone: +41 (0)79 210 3928

Email: jay.rubinstein@withersworldwide.com

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