A4 Intro to Wealth Structuring for Private Clients - Digital Use - Nov 2024

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DEAR READER If you are reading this Introduction to Wealth Structuring for Private Clients, it is likely that you or your advisers are considering establishing a wealth holding and or/succession enabling structure for your personal or wider family assets.

This guide, which has been developed by HIGHVERN in conjunction with a high-ranking London law firm who specialise in advising on Private Client wealth structures, is intended to help wealthy families understand the types of structures that can be considered.

Any family who sets up a wealth holding structure needs detailed legal, tax and wealth management advice to ensure that what is established is going to suit the particular needs of your specific family circumstances.

This Guide cannot be a replacement for such focused and professional advice. However, whilst establishing structures for private clients is one of our core services and one that we understand very well, we recognise that for some families this is the first time they will have contemplated such a move, and therefore it is helpful to have context and a high level framework for decision making.

There are a number of possible wealth structures that are commonly used by today’s wealthy families and their advisers, and this guide devotes a page to each. Each page shows a typical organisational structure diagram and lists that structures features, benefits and highlights the main issues to be considered, including tax and reporting obligations.

The guide is not exhaustive and no substitute for formal advice (it is not intended to be) but it does cover most types of structures used in key financial centres around the world today.

We do hope that you find this guide helpful in your initial consideration of your family’s wealth planning and succession strategy.

If you have any questions arising from this Guide, please speak to your HIGHVERN Director, and either we or our partners in the London law firm who have co-written this guide will be happy to assist you.

The HIGHVERN Private Client Team

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D ISCRE TION A RY T RUST Features/benefits •

Issues to consider

The Trust does not have legal personality - it is not an entity,

•

Some jurisdictions (especially civil law ones) do not

but is rather an arrangement between Settlor (usually the

recognise Trusts as their origins are under common law

person who settles wealth on trust) and Trustees. The Trustees

jurisdictions (i.e. those countries like the US and Canada

become the legal owner of the underlying assets and hold

which have developed their laws through their courts,

those assets as a fiduciary to ultimately transfer wealth to

typically based on English law). Such jurisdictions then often

the beneficiaries, in accordance with the settlor’s wishes.

categorise the Trust as either a company or as a “lookthrough” entity to the Settlor for tax reporting purposes.

•

An underlying limited liability company is often incorporated to directly hold the assets settled into Trust as a Trust itself

•

does not have limited liability.

Trusts are often drafted so that the assets gifted into the structure are transferred permanently. Careful thought therefore needs to be given to how the assets will be

•

A Trust is a very flexible arrangement and can include

distributed out to the beneficiaries, and also the choice of

powers reserved to the Settlor or a Protector (a person

Trustee(s) and any control to be retained by the settlor as

appointed to oversee the actions of the trustees) to give

this is likely to be a long-term relationship which is key to the

the family and their trusted advisers significant influence

family’s financial future.

on Trustee decisions, although Trustees must ultimately act independently.

•

•

Tax and reporting requirements

There are many types of Trust - the example diagram below

•

Under the US Foreign Account Tax Compliance Act

supposes a Discretionary Trust (used commonly, this gives the

(“FATCA”) and the global Common Reporting Standard

Trustees wide ranging powers to make decisions at their

(“CRS”), Trustees are likely to have to report any financial

own discretion as to who benefits from the trust and when),

assets held within a trust structure to the jurisdiction in which

however others often used are Life Interest, Charitable and

the Settlor and/or beneficiaries is resident (or in the case of

Purpose Trusts

a US person, has a US passport or green card).

Trusts are often used for continuity of ownership of assets to

•

There may be other national reporting requirements for

safeguard succession across generations, protection against

a Trust - for instance, the UK maintains a Trust register for

profligacy, protection against forced heirship regimes (both

all trusts with UK tax liabilities, and UK-resident beneficiaries

through faith and country specific ones) and will often take

of offshore trusts will have their own tax reporting

assets out of an individual’s estate for probate purposes.

compliance and declaration requirements in the U.K.

SETTLOR: Usually the wealth originator

TRUSTEES: Professional trustee such as Highvern

D I S C R E T I O N A RY T R U S T BENEFICIARIES: Family members and/or charities

PROTECTOR: Trusted adviser or family member 100% SECRETARY: Usually a professional secretary

I N V E S T M E N T C O M PA N Y

PORTFOLIO OF ASSETS: Financial Assets/Heritage Assets/Intellectual Property etc

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DIRECTORS: Professional directors and/or family members

PRIVATE T RUST COMPANY (“PTC”) Features/benefits •

Issues to consider

PTCs have all the same features and benefits of a Trust.

•

The creation of a PTC gives great flexibility to a family

The main difference is that the Trustee is not an entity

where relationships are clear and harmonious. However,

provided by the professional Trustee - instead it is a specific

when there is a dispute within the family, this can create

entity (usually a company, but can be a Foundation) which

conflicts of interest, as family members can hold multiple

acts as Corporate Trustee and has a Board which is specific

positions. If a beneficiary makes a complaint that they

to that family.

have not been treated fairly, one of their fellow beneficiaries may also be a Trustee by virtue of having

•

This is a way to allow the family even more significant

a seat on the PTC Board, which puts them in a position of

influence, or even control, over Trustee decisions as they will

potential conflict of interest.

have a minority or even possibly a majority on the PTC Board.

This can be useful if the family are reluctant to relinquish

•

PTCs are likely to be more costly to establish and administer

control or wish to invest in a particular way, i.e. impact

and generally should only be considered where there is a

investing which may come with a greater amount of

substantial amount of wealth under consideration.

investment risk.

• •

Corporate governance and trustee duties can sometimes

In order for the PTC to be outside of the Settlor’s estate,

conflict so it is important that role holders understand the

the PTC will normally need to be an “orphan” company (i.e.

legal duties that accompany each role.

without an owner) which can be achieved by either it being owned by a Purpose Trust (i.e a trust in existance for the

Tax and reporting requirements

purpose of holding the shares in the PTC) for a Foundation •

(see separate section on Foundations).

In addition to FATCA and CRS in the case of the Discretionary Trust structure, if there are any family members who are Enforcers (the person appointed to ensure the purpose of a Purpose Trust is fulfilled, a role which is often built into the structuring to allow for Trustee removal) these individuals are likely to be reported under these international reporting mechanisms too.

100%

PURPOSE TRUST

PRIVATE TRUST COMPANY: Acts as corporate trustee

SETTLOR: Usually the wealth originator

DIRECTORS: Professional trustee such as HIGHVERN, along with family members and trusted advisers

BENEFICIARIES: Family members and/or charities

DISCRETIONARY TRUST PROTECTOR: Trusted adviser or family member 100% SECRETARY: Usually a professional secretary

I N V E S T M E N T C O M PA N Y

PORTFOLIO OF ASSETS: Financial Assets/Heritage Assets/Intellectual Property etc

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DIRECTORS: Professional directors and/or family members

FOUNDATION Features/benefits •

Issues to consider

Foundations are more familiar to clients from civil law

•

Foundations are not entitled under English law recognised

jurisdictions, where this type of structure has its origins.

legal entities in the UK (and many common law jurisdictions)

Civil law originated across Continental Europe within the

and their tax treatment in the UK is less clear compared

framework of Roman law.

to the taxation of Trusts. For this reason it is largely non-UK families who tend to utilise offshore Foundations as wealth

•

Although the origins of many Foundations is found in

holding structures.

charitable concerns, modern wealthy families are utilising Foundations as wealth structuring and asset succession

•

planning tools in a similar way to Trusts.

Although Foundations have typically only disclosed their Charter as a matter of public record in the past, this is changing and some jurisdictions have indicated they

•

Foundations are described as “orphan structures” in that

would like to have high level sections of the Regulations

they have no owners. The Founder can make endowments

made public as well, which reduces the private nature of

to the Foundation but he or she does not hold shares in the

the structure.

entity. However, like a Trust it can have beneficiaries so that family members can derive value from the structure

Tax and reporting requirements

in future.

• •

Under FATCA and CRS, the Founder and Council Members

Foundations can be very flexible structures - although it

are likely to be reported as controllers. Any person who has

is clear that the Council of a Foundation controls decision

derived benefit is also likely to be disclosed, and will need

making, the Foundation’s Regulations can provide for a

to have made tax disclosures to the jurisdiction where they

series of Committees (such as Investment Advisory or Budget

are resident (note: there is a wider requirement if there are

Committees) which provides a forum for family members

any US indicia).

to advise and interact with Council Members. An Associate Council Member could be included, having powers to

•

A Foundation is not usually taxed on its income in the offshore jurisdiction where it has been established, like

attend meetings but having restricted voting abilities.

a Trust, and is not currently reportable under Economic Substance requirements (unlike offshore companies, which are within the scope of such legislation).

•

If a Foundation is treated as akin to a Trust for UK tax purposes, there may be reporting for the Foundation to comply with which apply to Trusts, for example registration under the Trust Register in the UK.

GOVERNED BY: (i) Charter (public) • Name • Objectives • Endowment

FOUNDER

COUNCIL: Must have qualified person (licences person to provide foundation services)

T H E F O U N DAT I O N

GUARDIAN: Hold the council to account

PORTFOLIO OF ASSETS

BENEFICIARIES

(i) Regulations (Redacted public) • Detailed objectives and administrative provisions

CHARTER AND RULES

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FAM ILY I NVE ST ME N T COMPANY (“FIC”) Features/benefits •

A FIC is typically a private company whose shares are

•

To ensure the shares of the FIC remain in the ownership

owned by family members. Typically, a FIC enables the

of the family, the shareholders can enter into a shareholders

current wealth holder(s) to retain control over assets

agreement which sets out circumstances (i.e. death or a

whilst accumulating wealth and facilitating future

creditor claim) when a shareholder’s interest can be offered

succession planning to the next generation.

for sale to the other shareholders who then have the option to purchase them within a prescribed period of time and at

•

Value is often provided to the FIC in various ways: in the

an agreed price.

form of either interest-free loans either by the wealth holder(s) subscribing for preference shares or by subscribing

Tax and reporting requirements

for share capital. There may be tax reasons why funding •

the FIC either by way of a loan or the issue of preference

Under FATCA and CRS, the directors of the FIC are likely to be reported as controllers. Any shareholder who has

shares is more desirable.

derived benefit through the issue of dividends is also likely •

Typically the parents as the current wealth holders subscribe

to be disclosed, and will need to have made tax disclosures

for voting shares in the FIC which gives control of the FIC

to their local authority where they are resident.

at shareholder and board level if they also act as the directors (who run the company). They can then give

There is likely to be a need to file publicly accessible accounts at the relevant registry in the jurisdiction where

family members.

the FIC is registered.

•

Issues to consider •

•

shares with non-voting rights to their children and/or other

For a UK registered company there is also an obligation to maintain a publicly accessible Persons of Significant Control

A FIC essentially replicates the mechanics of a Trust, with

(PSC) register which is held at Companies House.

the parents acting as quasi-trustees through their role as directors and voting shareholders, and the children as

•

•

A FIC by its nature is a separate legal entity distinct from

akin to beneficiaries through their role as shareholders with

his shareholders, with the ability to own its own assets and

an entitlement to dividends and to share in the winding up

be taxed in its own right on income and gains arising on its

of the company.

underlying assets.

Entitlement to income through the issue of dividends to

•

Dividends paid out by the FIC will be subject to income tax

shareholders can be determined by the rights attached

in the hands of the shareholders by reference to the tax

to the shares. Dividends are only declared by the

code in the jurisdiction where they are resident and/or nationals.

company at the instigation of the directors, and until then income will accumulate at company level.

•

There may be an obligation to register the FIC under the register of overseas entities if it holds U.K property.

•

Further control could be introduced by issuing a class of shares to a separate Trust(s) for the benefit of family members enabling dividends to be distributed and accumulated by the trust to be distributed at the discretion of the trustees.

GENERATION 1

A shares (voting)

GENERATION 2

B shares (Non-voting)

VARIOUS FAMILY MEMBERS

Loans

O N S H O R E O R O F F S H O R E C O M PA N Y Bespoke Articles of Association

PORTFOLIO OF ASSETS

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PAR TNER SH I P Features/benefits •

•

There are many different types of partnership entities, i.e.

•

Scottish LPs are an exception to this general rule and can

general partnerships, limited partnerships (LPs) and limited

have their own legal personality lessening the responsibility

liability partnerships. For the purposes of holding family

of its partners. This also means a Scottish LP can also own its

wealth LPs are often the most suitable because they allow

own property and transact in its own right. This separate

the separation of management and ownership.

legal status may not be recognised in other countries though.

In particular LPs have two categories of partner: general

•

Children who are limited partners will be directly entitled

partner(s) (GP) who are under a fiduciary duty for managing

to income and capital of the underlying assets of the LP

the LP’s business and have unlimited liability for the firm

unless their interests are held via a Trust or corporate structure.

debts and obligations; and limited partner(s) who invest •

capital in the LP do not take an active role in the LPs

LPs can be formed in most jurisdictions but each one will have its own rules governing their formation.

operation. Limited partners by definition have limited liability up to the amount of capital that they have contributed.

•

Tax and reporting requirements

The flexibility of LPs mean they vary in size and nature from, for example, two-person LPs to much larger LPs with more

•

LPs are generally treated as transparent for tax purposes meaning they are not taxed themselves. Instead, income

complex structures.

and gains on the underlying assets of the LP are attributed directly to the LPs after the GP has received their share.

Issues to consider •

•

Family members (typically parents) are unlikely to be able to

•

Under FATCA and CRS the GP is likely to have to report any

have direct control of the LP because the GP may need to

financial assets held within a LP structure to the jurisdiction in

be a regulated entity, although they may be able to select

which the LPs are resident (or in the case of a US person, has

who the GP can be.

a US passport or green card).

Typically LPs are not separate legal entities with their own legal personalities; by definition limited partners have limited liability but the GP has unlimited liability for debts and obligations and will therefore usually be a limited company.

GENERATION 2

GENERATION 1

100% Ownership

COMPANY ACTING AS GENERAL PARTNER: Controller

Limited Partners

Limited Partner

PA R T N E R S H I P

PORTFOLIO OF ASSETS

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INVESTMENT FUN DS Features/benefits •

Issues to consider

Investment Funds are collective investment schemes which

•

Authorised investment funds are open to investment from

pool money with that of other investors and give investors a

the public and so not strictly private structures. However, the

stake in a consolidated portfolio.

investment threshold can be raised and publicity kept to the minimum to make them as private as possible.

•

Investment Funds have the benefit of shared ownership amongst multiple investors/family members, with the

•

underlying assets managed to an external investment

Authorised funds are subject to regulatory rules and the requirement for the value of the fund to be published publicly.

manager selected by the family. They are becoming an increasingly popular structuring tool for private wealth.

•

Investment funds are likely to be more costly to establish and administer and generally should only be considered

•

Investment funds include Open-Ended Investment

where there is a substantial amount of wealth to administer.

Companies (OEICs) and unit trusts (UTs) which are formed in the UK and their European equivalent, Investment

•

Companies with Variable Capital (ICVCs).

It may be possible to use an investment fund together with a Trust to build in some level of control or restriction over interests which are otherwise held by children.

•

Investment funds consist of a manager (OEIC) or trustee (UT) who buys investments of a fund in an open-ended

Tax and reporting requirements

format. Open-ended means new shares can be created to meet investor demand, and the fund will cancel shares of

•

Interest and dividends from the fund are taxable, and selling units may incur a capital gains tax for the investor.

investors who exit the fund. Contrast this with a closedended fund which raises a fixed amount of capital through •

an in initial public offering, and after this no further shares

Authorised OEICs are exempt from UK capital gains tax on

are issued and there is no mechanism for the fund to

the disposal of investments and property held by the

redeem; instead the shares in the fund can only be bought

company. This enables the investment manager the

or sold on the secondary market by investors.

freedom to switch between underlying investments without having to worry about the tax consequences.

•

The purpose of investment funds is twofold: (1) pool •

investments across a wide range of investments in a

Under FATCA and CRS an investment fund is likely to have

professionally managed way with the aim of spreading

to report any financial assets held within it to the jurisdiction

investment risk and to give its members the benefits of the

in which the investors are resident (or in the case of a US

results of the management of its assets; (2) permit investors

person, has a US passport or green card).

to realise their investments within a reasonable time at a price calculated by reference to the value of the property held within the fund.

•

OEICs and Unit Trusts authorised by the Financial Conduct Authority (FCA) in the UK have preferable UK tax treatment and are often more suitable for private investment.

FAMILY MEMBER 1

Units

FAMILY MEMBER 2

Units

FAMILY MEMBER 3

Units

UNIT TRUST All unit holders treated equally

PORTFOLIO OF ASSETS

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ABOUT HIGHVERN HIGHVERN is an award-winning fiduciary and fund services provider; a fully independent, owner-managed business with over 50 years heritage, renowned for our integrity, discretion, and responsibility. By working towards a shared vision of delivering value without adding to complexity, HIGHVERN has obtained a first-class reputation for providing wealth structuring, administration, governance and advisory services to an international client base comprising fund managers, financial institutions, corporates, high net worth individuals and family offices.

Incorporated in 1969, Highvern was one of the earliest firms to begin building the Jersey financial services industry into what it is today. After a long history under the ownership of one of Britain’s most prestigious international private banks, Highvern was acquired by its management team in 2016. In 2017 it launched a boutique-style fund services, focused on setting a higher level of standards in the industry. Today Highvern now has offices in Jersey, Guernsey, Dublin, Cayman Islands and London as it continues to offer a wider proposition to meet the complex wealth solutions of HNW individuals and corporate clients.

CONTACT S NAOMI RIVE Group Director & Head of Private Wealth - Jersey Naomi was called to the English Bar in 1999 and re-qualified as a Jersey Advocate in 2003. As a former Partner at law firm, Appleby, Naomi provided wealth-structuring advice to high and ultra-high net worth individuals, international private banks and trust companies. At HIGHVERN, Naomi works closely with clients and their advisers to establish and implement robust and sustainable wealth planning structure. Naomi is a member of the board of HIGHVERN Trustees Limited and former Chair of the Society of Trust and Estate Practitioners (STEP) in Jersey.

RICHARD JOYNT Head of Family Office - Jersey Richard qualified as a Chartered Accountant in 1997 and holds an MBA from Warwick University. As well as having expertise in financial accounting and strategic financial planning, Richard has devoted the last 20 years of his career to the Family Office sector. He was the Director of a prominent Single Family Office from 2002-2012 and led the Multi-Family Office division of a prominent international fiduciary services firm from 2013 to 2021, dealing with Ultra High Net Worth individuals and their families. He has specific expertise in private equity, luxury assets, cryptocurrencies and philanthropy.

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KERRIE LE TISSIER Country Head - Guernsey Kerrie was admitted as a Solicitor of England and Wales in 2008 and called to the Guernsey Bar in 2009. She has practised as a senior lawyer in several leading offshore law firms, most recently as a Partner at Bedell Cristin.

Following this she ran her own boutique private wealth legal practice for two years, specialising in legal services for fiduciaries and private clients. Kerrie has extensive experience of advising on complex, high-value structures, including trusts, foundations and corporate entities, set up by HNWIs and entrepreneurs.

ROGER PRIAULX Country Head - Cayman Islands Roger joined HIGHVERN as part of the acquisition of Genesis Trust & Corporate Services Ltd. in 2022. He qualified as a solicitor at Linklaters in 1998, working in Hong Kong from 2001 to 2003, where he became appointed Managing Associate. Roger has worked with a number of blue-chip financial clients on both contentious and non-contentious matters, including transactional and corporate governance work, in both London and Hong Kong. In 2003, he moved to the Cayman Islands where he was admitted as an attorney, advising on fiduciary matters, including both fund and trust structures, and representing clients before the Grand Court of the Cayman Islands. In 2010, Roger joined Genesis Trust & Corporate Services Ltd.

STEFAN LE MARQUAND Trust Manager - UK Stefan is based at our London office where he works with high and ultra-high net worth globally based clients and family offices to develop and strengthen their internal corporate governance and ongoing administration practices.

He has over 8 years’ experience in a wide variety of structures and asset classes. Stefan’s particular specialisms focus on the administration, collection, and management of Fine Art, Antiques & Luxury Assets as well as developing efficient and effective philanthropic structuring. Stefan holds a Diploma in International Finance and Administration from the Chartered Governance Institute, as well as a Certificate in Art Business from Christie’s and is a key member of several Next-Gen advisory and networking panels.

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