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
Features/benefits
• The Trust does not have legal personality - it is not an entity, but is rather an arrangement between Settlor (usually the person who settles wealth on trust) and Trustees. The Trustees become the legal owner of the underlying assets and hold those assets as a fiduciary to ultimately transfer wealth to the beneficiaries, in accordance with the settlor’s wishes.
• 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.
• A Trust is a very flexible arrangement and can include powers reserved to the Settlor or a Protector (a person appointed to oversee the actions of the trustees) to give the family and their trusted advisers significant influence on Trustee decisions, although Trustees must ultimately act independently.
• There are many types of Trust - the example diagram below supposes a Discretionary Trust (used commonly, this gives the Trustees wide ranging powers to make decisions at their own discretion as to who benefits from the trust and when), however others often used are Life Interest, Charitable and Purpose Trusts
• Trusts are often used for continuity of ownership of assets to safeguard succession across generations, protection against profligacy, protection against forced heirship regimes (both through faith and country specific ones) and will often take assets out of an individual’s estate for probate purposes.
Issues to consider
• Some jurisdictions (especially civil law ones) do not recognise Trusts as their origins are under common law jurisdictions (i.e. those countries like the US and Canada which have developed their laws through their courts, typically based on English law). Such jurisdictions then often categorise the Trust as either a company or as a “lookthrough” entity to the Settlor for tax reporting purposes.
• 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 distributed out to the beneficiaries, and also the choice of Trustee(s) and any control to be retained by the settlor as this is likely to be a long-term relationship which is key to the family’s financial future.
Tax and reporting requirements
• Under the US Foreign Account Tax Compliance Act (“FATCA”) and the global Common Reporting Standard (“CRS”), Trustees are likely to have to report any financial assets held within a trust structure to the jurisdiction in which the Settlor and/or beneficiaries is resident (or in the case of a US person, has a US passport or green card).
• There may be other national reporting requirements for a Trust - for instance, the UK maintains a Trust register for all trusts with UK tax liabilities, and UK-resident beneficiaries of o shore trusts will have their own tax reporting compliance and declaration requirements in the U.K.
SETTLOR: Usually the wealth originator
PROTECTOR: Trusted adviser or family member
TRUSTEES: Professional trustee such as Highvern
BENEFICIARIES: Family members and/or charities
DIRECTORS: Professional directors and/or family members
PRIVATE TRUST COMPANY (“PTC”)
Features/benefits
• PTCs have all the same features and benefits of a Trust. The main di erence is that the Trustee is not an entity provided by the professional Trustee - instead it is a specific entity (usually a company, but can be a Foundation) which acts as Corporate Trustee and has a Board which is specific to that family.
• This is a way to allow the family even more significant influence, or even control, over Trustee decisions as they will have a minority or even possibly a majority on the PTC Board. This can be useful if the family are reluctant to relinquish control or wish to invest in a particular way, i.e. impact investing which may come with a greater amount of investment risk.
• In order for the PTC to be outside of the Settlor’s estate, the PTC will normally need to be an “orphan” company (i.e. without an owner) which can be achieved by either it being owned by a Purpose Trust (i.e a trust in existance for the purpose of holding the shares in the PTC) for a Foundation (see separate section on Foundations).
Issues to consider
• The creation of a PTC gives great flexibility to a family where relationships are clear and harmonious. However, when there is a dispute within the family, this can create conflicts of interest, as family members can hold multiple positions. If a beneficiary makes a complaint that they have not been treated fairly, one of their fellow beneficiaries may also be a Trustee by virtue of having a seat on the PTC Board, which puts them in a position of potential conflict of interest.
• PTCs are likely to be more costly to establish and administer and generally should only be considered where there is a substantial amount of wealth under consideration.
• Corporate governance and trustee duties can sometimes conflict so it is important that role holders understand the legal duties that accompany each role.
Tax and reporting requirements
• 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.
FOUNDATION
Features/benefits
• Foundations are more familiar to clients from civil law jurisdictions, where this type of structure has its origins. Civil law originated across Continental Europe within the framework of Roman law.
• Although the origins of many Foundations is found in charitable concerns, modern wealthy families are utilising Foundations as wealth structuring and asset succession planning tools in a similar way to Trusts.
• Foundations are described as “orphan structures” in that they have no owners. The Founder can make endowments to the Foundation but he or she does not hold shares in the entity. However, like a Trust it can have beneficiaries so that family members can derive value from the structure in future.
• Foundations can be very flexible structures - although it is clear that the Council of a Foundation controls decision making, the Foundation’s Regulations can provide for a series of Committees (such as Investment Advisory or Budget Committees) which provides a forum for family members to advise and interact with Council Members. An Associate Council Member could be included, having powers to attend meetings but having restricted voting abilities.
Issues to consider
• Foundations are not entitled under English law recognised legal entities in the UK (and many common law jurisdictions) and their tax treatment in the UK is less clear compared to the taxation of Trusts. For this reason it is largely non-UK families who tend to utilise o shore Foundations as wealth holding structures.
• 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 would like to have high level sections of the Regulations made public as well, which reduces the private nature of the structure.
Tax and reporting requirements
• Under FATCA and CRS, the Founder and Council Members are likely to be reported as controllers. Any person who has derived benefit is also likely to be disclosed, and will need to have made tax disclosures to the jurisdiction where they are resident (note: there is a wider requirement if there are any US indicia).
• A Foundation is not usually taxed on its income in the o shore jurisdiction where it has been established, like a Trust, and is not currently reportable under Economic Substance requirements (unlike o shore 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.
COUNCIL: Must have qualified person (licences person to provide foundation services)
GOVERNED BY:
(i) Charter (public)
• Name
• Objectives
• Endowment
(i) Regulations (Redacted public)
• Detailed objectives and administrative provisions
GUARDIAN: Hold the council to account
BENEFICIARIES
FAMILY INVESTMENT COMPANY (“FIC”)
Features/benefits
• A FIC is typically a private company whose shares are owned by family members. Typically, a FIC enables the current wealth holder(s) to retain control over assets whilst accumulating wealth and facilitating future succession planning to the next generation.
• Value is often provided to the FIC in various ways: in the form of either interest-free loans either by the wealth holder(s) subscribing for preference shares or by subscribing for share capital. There may be tax reasons why funding the FIC either by way of a loan or the issue of preference shares is more desirable.
• Typically the parents as the current wealth holders subscribe for voting shares in the FIC which gives control of the FIC at shareholder and board level if they also act as the directors (who run the company). They can then give shares with non-voting rights to their children and/or other family members.
Issues to consider
• A FIC essentially replicates the mechanics of a Trust, with the parents acting as quasi-trustees through their role as directors and voting shareholders, and the children as akin to beneficiaries through their role as shareholders with an entitlement to dividends and to share in the winding up of the company.
• Entitlement to income through the issue of dividends to shareholders can be determined by the rights attached to the shares. Dividends are only declared by the company at the instigation of the directors, and until then income will accumulate at company level.
• 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.
• To ensure the shares of the FIC remain in the ownership of the family, the shareholders can enter into a shareholders agreement which sets out circumstances (i.e. death or a creditor claim) when a shareholder’s interest can be o ered for sale to the other shareholders who then have the option to purchase them within a prescribed period of time and at an agreed price.
Tax and reporting requirements
• Under FATCA and CRS, the directors of the FIC are likely to be reported as controllers. Any shareholder who has derived benefit through the issue of dividends is also likely to be disclosed, and will need to have made tax disclosures to their local authority where they are resident.
• There is likely to be a need to file publicly accessible accounts at the relevant registry in the jurisdiction where the FIC is registered.
• For a UK registered company there is also an obligation to maintain a publicly accessible Persons of Significant Control (PSC) register which is held at Companies House.
• A FIC by its nature is a separate legal entity distinct from his shareholders, with the ability to own its own assets and be taxed in its own right on income and gains arising on its underlying assets.
• Dividends paid out by the FIC will be subject to income tax in the hands of the shareholders by reference to the tax code in the jurisdiction where they are resident and/or nationals.
• There may be an obligation to register the FIC under the register of overseas entities if it holds U.K property.
PARTNERSHIP
Features/benefits
• There are many di erent types of partnership entities, i.e. general partnerships, limited partnerships (LPs) and limited liability partnerships. For the purposes of holding family wealth LPs are often the most suitable because they allow the separation of management and ownership.
• In particular LPs have two categories of partner: general partner(s) (GP) who are under a fiduciary duty for managing the LP’s business and have unlimited liability for the firm debts and obligations; and limited partner(s) who invest capital in the LP do not take an active role in the LPs operation. Limited partners by definition have limited liability up to the amount of capital that they have contributed.
• The flexibility of LPs mean they vary in size and nature from, for example, two-person LPs to much larger LPs with more complex structures.
Issues to consider
• Family members (typically parents) are unlikely to be able to have direct control of the LP because the GP may need to be a regulated entity, although they may be able to select who the GP can be.
• 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.
• Scottish LPs are an exception to this general rule and can have their own legal personality lessening the responsibility of its partners. This also means a Scottish LP can also own its own property and transact in its own right. This separate legal status may not be recognised in other countries though.
• Children who are limited partners will be directly entitled to income and capital of the underlying assets of the LP unless their interests are held via a Trust or corporate structure.
• LPs can be formed in most jurisdictions but each one will have its own rules governing their formation.
Tax and reporting requirements
• LPs are generally treated as transparent for tax purposes meaning they are not taxed themselves. Instead, income and gains on the underlying assets of the LP are attributed directly to the LPs after the GP has received their share.
• Under FATCA and CRS the GP is likely to have to report any financial assets held within a LP structure to the jurisdiction in which the LPs are resident (or in the case of a US person, has a US passport or green card).
INVESTMENT FUNDS
Features/benefits
• Investment Funds are collective investment schemes which pool money with that of other investors and give investors a stake in a consolidated portfolio.
• Investment Funds have the benefit of shared ownership amongst multiple investors/family members, with the underlying assets managed to an external investment manager selected by the family. They are becoming an increasingly popular structuring tool for private wealth.
• Investment funds include Open-Ended Investment Companies (OEICs) and unit trusts (UTs) which are formed in the UK and their European equivalent, Investment Companies with Variable Capital (ICVCs).
• Investment funds consist of a manager (OEIC) or trustee (UT) who buys investments of a fund in an open-ended format. Open-ended means new shares can be created to meet investor demand, and the fund will cancel shares of investors who exit the fund. Contrast this with a closedended fund which raises a fixed amount of capital through an in initial public o ering, and after this no further shares are issued and there is no mechanism for the fund to redeem; instead the shares in the fund can only be bought or sold on the secondary market by investors.
• The purpose of investment funds is twofold: (1) pool investments across a wide range of investments in a professionally managed way with the aim of spreading investment risk and to give its members the benefits of the results of the management of its assets; (2) permit investors 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.
Issues to consider
• Authorised investment funds are open to investment from the public and so not strictly private structures. However, the investment threshold can be raised and publicity kept to the minimum to make them as private as possible.
• Authorised funds are subject to regulatory rules and the requirement for the value of the fund to be published publicly.
• Investment funds are likely to be more costly to establish and administer and generally should only be considered where there is a substantial amount of wealth to administer.
• 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.
Tax and reporting requirements
• Interest and dividends from the fund are taxable, and selling units may incur a capital gains tax for the investor.
• Authorised OEICs are exempt from UK capital gains tax on the disposal of investments and property held by the company. This enables the investment manager the freedom to switch between underlying investments without having to worry about the tax consequences.
• Under FATCA and CRS an investment fund is likely to have to report any financial assets held within it to the jurisdiction in which the investors are resident (or in the case of a US person, has a US passport or green card).
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 o ces.
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 o ces in Jersey, Guernsey, Dublin, Cayman Islands and London as it continues to o er a wider proposition to meet the complex wealth solutions of HNW individuals and corporate clients.
CONTACTS
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 O ce - 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 O ce sector. He was the Director of a prominent Single Family O ce from 2002-2012 and led the Multi-Family O ce 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.
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 o shore 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 o ce where he works with high and ultra-high net worth globally based clients and family o ces 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 e cient and e ective 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.
