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PRIVATE CLIENT AWARDS 2020/21 Find out who took the accolades at STEP’s first-ever virtual awards ceremony STEP JOURNAL

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FOCUS ON EUROPE How to plan for cross-border situations involving European clients CHANGE IS COMING STEP’s Diploma in International Trust Management has been refreshed

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MAL-WEALTH HOW TO MITIGATE CYBERSECURITY ISSUES BEFORE THEY CROP UP FOR ESTATE ADVISORS

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Artillery House, 11–19 Artillery Row, London SW1P 1RT t +44 (0)20 3752 3700 e editor@step.org www.step.org www.twitter.com/STEPSociety Reading the STEP Journal counts towards STEP’s CPD requirements: www.step.org/cpd

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Editor-in-Chief .......................Louise Polcaro Head of Editorial ...................... Blátháin Iqbal Managing Editor ....................Kaitlyn Gutzke News Editor ....................................Helen Swire Assistant Editor ...................... Loren Harway Lead Editor...................................Paolo Panico Editorial Board......................Maureen Berry, Thomas Dumont QC, Sam Hart, Elizabeth Lindsay-Ochoa, Rosemary Marr, Asher Noor, Paolo Panico, Keith Robinson, Simon Rylatt, Sim Bock Eng, Gian Andri Töndury Read more about the Editorial Board members at step.org/editorial-board

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Capital House, 25 Chapel Street, London NW1 5DH t +44 (0)20 3771 7200 www.thinkpublishing.co.uk Account Director....................Anna Vassallo Art Director ............................. George Walker Managing Editor .............................. Mike Hine Sales Director ...........................Tom Fountain t +44 (0)20 3771 7250 e tom.fountain@thinkpublishing.co.uk

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CONTRIBUTIONS The Managing Editor welcomes articles, letters and other forms of contribution for publication in the STEP Journal and reserves the right to amend them. © 2020 STEP. All rights in and relating to this publication are expressly reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without written permission from STEP. The views expressed in the STEP Journal are not necessarily those of STEP and readers should seek the guidance of a suitably qualified professional before taking any action or entering into any agreement in reliance upon the information contained in this publication. Whilst the publishers have taken every care in compiling this publication to ensure accuracy at the time of going to press, neither they nor STEP accept liability or responsibility for errors or omissions therein however caused. STEP does not endorse or approve any advertisement and has no liability for any loss caused by any reliance on the content of any such advertisement. The Society of Trust and Estate Practitioners is a company limited by guarantee incorporated in England and Wales. Registered number: 2632423. Registered Office: Artillery House, 11–19 Artillery Row, London SW1P 1RT, UK

Cover illustration: Grundini

ISSN 2052-1480

The STEP Journal is printed on Galerie Brite Plus, which is produced in European mills meeting the highest quality and environmental standards. The wrapper protecting your magazine is now made from starch-based biopolymer. It consists mainly of potato and maize starch and is compostable. This means that it can be disposed of in your household food or garden waste bins, or any compost heap.

What will the New Year bring? At the time of writing, many countries were entering a second ‘lockdown’ due to a new wave of COVID-19 outbreaks. It is hoped that most of these restrictive measures will have been lifted by the time you read this and that we will be able to enjoy as ‘normal’ a holiday season as possible in the circumstances. This year’s unprecedented experience was a harsh demonstration that our professions and, in fact, mankind as a whole, may be faced with much more fundamental challenges than those usually brought about by the ever-increasing complexity of legislation and regulations. An immediate consequence of the pandemic has been a faster trend towards digitalisation of many of our activities. STEP itself is an estimable example, with many STEP events, planned to take place all over the world, converted into online webinars. More generally, many practitioners have become increasingly aware of the issues relating to the execution of electronic wills, the administration of estates that include digital assets and the mitigation of cybersecurity risks. All of these topics are covered in this issue. Nonetheless, paraphrasing the celebrated Prince of Salina’s tenet in Tomasi di Lampedusa’s The Leopard, ‘everything needs to change, so everything can stay the same’. The additional layers of regulation that are typically imposed every year, at a national and international level, make our professional life highly complex. A number of examples are illustrated in this issue of the Journal, ranging from international tax cases and cross-border succession matters to the enforceability of pre-nuptial agreements. As our authors explain, a German individual doing business in Israel without a clear understanding of the local tax system may meet unpleasant tax surprises, a Scottish national with assets in Spain may be subject to tax in both jurisdictions, and a Lithuanian national dying in Germany may leave some unresolved issues to their heirs. The first reporting under Directive (EU) 2018/822 (DAC6), originally scheduled for 31 August 2020, was postponed in most Member States to 28 February 2021. This is another area where, far from harmonising international tax practices within the EU, a number of national systems have evolved, in some cases with opposite approaches to the same sets of facts. All of this will have to be faced next year, in the hope that, at the same time, the world’s health emergency will be resolved. Meanwhile, in a cheerful spirit appropriate to this time of the year, two articles in this issue focus on building a ‘growth mindset’ corporate culture and aligning purpose and career at the individual level. Philanthropic projects remain a fundamental component of estate planning for high-net-worth individuals and are quite pertinent at this time of year, as a quintessential embodiment of the ‘Christmas spirit’. To this effect, as is explained in some detail in an article in this issue, a Swiss foundation can be a suitable arrangement to fund and implement a large-scale charitable initiative. On this positive note, I wish you all a relaxing festive season, and a happy and prosperous New Year!

Paolo Panico TEP is Partner at Paolo Panico’s Law Chambers, a member of STEP’s worldwide Council, and a member of the STEP Journal Editorial Board

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NEWS & PERSPECTIVES

FEATURES

REGIONAL FOCUS

ISSUE FOCUS

STEP news ....................................................8

Special report: Cyprus, Gibraltar and Malta by Helen Swire............................................18

EUROPE

COMPLIANCE AND CAREERS

Scottish and Spanish estates by Álvaro Aznar Azcárate and Nicola Neal..................................... 29

When is a trust not a trust? by Richard Frimston .................... 53

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Book review by Richard Pease .....................................15 Philanthropy column by Oliver Tang...........................................16 Member Q&A with Farah Deba Mohamed Sofian .................................... 74

Winners: STEP Private Client Awards 2020/21......................................20 Dawn of a new era by Kimberley Martin............................42 COVER FEATURE: Mal-wealth by Steven D’Alessandro and Adam Steen .......................................44 Halos and wings, but no angels by Mustafa Hussain .............................48

Much obliged by Sarah Verlende and Bertrand Géradin ........................ 33 Like clockwork by Dr Ariel Sergio Goekmen-Davidoff ....................... 35 Practice makes perfect by Shai Dover ................................ 39

In good times and in bad by Jane Keir ................................................64

Building a growth mindset in business by Jenni Hutchinson .................... 54 Trust the system by Parris Innis-Mckenzie .............57 ‘You’re still up and around?’ by Eileen Gallo .............................. 58 Change is coming by Madeleine Jenness and Victoria Hand ....................... 60 In perfect alignment by Maria Soler Terradez .............. 63

The digital tsunami meets estate administration by Sharon Hartung and Jennifer L Zegel ........................................66 The devil is in the detail by Robert Lindley and Wesley O’Brien...........................................69 We’re all dom’d? by David Kilshaw and Jeremy Stein ............................................... 72

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STEP news Council elections | Policy update | Diary dates

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ELECTION RESULTS:

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STEP COUNCIL The results of the 2020 STEP Council elections have been announced. Congratulations to the successful candidates in each of the ten constituencies (see right), who take up their seats from 1 January 2021. STEP would like to thank all of the members, branches and regional committees who participated, including all the candidates who stood in the hustings.

(pictured top left to bottom right)

• Canada: Leanne Kaufman TEP • Caribbean and Latin America: Alan Milgate TEP • England and Wales (East): Patrick Murrin TEP • England and Wales (London Central): Richard Frimston TEP • England and Wales (North West): Nina Sperring TEP • England and Wales (South): Kelly Greig TEP • Continental Europe (excluding Switzerland): Paolo Panico TEP • Singapore and Malaysia: Heng Yen Lionel Choi TEP • Swiss and Liechtenstein STEP Federation: Felicity Keller TEP • USA: Stanley Barg TEP

US: 10TH ANNUAL INSTITUTE ON TAX, ESTATE PLANNING AND THE WORLD ECONOMY GOES VIRTUAL Registration is now open for the 10th Annual Institute on Tax, Estate Planning and the World Economy. In this virtual conference, 17 leading industry experts will cover critical topics to bring attendees up to date with the current climate. Topics will include: when best to use dynasty trusts; an assessment of valuation adjustment clauses; a look at comparing grantor retained annuity trusts and sales to defective trusts; and many more. The event will take place on 8–9 February 2021. Find out more and register today at www.stepoc.org/2021-institute

CANADA: STEP CANADA 2020 SPEAKERS’ SERIES STEP Canada’s Speakers’ Series offers a valuable opportunity for both members and non-members to view the material that would have been presented at the STEP Canada 22nd National Conference. Though the sessions were held from September to November, all broadcasts remain accessible on demand. For more information, visit bit.ly/3mS4asy

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STEP SURVEY:

TRUSTS AND ESTATES BUSINESS RIDING OUT PANDEMIC According to a recent STEP survey of 1,700 practitioners worldwide, the COVID-19 pandemic has, in many cases, increased the level of STEP members’ private client, trust and estates business. STEP will repeat the survey in January 2021 to establish what has changed. Read more of the survey findings at bit.ly/3l0xX1T

DID YOU KNOW?

STEP PRIVATE CLIENT AWARDS 2020/21 The virtual 15th STEP Private Client Awards were held on 9 December 2020 and celebrated the achievements of the wealth management industry’s leading lights. Turn to page 20 to read our full report and see the winners.

The hashtags at the end of STEP Journal, STEP Journal+ and Trust Quarterly Review articles can be used to find similar articles when searched for on www. step.org/knowledgehub/knowledge

STEP ADVANCED CERTIFICATE IN CROSS-BORDER ESTATES Delivered in partnership with CLT International (CLTI), our Advanced Certificate in Cross-Border Estates provides a detailed insight into the issues that arise when dealing with cross-border estate planning and succession worldwide. The course addresses civil-, commonand Shari’a-law systems. Delivered entirely online, it takes six months to complete

and students will have access to a range of comprehensive resources through an online learning platform. The final assessment requires students to submit a 3,500-word assignment based on a case study. The next course starts on 15 January 2021 and Full Members will receive a discounted rate. Find out more at bit.ly/3553FFL

WHAT IS CLTI? CLTI has produced a video explaining its working relationship with STEP. View it at bit.ly/3k1DHXN

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NEW SYLLABUS FOR STEP DIPLOMA IN INTERNATIONAL TRUST MANAGEMENT The STEP Diploma in International Trust Management is currently undergoing a phased curriculum redesign in 2020/21, following extensive market consultation. With the volume and complexity of legislation growing year-by-year, and the challenges facing practitioners and clients continuing to increase, these updates will ensure candidates are well equipped to meet these demands in their day-to-day work. For a full write-up of these changes, please turn to page 60.

BUSINESS FAMILIES SIG: REFERENCE GUIDE In August 2020, the Business Families Special Interest Group (SIG) finalised its COVID-19: Business Families Response Reference Guide. The guide contains timely and relevant prompts as to discussions advisors should be having with their family business clients in order to help mitigate the impact of COVID-19 and plan for other unforeseen potential business crises that may crop up in the future. Read the guide at bit.ly/38fSyeM

E&W: ATTESTATION CLAUSES FOR REMOTE WILL SIGNING Sample will attestation clauses are now available for STEP members executing a will in England and Wales using the nowpermitted video-witnessing method. The clauses should be used in conjunction with STEP’s briefing note on the topic, which can be found at bit.ly/38fu6uj

CPD RESOURCES As part of STEP’s suite of CPD products offered as a member benefit, members can access Alchemy Performance Assistant’s comprehensive source of online articles, which provide hints, tips and techniques to deal with workplace issues that cannot wait for a formal training course. Alchemy Performance Assistant’s archive can be browsed at bit.ly/32ke6n0

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SPONSORED CONTENT VERSION

Creating substance for family offices in The Bahamas

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Family offices are becoming integral to the cohesive and coherent management of far-flung business interests in tandem with domestic and personal affairs. Linda Beidler-D’Aguilar examines the opportunities afforded by the establishment of such offices and the advantages of doing so in The Bahamas

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What is a family office? A family office is a vehicle that can provide a broad range of services to the family or families it represents, from domestic administrative matters (e.g. travel arrangements, staffing and household upkeep) to sophisticated support of long-range business, tax and estate planning, including the supervision of trusts and oversight of investments that may be outside the family’s core operating businesses. Why establish a family office? • Formation of a single, comprehensive structure allows sophisticated and structured oversight of a family’s overarching objectives and opportunities. • Creation of centralised control and responsibility for integral functions around the family’s various interests and obligations provides stability and the opportunity to provide generational and succession planning. • Consolidation of oversight enhances the ability to provide specific direction as to services sought from external providers and to monitor the services received. In sum, it permits a dedicated focus on the whole picture of a family’s wealth rather than peering at bits and pieces of the

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puzzle, each element in isolation from the other. Tools for family offices established in The Bahamas Private trust companies A private trust company (PTC) is established for the express purpose of acting as the trustee of a specific trust or a family’s group of trusts, generally in the form of a limited liability company. Its board of directors can include family members as well as trusted advisors and independent third parties. Consequently, the family may retain supervisory authority over strategic management of assets without prejudicing the validity of the underlying trust. If established with unlimited duration, subsequent generations can be included in the governance structure over time. Regulation and oversight of PTCs is vested in the Central Bank of The Bahamas. While there are no pre-approval or licensing restrictions applicable to PTCs prior to incorporation, once incorporated PTCs are required to appoint a registered representative whose duty is to ensure that the PTC remains compliant with applicable industry regulation, including anti-money laundering legislation. Executive entities The Bahamas Executive Entity (BEE) is a one-of-a-kind statutory construct: a legal entity designed

to fill governance roles such as those arising in family office structures. However, a BEE is not subject to oversight by a specific regulatory body. A BEE’s only role is to fulfil and perform ‘executive functions’, namely those which are administrative, supervisory, fiduciary or office-holding in nature. This being the case, it has neither shareholders nor beneficiaries because it may hold assets solely for the purpose of exercising the executive functions outlined. For instance, a BEE can hold the shares of a PTC; if acting as a trustee it may hold trust assets; it may also hold shares that entitle it to exercise managerial functions, such as the management shares in an investment fund. Asset management To facilitate professional oversight of a family’s assets and to enhance transparency (both within and without the family), it is possible to establish and license an independent asset management entity in The Bahamas. Parameters for capitalisation and professional indemnification are set by law; physical facilities within the jurisdiction are required and, where necessary, can be satisfied through appointment of an approved representative. Reporting requirements (financial and otherwise) are also designated along with on- and off-site supervisory requirements.

as its case law and common-law antecedents – encourages the establishment and maintenance of effective governance systems within and around PTCs, foundations, investment condominiums and BEEs. The ready availability of financial institutions, qualified professionals and skilled staff on the ground, as well as the opportunity for family members and their trusted advisors to establish residence in The Bahamas, all provide a framework around which practical and effective management systems may be erected. Family offices and substance in The Bahamas Controlled foreign company and permanent establishment rules necessitate that physical presence and transparency requirements be respected; active management of immigration and residence requirements is also essential. The Bahamas offers a full suite of tools for use in the establishment of an efficient, discreet and compliant structure, as well as the infrastructure, workforce and lifestyle opportunities that make the jurisdiction attractive for the establishment of family offices for families from around the world.

Linda BeidlerD’Aguilar is a Partner at Glinton Sweeting O’Brien, Counsel & Attorneys-at-Law

Governance requirements for family offices and associated structures The statutory and regulatory regime in The Bahamas – as well

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Policy update Emily Deane TEP is Technical Counsel at STEP

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STEP’S POLICY TEAM HAS HAD A CONSTRUCTIVE AND EVENTFUL YEAR. ONE OF THE INITIATIVES STEP ENGAGED WITH WAS THE UK GOVERNMENT’S DECISION TO IMPLEMENT THE WILLS ACT 1837 (ELECTRONIC COMMUNICATIONS) (AMENDMENT) (CORONAVIRUS) ORDER 2020.

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STEP was in discussion with the Ministry of Justice (MoJ) from the beginning of lockdown, advising on the possibility of primary or secondary legislation to enable people to make wills safely and legitimately during the pandemic. We were very pleased that, following these discussions, the MoJ amended the law in England and Wales to allow the remote electronic witnessing of wills under certain conditions. The change was backdated to 31 January 2020, in order to reassure anyone who may have been forced to remotely attest a will during the pandemic. STEP also established a working group prior to the MoJ’s announcement that produced a detailed briefing note on the execution of wills using video witnessing alongside some sample attestation clauses.1 The briefing note reinforces the MoJ’s advice that remote witnessing should be used only in an emergency when conventional witnessing is impossible, and extreme caution is required when using it. However, this legislation could be invaluable to those needing to make a new will or codicil, particularly in light of the second national lockdown in the UK in November 2020, and physical witnesses may not be viable. In addition, the policy team has spent a great deal of time discussing the transposition of the EU Fifth Anti-Money Laundering Directive (5AMLD) with the government, which published the outcome of its technical consultation on the implementation of 5AMLD and its impact on trust registration this year.2 In line with recommendations made by STEP, we were delighted to see that the government had made several concessions. In particular, offshore trustees entering into a business relationship in the UK will not have to register the trust on Her Majesty’s

Revenue & Customs’ Trust Registration Service, unless there is at least one UKresident trustee. The original regulations required registration of offshore trusts even if there were no UK trustee, which could have deterred trustees of offshore trusts outside the European Economic Area from seeking professional advice in the UK. The original interpretation of 5AMLD could have had a devastating effect on the trust industry and we are immensely grateful for the time and expertise of our members who influenced this result.

UK: CONSULTATION RESPONSES STEP’s policy team has also submitted various new consultation responses over the course of September and October 2020. These include: • comments on the Treasury Select Committee’s call for evidence in its ‘Tax after coronavirus’ inquiry; • a response to the first part of the Office of Tax Simplification’s call for evidence in its review of capital gains tax; • comments on the draft legislation in relation to the 2 per cent stamp duty land tax surcharge for non-UK-resident purchasers of residential property in England and Northern Ireland; and • a response to the Competition and Markets Authority review of the legal services market study in England and Wales. These responses and others can be found on STEP’s consultation tracker at www.step.org/public-policy/ consultation-tracker 1 bit.ly/32oN8KQ 2 bit.ly/3eIvV3W

STEP GLOBAL CONGRESS: THOUGHT LEADERSHIP SERIES The Thought Leadership Series of webinars, running from September 2020 through to March 2021, brings attendees worldwide virtual access to the most topical content from the programme for the STEP Global Congress, which we were unable to hold in 2020 due to COVID-19. Although three of the webinars have now taken place, there is still time to register for the remaining three: • Residency and Domicile: What Will be ‘Home’ in a Post-COVID-19 World? 27 January 2021 at 16:30–17:30 (GMT) • Rehabilitating Trusts 24 February 2021 at 16:30–17:30 (GMT) • Banking Bad? A Global Mystery Shopping Test of the Risk-Based Approach 24 March 2021 at 16:30–17:30 (GMT) For more information and details of how to register, visit www.step.org/ events/thought-leadership-series

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A matter of substance

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AS MORE JURISDICTIONS BRING IN ECONOMIC SUBSTANCE REGULATION, HELEN SWIRE ASKS WHAT IT MEANS FOR PRACTITIONERS AND CLIENTS TO COMPLY

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In recent years, remaining compliant and competitive in today’s world of increased transparency and regulation has been the name of the game for jurisdictions worldwide as they seek to continue to attract business and investment, while meeting the high international standards set by the OECD and other such bodies. In 2018, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting introduced minimum global standards on jurisdictions’ economic substance to ensure that none were facilitating structures aimed at attracting profits without any real economic activity in the jurisdiction. By January 2019, numerous jurisdictions had enacted legislation, bringing into play enhanced economic substance requirements for tax purposes, while others have been drafting and consulting on legislation to introduce imminently. Currently, these jurisdictions include: Anguilla, the Bahamas, Bahrain, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, the Marshall Islands, Mauritius, the Seychelles, Turks and Caicos, the UAE and Vanuatu. The setting of a base standard has been greeted broadly positively by practitioners. ‘The benefit for those companies who were already compliant is that it levels the playing field, while for those who did not fully comply, it provides clear guidance and certainty of what is expected of them in order to meet current international standards,’ explains Craig Brown, Managing Director at IQ-EQ Isle of Man. ‘It is a very important tool for international fiscal bodies and tax authorities in tackling unacceptable tax practices.’

THE PRACTICALITIES The regulations encompass largely the same principles. For entities in most jurisdictions to be in scope for economic substance purposes, they must have tax residency and generate any gross income in the jurisdiction. If in scope, the entity must demonstrate that it is directed and managed in the jurisdiction and has adequate physical presence, expenditure, employees and premises in the jurisdiction, as well as its core income-generating activities being conducted there. Those entities must prepare and submit to an annual report containing prescribed information for the purpose of establishing that the economic substance has been satisfied. The BVI and the Cayman Islands are working to similar requirements, as are the Crown Dependencies. Indeed, Guernsey, the Isle of Man and Jersey have worked together to formulate guidance on their requirements. However, there is some considerable variation on the entities taken into account by economic substance rules, as well as the penalties for non-compliance. Explaining from the point of view of the Cayman Islands, Bernadette Carey TEP,1 Partner at Carey Olsen, notes: ‘Economic substance requirements apply to any “relevant entity” carrying on “relevant activities”. Relevant entities include Cayman Islands companies (save for domestic companies), limited liability companies and limited liability partnerships. Relevant activities include banking, insurance and fund management business, as well as holding company business; although the latter is subject to reduced requirements.’ In Belize, holding companies and international business companies ST E P J O U R N A L I S S U E 6 2 0 2 0

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News report controlled and managed outside the country are exempt if they are tax-resident in a foreign country, while pure-equityholding companies fall into the scope of reduced substance requirements. Similarly, in Bermuda, equity-holding entities that carry on another commercial activity remain out of scope, and pure-equityholding entities are exempt from all but the minimum substance requirements. Regulated public and private fund companies in the Crown Dependencies do not fall under the reporting requirements, while all entities registered in the Cayman Islands’ general registry are covered by the regulations. In the UAE, several entities have been exempted from the substance reporting regime, although they must still file annual reports, including: investment funds; entities that are not UAE tax-resident; entities wholly owned by UAE residents that are not part of a multinational enterprise and which carry out business only in the UAE; and subsidiary branches taxed in their foreign parent’s jurisdiction. IMPACT ON CLIENTS Despite these variations, for many of the jurisdictions with substance legislation, the regulations have been bedding into the consciousness of practitioners and clients for some time, with first reporting now taking place. Nonetheless, says Carey, ‘The challenges brought about by economic substance are primarily in the form of additional compliance hurdles and the costs associated with them, which can be extensive and time-consuming.’ She adds, ‘For those entities that have determined they will not meet the new requirements, further steps in order to do so will be required, also at great cost and inconvenience if the entities have not previously had strong connections with the jurisdiction [in which they are proving economic substance].’ Indeed, experts have speculated that requirements may lead to companies migrating between jurisdictions as businesses are looking to which jurisdiction is the easiest in which to demonstrate substance, given their operations, their directors’ geographical locations and their intellectual property assets. Brown also notes the cost of the additional compliance burden, but comments that there is a further challenge


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‘[The pandemic] has illustrated the flaws in the logic of looking to physical presence as a measure of economic substance, where remote working practices have become the norm’ in the very basis of economic substance requirements itself. ‘In my opinion, two of the largest challenges are the somewhat antiquated views of how businesses operate and what constitutes substance,’ he says. ‘At a time of increasing globalisation and virtualisation of business, it is perverse to introduce measures based on bricks and mortar or physical staff locations as the sole arbiter of substance.’ COMPLIANCE DURING COVID-19 These issues have, however, recently paled in comparison with the major hurdle of 2020: the COVID-19 pandemic. Especially in terms of providing evidence of physical presence in a particular jurisdiction, many businesses have been hampered by global travel restrictions resulting from the health crisis, which has seen months of an almost-global lockdown.

As a consequence, many jurisdictions have been forced to re-examine their requirements and, in some cases, introduce emergency legislation, taking into account the impact of COVID-19. Carey comments that the Cayman Islands government moved to reassure businesses: ‘The Department for International Tax Cooperation acknowledged that COVID-19 may affect the ability of some entities to hold their board of director meetings in Cayman during the year. It confirmed that where board of director meetings are required to be held virtually during this period of uncertainty, it would take that into consideration on a case-by-case basis when determining whether an entity has passed or failed the economic substance test in its 2021 reporting.’ In March, Bermuda, Guernsey and Jersey all announced pragmatic approaches to reporting during the

pandemic, advising companies to maintain and retain relevant records showing what their policy was in respect of restrictions on travel for the company officers and the period of time for which that policy was in place. The BVI International Tax Authority issued guidelines to help businesses based in the jurisdiction meet the requirements, advising companies to appoint alternative directors in the BVI where possible, noting that not all directors had to attend board meetings in the BVI and allowing virtual meetings. In August, the Bahamas’ Ministry of Finance announced that entities subject to the rules would be regarded as compliant with the ‘direction and management’ test if they could show that board meetings could not be held physically in the jurisdiction due to related travel restrictions, with adequately documented virtual board meetings sufficing. ‘The impact has been less on regulation and more on working practices,’ says Alasdair McLaren TEP, Head of Private Wealth at IQ-EQ Guernsey. ‘We have all embraced the use of electronic signatures and the flexibility that can come from homeworking. The authorities have accepted that physical board meetings are simply not practical, nor necessary, in an era of homeworking and the pandemic has fast-tracked such efficiencies.’ Ultimately, the trends show that requirements such as economic substance regulation are likely to expand to cover the majority of jurisdictions globally, and, regardless of the impediments of the current global situation, clients and practitioners will need to adjust their compliance and reporting accordingly. But the pandemic has certainly raised new questions, says Brown: ‘It has illustrated the flaws in the logic of looking to physical presence as a measure of economic substance, where remote working practices have become the norm. They have in no way weakened the degree of management and control that a board can exercise over a company, regardless of where individual board members happen to be physically located at any one time.’ #COMPLIANCE AND REGULATION 1 Bernadette Carey TEP is a Branch Committee Member of STEP Cayman Islands

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Helen Swire is News Editor at STEP


Castleacre adv

SPONSORED CONTENT VERSION

The value of trustee indemnity insurance

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Trusts are designed to protect family assets, but common disputes can leave trustees, beneficiaries and the trust itself in a financially vulnerable position By Paul Rose

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Trustee indemnity insurance is a relatively new offering from the insurance market and operates in a very similar way to professional indemnity insurance. A policy will protect all lay trustees within a trust against a wrongful act or omission and will cover: • current trustees and their estates after death; • past trustees where a claim is made against them in the policy period; • the trust, where it is allowed to reimburse the trustee under the trust deed; and • future trustees if added during the policy period. Policies will pay out for legal expenses incurred defending the trustee’s position and, if the claim is upheld, damages and settlements. In an increasingly complex and contentious field, these policies protect the trust and the beneficiaries themselves because the financial and legal risks of a dispute are dealt with via insurance rather than through the trust’s assets. Last year, an interesting case emerged where a trustee, found liable for accounts mismanagement, was awarded legal costs from the trust she

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was managing. The initial verdict by the court had the potential to diminish the trust and negatively impact on the beneficiary who had brought the case.

Price v Saundry & Anor (2019) The beneficiary of a trust, Mrs Price, took a trustee, Mrs Saundry, to court over the trust’s accounts, in particular a lack of transparency with regards to receipts, payments and allocation of property to the trust. The judge found in favour of the beneficiary and claimant, Mrs Price, and ordered the trustee, Mrs Saundry, to repay nearly GBP53,000, plus any interest earned, to the trust, but there was a sting in the tail for the beneficiary. The judge stated that despite finding in Mrs Price’s favour it was not proven that poor management of the accounts was in fact breach of trust by the trustee. He could not be certain that the trustee, Mrs Saundry, had been acting in her own interests (a case of serious misconduct) rather than the interests of the trust; as a result, the defendant was still entitled to an indemnity from the trust, meaning that both the trustee, Mrs Saundry, and the

beneficiary, Mrs Price, could reclaim all their costs from the trust. Although the beneficiary had won her case against the trustee, the court’s decision to award costs to both sides, directly from the trust itself, had a detrimental impact on the trust assets and on Mrs Price, the beneficiary. Significant legal costs had been incurred on both sides, and had there been trustee indemnity insurance in place the costs of both parties and the repayment would have been reimbursed by insurers rather than through the trust. If Mrs Price accepted the initial court judgment, without insurance cover in place, the trust would be significantly diminished even though she had won her case. Mrs Price decided to appeal the judgment as there seemed reasonable proof that the trustee had been partially guided by self-interest and that this could amount to serious misconduct. Luckily for Mrs Price, the Court of Appeal agreed and reversed the original decision. The trustee, Mrs Saundry, was deprived of her indemnity and was ordered to pay both her own costs and the claimant’s (Mrs Price’s) costs, from her personal account. If the Court of Appeal had upheld the original judgment, costs would have risen substantially and would have been reimbursed via the trust

with a serious impact on trust assets and the beneficiary. If trustee indemnity insurance had been in place at the outset, the trust, trustee and beneficiary would have been protected.

Paul Rose is Appointed Representative, Trust and Trustee Insurance, at Castleacre Insurance. He has more than 30 years’ experience in insurance and has worked for a number of key Lloyd’s brokers, starting his career with CT Bowring in 1984. He has increasingly specialised in professional indemnity insurance, travelling widely across the UK and US to advise solicitors, accountants, architects and financial institutions on risk and protection management. He is well acquainted with the particular risks that lay trustees are exposed to when managing a private or charitable trust, liabilities that are both unlimited and personal. He provides advice on how to manage these potential risks and arranges tailored insurance to protect not only trustees, but also the assets of the trust. Email: enquiries@ castleacreinsurance.com Phone: + 44 (0)203 966 6524 Web: www.castleacreinsurance.com

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Trusts in Prime Jurisdictions, fifth edition By Alon Kaplan TEP and Barbara R Hauser Reviewed by Richard Pease TEP

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Price: GBP295 Publisher: Globe Law and Business ISBN: 978-1787422988

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Which jurisdictions have statutory provisions concerning trust protectors? Are trusts vulnerable to attack in divorce proceedings? Which jurisdictions offer private foundations as alternatives to trusts? How will trusts be dealt with under beneficial ownership register rules? The answers to all these questions (and many more) can be found in the fifth edition of Trusts in Prime Jurisdictions. This work, edited by Alon Kaplan TEP and Barbara Hauser, now comes in two volumes, totalling 880 pages. The first volume contains two preliminary chapters dealing with the Hague (Trust Convention on the Law Applicable to Trusts and their Recognition and the US Uniform Trust Code), while the remaining 24 chapters contain an overview of the principal trust jurisdictions and certain other jurisdictions, such as Germany, Italy, Luxembourg and Switzerland, that do not (as yet) have a domestic law of trusts but where trusts are fully recognised or where analogous legal institutions exist. Each jurisdictional chapter contains a summary of the current law on trusts and highlights the essential features of the legislation that will be of interest to advisors and their clients. Where the local legislation has provision for protectors, asset protection and private trust companies, these features are briefly examined. One noticeable omission among the traditional offshore trust jurisdictions is the Bahamas, which must surely rank as a prime trust jurisdiction. The Bahamas featured in earlier editions of this work, and it is hoped that it will appear again in future editions. In their introduction, the editors explain that, although they believe that the universal use of trusts will continue, it is appropriate to cite certain jurisdictions that allow the creation of civil-law-style private foundations. The principal example is Liechtenstein, but it is interesting to note that the Crown Dependencies have embraced the foundation concept with enthusiasm. The Guernsey chapter devotes seven of its 18 pages to foundations created under the Foundations (Guernsey) Law, 2012. The second volume contains 18 chapters covering topics relating to trusts and their use in estate and tax planning as structures for the governance and transmission of the family business, as well as timely topics such as beneficial ownership registers. It is invidious to commend specific articles, but this reviewer found Maggie Gonzalez’s chapter on the complex UK tax treatment of trusts particularly comprehensive and lucid, and Alexander Bove TEP’s chapter on trust protectors was highly instructive. In summary, this edition will continue to offer an unequalled source of information on trusts as an instrument for international estate planning. The editors express their appreciation of the support given by STEP to this publication, and it is noteworthy that more than half of the contributors are STEP members. At a time when many clients and their advisors are taking time to review, update and, in some cases, consolidate their estate planning, this title will be of particular assistance as a major source of reference. #TRUSTS #FOUNDATIONS #LEGISLATION

People moves Clare Jeffries TEP has joined Russell-Cooke as a Partner. Álvaro Aznar Azcárate TEP has joined Buckles Solicitors as a Senior Associate. Karen Perugini TEP has joined Thrings as a Senior Associate.

We have published several new articles on our online-only sister publication STEP Journal+. These include a look at how COVID-19 has raised the profile of holograph wills; an analysis of the future of anonymity in variation of trust applications in England and Wales; the impact of China’s tech boom on trustees in Hong Kong and Singapore; what advisors need to know about unexplained wealth orders and account freezing orders in the UK Criminal Finances Act 2017; and clarity on the operation and reach of the UK forfeiture rule. Stay current with topical issues as they develop with STEP Journal+, at www.step. org/step-journalplus

MPI:

Q3 REPORTS AVAILABLE The Managed Portfolio Indices reports for the period ending 30 September 2020 are now available at www.mpindices. com/performance-reports

Richard Pease TEP is a Solicitor and Independent Consultant in Geneva ST E P J O U R N A L I S S U E 6 2 0 2 0

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PERSPECTIVES


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Philanthropy column

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Philanthropy column

STEP moves

Guiding charities in Hong Kong OLIVER TANG LAYS OUT THE RECOMMENDATIONS FOR CHARITABLE ORGANISATIONS IN HONG KONG UNDER ITS NEW GOOD PRACTICE GUIDE

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Despite its standing as a financial hub in Asia, Hong Kong does not have a clear regulatory authority for monitoring charitable activities. The Inland Revenue Department of Hong Kong (IRD) approves the status of charitable organisations with a registration system that lists all approved applicants online, which is not a regulatory function but instead prevents abuse of a charity’s name. Sometimes, the IRD carries out field-checks on registered charitable organisations to determine whether those organisations are still eligible to be on the list, but this process is neither systematic nor sufficient. Although the Secretary for Justice of Hong Kong is also the Protector of Charities, no relevant law or regulation has been brought in to guide charitable organisations on matters of compliance and best practice. In 2018, the Social Welfare, Home Affairs and Food, and Environmental Hygiene departments of Hong Kong published the new Good Practice Guide (the Guide),1 establishing a non-binding and voluntary regime and setting out best practice for charitable organisations. The Guide has three parts: ‘Donors’ Rights’, ‘Fundraising Practices’ and ‘Financial Accountability’. DONORS’ RIGHTS Charitable organisations should issue receipts to donors to ensure all fundraising and communications with donors contain sufficient data and disclosures. Donors and prospective donors should be entitled to prompt examination of the charity’s constitution and its most recent audited financial statements. Further, the identities of the charitable organisation’s officers should be disclosed. FUNDRAISING PRACTICES Generally, this section addresses frequent complaints from the public about the lack of transparency and responsiveness in charitable fundraising. Transparency, accurate accounting and appropriate mechanisms to handle information and reimbursement requests should be addressed. Any conflicts of interest between the

Leyla Whitlingum TEP has replaced Anthony Nixon TEP as Vice Chair of STEP Central Southern. Leigh Harter has replaced Katarinna McBride TEP as Treasurer of STEP Chicago. Priscilla Mifsud-Parker TEP has replaced Anthony Cremona TEP as Chair of STEP Malta. Maria Muzarowska has replaced Monica Galea John as Secretary of STEP Malta.

charity and suppliers of goods and services should be avoided. Procurement should be based on a fair and competitive system.

Tom Lawrence TEP has replaced Tessa Bonser TEP as Chair of STEP Norwich and Norfolk.

FINANCIAL ACCOUNTABILITY A charitable organisation’s financial affairs should be conducted in line with all applicable legal, ethical and professional requirements. Financial statements of individual projects should be made available to the public, and no additional money should be spent on administration and fundraising than is required. The purpose is to promote financial transparency and efficiency.

Tessa Bonser TEP has replaced Tom Lawrence TEP as Vice Chair of STEP Norwich and Norfolk. Tessa Bonser TEP has replaced Helen Cordingley TEP as Secretary of STEP Norwich and Norfolk. Emma Hunt TEP has replaced Felicity Whitley TEP as Treasurer of STEP Norwich and Norfolk.

CONCLUSION The Guide is voluntary and not legally binding. However, it would be prudent for charitable organisations to adopt the measures recommended within. In the absence of other guidance, the Guide seems to be considered by the IRD as a benchmark for deciding whether a charitable organisation is fit and proper, and it may be seen as a framework for future formal regulation in Hong Kong.

Faye Howard TEP has replaced Janette Wand TEP as Chair of STEP Suffolk and North Essex. Claire Hawke-Gundill has replaced Elise Croft TEP as Secretary of STEP Western Australia. Sarah Walton TEP has replaced Jennifer Bruce TEP as Treasurer of STEP Western Australia.

#CHARITIES #PHILANTHROPY #COMPLIANCE

Emma Facey TEP has been appointed Vice Chair of STEP West of England.

1 www.gov.hk/en/theme/fundraising/guide/

Georgina Carter has replaced Chris Erwood TEP as Secretary of STEP West of England.

Oliver Tang TEP is a committee member of STEP’s Philanthropy Advisors Special Interest Group

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Nick Turner TEP has replaced Malcolm Gibbs TEP as Chair of STEP Central Southern.

Luke Bowyer TEP has replaced Christopher Hill TEP as Treasurer of STEP West of England.

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Special report

SPECIAL REPORT CYPRUS, GIBRALTAR AND MALTA

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Around the world

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As regulatory requirements continue to come into force in Cyprus, Gibraltar and Malta, Helen Swire, News Editor at STEP, provides an overview as the jurisdictions comply with international standards

Spain

Italy

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Tunisia

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Both Gibraltar and Malta implemented the mandatory tax planning disclosure rules set out by Council Directive (EU) 2018/822 (DAC6). Reporting started from 1 July 2020, and exchanges between jurisdictions from 31 October 2020, although reports will retroactively cover arrangements where the first step is implemented between 25 June 2018 and 1 July 2020. Cyprus ● In June 2020, the Cypriot House of Representatives adopted a law to implement the exit taxation provisions of the EU anti-tax avoidance directive (Council Directive (EU) 2016/1164, ATAD-1), as well as the provisions of the amending ATAD-2 (Council Directive (EU) 2017/952). The exit taxation rules and hybrid mismatch rules will apply retroactively as of 1 January 2020. The reverse hybrid rules will not take effect until 1 January 2022. Gibraltar ● Gibraltar implemented ATAD-2 to counter multinational tax avoidance using hybrid mismatch arrangements. It has also published legislation to implement the ATAD-1 exit tax provisions, Convention on Mutual Administrative Assistance in Tax Matters, in December 2019.

Malta ● In July 2020, Malta’s Business Registry struck off 10,000 companies for failing to file annual reports or accounts, or to report beneficial ownership information. The action was recommended by a 2019 report on Malta by the Council of Europe’s MONEYVAL anti-money laundering assessment body.

TAXATION Cyprus ● The double taxation agreement (DTA) between Cyprus and Ukraine, which took effect on 1 January 2020, abolishes withholding tax on a Cypriot company’s disposal of shares in a Ukrainian corporate investment fund, if less than half of the fund’s assets consist of Ukrainian land (real estate). ● Cyprus’ DTA with Kazakhstan has entered into force, and its provisions will apply from 1 January 2021. It caps withholding tax at 10 per cent on interest and royalty payments, 15 per cent on dividends from portfolio shares, and 5 per cent on dividends to shareholders who own at least 10 per cent of the equity. ● Cyprus and Switzerland signed a protocol amending their DTA to include the minimum standards of the OECD base erosion and profit shifting (BEPS) actions

related to bilateral agreements. The amendment includes an anti-abuse clause denying treaty benefits to structures whose principal purpose is to inappropriately derive a tax benefit, unless one or other state grants them. ● In September 2020, Cyprus and Russia formally signed the protocol amending their DTA to increase withholding taxes on cross-border dividend and interest payments. The amendments raise the ordinary withholding rate to 15 per cent, with a reduced 5 per cent rate where the recipient is a listed public company, insurance company or pension fund. Malta ● Malta agreed to Russia’s imposition of a 15 per cent withholding tax on cross-border dividends and interest payments made to the countries’ residents, following Cyprus’ acceptance of similar terms. ● In October, Malta and Russia signed a protocol amending their DTA to increase the withholding tax on cross-border dividends and interest payments to 15 per cent, with effect from 1 January 2021.

RESIDENCY Cyprus ● Bahrain signed a DTA with Switzerland in November 2019,

providing for the exchange of information and capping withholding tax rates.

REPORTING Malta ● Malta amended its beneficial ownership regulations to restrict access to centrally held information on express trusts, foundations and associations to persons with a ‘legitimate interest’. Refusal of a request can be appealed by judicial review before the Civil Court First Hall, and further to the Court of Appeal. ● From June 2020, Maltese companies are required to make annual reports of the ultimate beneficial ownership of their shares. The Registrar of Companies can strike off companies within three months if they fail to file, or if any of their beneficial owners are sanctioned by international organisations, and can prevent new companies being set up by directors of non-filing companies. ● Malta’s Companies Act was amended in June 2020 to allow the companies registrar to disqualify persons from directorships if they had been a director of an existing Maltese company that has breached any provision of the Act three times within two years.

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■ STAR PRIZE: AN ITALIAN ADVENTURE Four nights in Italy for two, plus a flight voucher from British Airways to the value of up to GBP1,500. Kindly donated by Hilton and British Airways

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■ SECOND PRIZE: LONDON CALLING Two nights in London for two, plus a Michelin-starred meal with 360degree views of the city. Kindly donated by Mimi’s Soho and Galvin at Windows ■ THIRD PRIZE: USD250 AMAZON GIFT CARD Kindly donated by WLF USA ■ FOURTH PRIZE: FORTNUM & MASON’S CHRISTMAS HAMPER Kindly donated by Tilney Smith & Williamson ■ FIFTH PRIZE: NBA STAR TOBIAS HARRIS’ SIGNED NIKE SHOE Kindly donated by Graham Leak Branding ■ SIXTH PRIZE: PINKSTER GIN GIFT VOUCHER WORTH GBP100 Kindly donated by Think Publishing ■ SEVENTH PRIZE: A CASE OF AUSTRALIAN WINE Kindly donated by WLF Australia ■ EIGHTH PRIZE: A L’ORÉAL/NYX BEAUTY BUNDLE Kindly donated by WLF Australia ■ NINTH PRIZE: HANDMADE WAYÚU ARTISAN BAG Kindly donated by WLF Colombia ■ TENTH PRIZE: SUSTAINABLE FOOD WRAP Kindly donated by Great Wrap ■ ELEVENTH PRIZE: DAVID WALLIAMS SIGNED BOOK BUNDLE Kindly donated by Great Wrap

The STEP Private Client Awards 2020/21 celebrated the best in the business this year, despite not being able to host the ceremony in person. nstead, we hosted the first-ever virtual Private Client Awards ceremony on Wednesday 9 December 2020, bringing together even more trust and estate practitioners to network, celebrate and congratulate the stars in our industry. More than 500 guests signed up to view the virtual event, from 24 countries. In the following pages, we present to you the winners of each of the Awards ‘handed out’ on the night. This year saw yet another record-breaking 319 entries for the Awards, with the expert judging panel shortlisting 77 firms and 14 individuals from across 27 jurisdictions, and our winners hailing from Canada, France, Hong Kong, Jersey, Switzerland, the UK, and the US. Many congratulations to all our deserving winners. Special congratulations go to Judith Ingham TEP, winner of the STEP Lifetime Achievement Award; and Filippo Noseda TEP, winner of the Geoffrey Shindler Award for Outstanding Contribution to the Profession. This year, the World Literacy Foundation joined us as STEP’s Private Client Awards charity partner. For the next three years, it will use your donations to invest in the education and literacy skills of vulnerable children worldwide, so that they can reach their full potential. The event featured some fantastic prizes to raise additional funds for the charity. So far, we have raised more than GBP60,000 from attendees’ and entrants’ generous contributions.

I

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PCA, 1

PRIVATE CLIENT AWARDS 2020/21

21

Accountancy Team of the Year

Accountancy Team of the Year

WINNER

WINNER

The judges said: ‘With impressive growth both in size and offering, BDO UK is marked out by its commitment to training and contribution to the wider profession, and its innovative ways of engaging with clients.’

The judges said: ‘Frank Hirth demonstrated significant excellence in what it does and had clearly gone the extra mile to assist clients through COVID-19, balancing a focus on growth with a strong employee culture and a long-term commitment to all stakeholders, clients and employees.’

The judges said: ‘Alexander, a leading authority in his field, is held in tremendous respect and admiration by his peers, and is described as an outstanding advocate whose approachability, responsiveness and intellect shine through.’

The judges said: ‘CADELL is clearly a leader in its field, with a unique offering in a complex and specialist area, strong approach to client management and outstanding collaboration with other service providers.’

Boutique Law Firm of the Year

Contentious Trust and Estates Team of the Year

Contentious Trust and Estates Team of the Year

Family Business Advisory Practice of the Year

WINNER

WINNER

WINNER

WINNER

The judges said: ‘ARKWOOD is a real boutique law firm dedicated to private clients, with a proactive and pragmatic approach to dealing with complex client issues.’

The judges said: ‘Macfarlanes’ considerable multi-jurisdictional experience, advising on a range of disputes and non-contentious court applications, including some of the largest trustrelated applications in the UK and offshore, sets it apart from other entries.’

The judges said: ‘Boodle Hatfield stood out for its dedication to developing law through its case work involving the rapidly evolving definition of ‘family’ – a complex and fast-developing area of law that requires true thought leadership as jurisdictions grapple with societal equality and modern biological science.’

The judges said: ‘BanyanGlobal Family Business Advisors has been described as “compelling”, highlighting the team’s deep grasp of business, as well as the complex dynamics of families with jointly owned assets, and its ability to build tools and advise families in their application.’

(Large Firm)

(Midsize Firm)

Advocate of the Year

Boutique Firm of the Year

WINNER WINNER Alexander Learmonth TEP, New Square Chambers

(Large Firm)

(Midsize Firm)

KINDLY SPONSORED BY

STEP Private Client Awards 2021 Next year’s STEP Private Client Awards will return to the Park Plaza Westminster Bridge hotel on 23 September 2021. Entries for next year’s awards open on 1 February 2021.

Rathbones provides individual investment and wealth management services for private clients, charities, trustees and professional partners. We have been trusted for generations to manage and preserve our clients’ wealth. Our tradition of investing and acting responsibly has been with us from the beginning and continues to lead us forward. ST E P J O U R N A L I S S U E 6 2 0 2 0

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PRIVATE CLIENT AWARDS 2020/21

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Financial Financial Advisor Team the Year Team of of the Year

International International Legal Legal Team Team of of the the Year Year

International Legal International Legal Team the Year Team of of the Year

4\S[P-HTPS`6đJL Multi-Family O ce Team Team of of the the Year Year

WINNER

WINNER

WINNER

WINNER

The judges said: ‘Matrix Capital Chartered Financial Planners demonstrates excellence in client service delivery, with a clear commitment to transparency, technical advancement, professional development and education.’

The judges said: ‘The winning team has strength and depth, with a proven ability to work on complex, multifaceted and international matters. Its commitment to development, diversity and equality in the profession sets it apart.’

The judges said: ‘Forsters has clearly established itself as a leading international firm. It demonstrates a deep understanding of client needs and a singular focus to deliver the best possible service through varied expertise, and through constantly seeking to innovate, learn and stay relevant to families.’

The judges said: ‘Stonehage Fleming provided a thorough and compelling entry, exhibiting a comprehensive range of offerings that provide a seamless client experience, underpinned by an empathy for the sensitive nature of family dynamics.’

Investment Investment of the the Year Team of Team Year

Philanthropy Philanthropy the Year Team Team of of the Year

Private Client Client Private Legal Team Team Legal of of the Year

Private Client Client Private Legal Team Team Legal of the the Year Year of

(Large (Large Firm)

(Midsize (Midsize Firm)

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(Large Firm) (Large

(Midsize Firm) (Midsize

WINNER

WINNER

WINNER

WINNER

The judges said: ‘Alongside impressive quantitative data, VAR Capital demonstrated its expertise and focus with a clear and concise submission that covers everything from its client on-boarding to its ability to explore investment scenarios with clients and its stable of resources.’

The judges said: ‘Stewardship stood out because it is fully dedicated to serving philanthropic and charitable purposes, offering innovative solutions to a wide range of individuals and organisations from different wealth backgrounds.’

The judges said: ‘Irwin Mitchell is working at the top of the game with a great blend of skill sets. Its entry is backed up by excellent client feedback and its response to some of the most serious challenges facing our clients today has been impressive.’

The judges said: ‘Forsters provided compelling examples of complex and demanding issues, involving not only high-value planning and transactions, but also complexity across jurisdictions, generations, and inter-family conflict, with its areas of specialisation going beyond the traditional to focus on niche and novel areas.’

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For more than a century, Royal Bank of Canada has provided trusted advice and wealth management solutions to individuals, families and institutions. We are truly a global organisation, bringing our diverse expertise and deep knowledge to the sophisticated financial needs of our clients around the world. ST E P J O U R N A L I S S U E 6 2 0 2 0

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PCA, 3

PRIVATE CLIENT AWARDS 2020/21 VERSION

Trust Company of the Year

Vulnerable Client Advisory Practice of the Year

WINNER

WINNER Sherlynn G Chan TEP

The judges said: ‘ACCURO’s global scope and expertise with diverse and complex assets, coupled with a service model that ensures quality and personal engagement, and a focus on providing meaning ful work and development resources to its team, really set it apart.’

The judges said: ‘In a field of remarkably compelling submissions, Sherlynn G Chan stood out as a champion and a pioneer in a region where resources for vulnerable clients are still evolving. Her significant devotion to her clients and to the profession, and her technical skills and commitment to professional development, are an inspiration to us all.’

(Midsize Firm)

25

2020 People’s

Young Practitioner of the Year

Choice – Trusted Advisor of the Year

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WINNER Carmen S Thériault QC TEP, Norton Rose Fulbright Canada

WINNER Maryam Oghanna, Herbert Smith Freehills

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Trust Company of the Year

(Large Firm) WINNER

The judges said: ‘IQ-EQ stands out as a company with strong leadership that understands it’s only as good as its people, and therefore nurtures those people who, in turn, are best placed to really get to know their clients, putting relationships at the centre of what they do.’

KINDLY SPONSORED BY

Our aim is to help our clients achieve financial peace of mind, whatever their financial circumstances or investment objectives. The merged business has considerable depth of expertise with circa 290 investment managers, 265 financial planners and 140 professional services partners and directors located across the UK, the Republic of Ireland and the Channel Islands.

The judges said: ‘Maryam Oghanna is a clear role model. Beyond her technical and commercial capabilities, her passion for and dedication to wider societal causes for the most vulnerable in society provide an excellent example of a young practitioner standing out in their field.’

The judges said: ‘A leading trusts and estates practitioner with immense expertise in the field, Carmen S Thériault is a trusted advisor and “go-to” person, not only to her many clients, but also to colleagues and peers across the region when difficult matters arise.’

Special awards

Geo rey Shindler Award for Outstanding Contribution to the Profession

Lifetime Achievement Award

WINNER Filippo Noseda TEP, Mishcon de Reya

WINNER Judith Ingham TEP, Withers

The judges said: ‘This year’s Award for Outstanding Contribution to the Profession goes to someone who has worked tirelessly to highlight the risks of automatic exchange of information with regard to compliant individuals’ human rights and data security. Filippo Noseda is a real advocate for families’ basic rights to legitimate confidentiality in their financial affairs and ensuring that sensitive financial information is not vulnerable to abuse, and his passion and commitment are evident.’

The judges said: ‘Judith Ingham is held in huge respect by everyone who knows her. Judith takes the time for everyone and has shown kindness and wisdom, as well as patience, throughout her outstanding career. When we want to identify a legacy, a real contributor to society, we cannot look to the individual. Instead, we must look at the people Judith touched. It is for this reason that our winner stands out. The industry will certainly be poorer on her retirement.’

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Development land tax could threaten landowners’ receipts

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regime simply means they will not promote their land for development. For those able to do so, adopting a wait-and-see approach until the durability of any new regime is clearer seems a sensible course of action.

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By Patrick Moseley PRODUCTION CLIENT

The principle of a ‘development land tax’ is not new, but it is currently a very relevant consideration for owners of development land, given the Letwin Review, the Planning for the Future white paper and the anticipated need for government to recover COVID-19-related expenditure. Its threat to landowners’ net receipts should be considered all the more relevant in being proposed by a Conservative government, which would generally prefer not to increase taxes where possible. So, should a development land tax come into force within this Parliament, a future change in colour of government is unlikely to bring about its withdrawal, perhaps only its reinforcement. Planning gain The expression ‘development land tax’ as used within current reform discussions and consultations tends to consider ‘planning gain’, rather than direct taxation, where there are further threats to landowners’ receipts in the form of mooted wealth taxes and capital gains tax increases. For the purposes of this article, the focus is ‘planning gain’ due its specific impact on development land, whether immediate or strategic. Planning gain is the principle whereby the uplift in land value caused by development is recycled into the planning system for the benefit of the wider community to a greater extent

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than it already is. For context, it is estimated that even under the current regime, 25 to 50 per cent of land value uplift is already captured in planning gain. Capturing planning gain has the effect of reducing net receipts to landowners and is likely to be captured by determining the base value of the land and then taking a share of those receipts over and above a certain threshold. Neither the threshold nor the share have been explicitly proposed, but the principle of the threshold being ten to 15 times agricultural value is a well-tested one in the Local Plan viability process and must be considered as good a guide as is available. As for the share split above that threshold, your guess is as good as mine, but I would anticipate it being 30 to 50 per cent of uplift on the basis that the landowner must be incentivised to achieve values beyond the threshold, otherwise there will be no uplift to capture. The simple effect on and threat to landowners is that their likely receipts for the sale of development land will be reduced. As receipts are absolutely fundamental (in all but very exceptional circumstances) to the decision of a landowner to pursue development on their land, this raises questions about committing to the process. Some key ones might be as follows: • Am I prepared to take the same cost risk for less uplift? • Am I happy bringing the urban fringe closer to the core estate/farm for lower returns? • Given lower returns, is the

legacy and quality of the development more important? A question of timing All of these questions have the same theme running through them – is it still worth it? This is a particularly pertinent question for landowners whose families have owned the land for generations. Is now the right time to release it and maximise its value within that multi-generational context? It is equally important to those investing in strategic land for the sole purpose of maximising their returns, as the development value achievable impacts on their activity in the marketplace and/ or the price they are prepared to pay for that land. Ultimately, whether to the incidental or deliberate owner, an impact on value and therefore returns goes to the heart of the decisionmaking process. So what are the remedies or mitigations that could be employed given the risk on the horizon? To date it seems many landowners are taking a largely fatalistic approach to pursuing development land, in that it is largely something outside their control and difficult to guard against given the complete lack of detail in proposals to date. I am seeing more ‘tax freezer’ clauses1 in promotion and option agreements, albeit their true, practical usefulness must be questioned. There are also a number of landowners who are taking the view that they are in control of the promotion process and any unduly punitive

Conclusion Ultimately, while the risk is clearly on the horizon, it is hard to guard against given the general time horizons associated with promoting development land. Those landowners with shortterm opportunities are more likely to be concerned with wider tax reforms than those associated with the planning system, which will take time to come into effect. Those landowners with longer-term opportunities need to start the promotion process now, as without doing so they may damage their development prospects and any development land tax issues will be a nonpoint accordingly. My overarching advice within this context would therefore be to keep abreast of all the relevant consultations relating to development land tax, but not to let it divert you from the core business of promoting land for development. 1 Such a clause allows the landowner to effectively ‘pause’ the promotion or sales process should the relevant tax rate go over an acceptable level. They are designed to protect landowners against what are seen as unexpected and punitive levels of tax.

Patrick Moseley MRICS leads the Strategic Development Team in Savills’ London office. He advises on the promotion, delivery, disposal (pre- and post-planning permission stage) and acquisition of strategic development land on behalf of institutional and private landowners for large-scale development projects across the UK. Phone: +44 (0) 20 7409 9490 Email: pmoseley@savills.com Web: www.savills.co.uk

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Private wealth financing sustainability 2020-21

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GUERNSEY – AT THE FOREFRONT OF THE DEVELOPMENT OF SUSTAINABLE FINANCE

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ver the past 20 years, the value proposition in private wealth has changed beyond all recognition. Sustainable finance today is central to the private wealth agenda in a way that would have been unforeseeable at the turn of the millennium. Sustainable finance itself has deep roots, the agenda of the UN’s Brundtland Commission reaching out to us from the mountain of decades past to become what have been the ‘tablets of stone’ of the United Nation’s Sustainable Development Goals – a list of 17 objectives for capital investment in the middle of the last decade. The serendipitous timing of events significant to the climate change movement – COP 21 in Paris in the same year as the Task Force on Climate-related Financial Disclosures – created what was arguably a tipping point in 2015. Guernsey made a key strategic commitment to the sustainability movement, with both government, industry and financial services regulator making separate commitments to strategic action, and is a member of several United Nations Environment Programme initiatives. As a result, Guernsey has been able to be at the forefront of the development of sustainable finance and, from the experience gained and its expertise in private wealth, has developed a thriving ecosystem of sustainable finance services. We have transposed our leadership in the development of product and services in the funds sector – the Guernsey Green Fund being a world-first regulatory regime – to the private wealth space, and have quietly introduced several bespoke tools and services to the private wealth market. We have spent much of 2020 evangelising the sustainability agenda, and we bring to this STEP Journal some highlights of our ‘private wealth financing sustainability’ campaign over the past year.

CONTENTS

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GREEN FINANCE MOVES BEYOND REBELLION

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LESSONS IN ROUTING PRIVATE CAPITAL INTO SUSTAINABILITY

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MAKING AN IMPACT

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PIVOT TO ESG AND SUSTAINABILITY

BLENDED FINANCE CAN ACCELERATE PRIVATE WEALTH OPPORTUNITIES IN SUSTAINABLE INVESTING

SIMPLICITY IS KEY FOR SUSTAINABLE INVESTMENT

DR ANDY SLOAN, Deputy Chief Executive, Strategy, WE ARE GUERNSEY, and Chair, Guernsey Green Finance

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This is a sponsored supplement, the content of which is paid for and controlled by the sponsor. STEP’s editorial team, including the STEP Journal Editorial Board, has not been involved in the production of this supplement. The views expressed in this supplement are not necessarily those of STEP and readers should seek the guidance of a suitably qualified professional before taking any action or entering into any agreement in reliance upon the information contained in this publication. While the publishers have taken every care in compiling the content to ensure accuracy at the time of going to press, neither they nor STEP accept liability or responsibility for errors or omissions therein, however caused. STEP does not endorse or approve any advertisement and has no liability for any loss caused by any reliance on the content of any such advertisement.

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PRIVATE CAPITAL RESEARCH VERSION REPRO OP SUBS

Green finance moves beyond rebellion

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Russell Clark, Managing Partner and Head of the Trusts and Private Wealth Team at Carey Olsen in Guernsey, reflects on Guernsey Finance research on the relationship between private capital and sustainability

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It was clear that significantly more capital was hat has happened to Extinction finding a home in green investments, driven by the Rebellion? And has Greta Thunberg increased concerns of the younger generation of gone rather quiet? wealth owners. However, greater confidence in They are both still around. Though returns and in the ‘greenness’ of the underlying at the time of writing, Extinction Rebellion’s most investment – the ‘twin confidences’ – were both recent protests have been in Ipswich and Truro, required to catalyse a modal shift in deployment rather than bringing central London to a halt. of private capital to climate finance. Greta was last spotted commenting on the US The research also showed that only half the Presidential election candidates. owners of wealth surveyed were considering However, arguably, their impact lives on in increasing asset allocations into green and financial services and, indeed, it might be argued sustainable finance, and the enthusiasm for that their time has come. doing so was being driven by the younger Guernsey Finance commissioned research generation (under-40s). in mid-2019, when the two campaigners’ profiles Wealth professionals said that they felt green were at their highest. The results indicated that we Owners of finance was evolving slowly – their views may well were approaching the tipping point. At the time, private wealth have changed in the intervening 18 months – and those high-profile protests had not yet significantly suggested that while it was starting to capture the imagination of mobilised private capital into sustainable finance. it would be the family office sector, levels of understanding on Now, it seems that we have moved on. The agenda beneficial if their the topic remained low. is changing. Meanwhile, owners of private wealth suggested The private wealth sector is increasingly advisors took the that it would be beneficial if their advisors took important for attracting investment generally. lead in driving the lead in driving understanding of the topic and Guernsey Finance's research showed that although understanding greater responsibility for raising awareness. significantly more capital was finding a home in of the topic [of Guernsey Finance launched the research report green investments, individuals and family offices green finance] at a London event with Guernsey resident Stephen appeared to be looking for greater confidence Lansdown, co-founder of Hargreaves Lansdown, in returns. who runs his family office business from the island The research involved some 20 family offices and has considerable interest in green and sustainable investing and high-net-worth individuals, with a combined and investing in Africa. estimated worth of GBP25 billion, and 50 service providers. ‘We have to make it easy for people to invest,’ he said. ‘The It showed that more focus is needed on engagement Guernsey Green Fund [a regulated green fund with certified with investment managers and investors on the aims green assets, available to all classes of Guernsey funds] is helpful of green and sustainable finance and the benefits of in that it identifies funds and areas for investment that people can responsible investing. Importantly, the research discovered that investors also wanted consider. At the moment you’ve got to search and investigate and it’s hard work. greater certainty in the green credentials of their investment. A ‘People in the industry are going to need to develop ways framework for private capital in the unregulated space, analogous of matching buyers and sellers, as this sector is going to be to the Guernsey Green Fund regulatory framework, which would important and is certainly going to grow.’ ■ provide confidence to investment managers and investors, was key to unlocking the flow of investment capital from private To read the full report, go to: www.weareguernsey.com/literature/ investors, family offices and private equity into the green and reporting-global-developments-family-offices-financing-sustainability sustainable investment space.

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SUSTAINABLE INVESTING A N A LY S I S

Blended finance can accelerate private wealth opportunities in sustainable investing Giles Neville, CEO at Cazenove Capital in Guernsey, reports on a suggested direction for this sector arising from Guernsey's Sustainable Finance Week earlier this year

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On change induced by the pandemic, eturns remain a critical factor Taeun Kwon said: ‘COVID-19 has for investors who may be looking accelerated a lot of things. A lot of at green and sustainable individuals and families started to investment for their portfolios – question the purpose of their wealth and and COVID-19 may have accelerated the how they can have impact, and realise opportunity to achieve financial returns that in investing their capital, there can be and to do some good. no moral neutrality of it.’ The opportunity for direct investing Bain once wrote that billionaires would is also critical for family offices and be the ones to solve climate change, not private investors to make a difference Extinction Rebellion. Common sense says in this sector, and making an impact, no government is going to commit to rather than simply adhering such drastic cutbacks on to environmental, social economic growth to meet and governance (ESG) Making an Extinction Rebellion’s target criteria, will be increasingly important in driving family impact, rather than of net-zero greenhouse gas emissions by 2025, he wrote. office money into green simply adhering ‘It’s a pity most public and sustainable finance. to ESG criteria, opinion scorns billionaires, In short, there is no will be increasingly because it just might be doubt that there is a role through their efforts we will for private capital to finance important in the sustainability agenda. driving family office deal effectively with climate change,’ he added. But there is still plenty of money into green The debate touched work to be done. and sustainable on the need for mixing Issues include finance public and private capital investors being held to accelerate developments back by lack of advisor in this area. knowledge, concerns about Taeun Kwon said: ‘There’s a distinctive greenwashing and funding strategies role that private capital can play. Public and worries surrounding ESG reporting. finance has the scale but it’s extremely Many of these concerns were raised by slow and extremely bureaucratic, for Guernsey Finance research from 2019 good reason, because it needs to be (see opposite). During Guernsey’s Sustainable Finance held up to a higher standard. But then, at the same time, it cannot experiment Week this summer, a panel including as much. Guernsey private equity veteran Jon ‘So, the thing with private capital is Moulton, David Bain, editor of Family that you can forego some return and Capital, and Taeun Kwon, Head of Private go more into the concessional part of Wealth Programmes at the University of it, and create innovative result-based Zurich’s Centre for Sustainable Finance financing to incentivise more green and Private Wealth, considered these infrastructure. Even in large-scale issues and more.

infrastructure it’s pretty clear that public capital alone is not going to be enough.’ Bain welcomed the moves towards blended finance. ‘I think that’s better for society because the families are risking their capital, and not taxpayers’ money. And so if it doesn’t work out, the families lose out, not the taxpayer.’ Moulton said that the UK government had moved from being a ‘hard-nosed capitalist’ to seeing corporations in a much wider nature. ‘They’re trying to make sure big business knows it’s got responsibilities.’ Our speakers agreed that collaborative family office investment networks would be an enabler for private capital to move into the sustainable space. Bain said the opportunities that could be driven from the private wealth and family office sectors were huge. ‘I don’t see the impact of single-family offices easing off. There will be a big transfer of wealth from baby boomers to millennials over the next 10-20 years, and those individuals are more driven around sustainability issues,’ he said. ■

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GUERNSEY'S INFLUENCE VERSION

are really good ′atWeproduct development

The Guernsey Green Fund has channelled an enormous amount of private wealth into the green space and into sustainable investments

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and so we’ve been able to share that expertise with our international partners, as evidenced by the green fund

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FRANCES WATSON

ANNETTE ALEXANDER

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Lessons in routing private capital into sustainability

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Four Guernsey practitioners in funds and private wealth discuss the island’s role in green and sustainable finance, including its structuring, service and products WHAT PROGRESS IS BEING MADE IN GREEN AND SUSTAINABLE FINANCE IN GUERNSEY AND MORE BROADLY? FRANCES WATSON Partner at law firm Mourant It’s been five years since Paris (COP 21) and sometimes you can think: what have we achieved? But actually, I think what we can all say we’ve achieved is that investment and products in this space have become mainstream. ANNETTE ALEXANDER Partner at law firm Carey Olsen The Guernsey Green Fund, a Guernsey innovation and the world’s first green fund product, has channelled an enormous amount of private wealth into the green space and into sustainable investments. It is a robust, transparent product in a number of ways – 75 per cent of the fund must be invested with the objective of mitigating environmental damage and the other 25 per cent must do no harm. The investment must comply with international standards, and we will shortly add the EU taxonomy to that list. We see all sorts of green investments – solar, wind farms, agriculture, forestation –

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and managers, whether existing or first-time managers, have had no trouble fundraising; their funds have often been oversubscribed. FW A lot of this is about verification and authenticity. That’s a very powerful conversation to have and is very effective. AA I’m getting probably one or two cold calls a week on the Green Fund alone. That doesn’t mean we’re translating all of them, but the interest is there. Five years ago in this sector it was more a sense of people doing this because they wanted to. Now in Guernsey, and globally, it’s being driven by the regulators and the service providers. We’re moving towards international standards and the effect of regulation. In Guernsey we see everything from the high-net-worth individuals through to the institutions through to the pension funds. Five or six years ago, when we were looking at impact and green, the institutions were largely ticking a box. Now they are much more active, not just in budget allocations but in consideration of environmental, social and governance (ESG) factors and impact in every investment.

WHAT CAN BE DONE TO HELP ROUTE PRIVATE CAPITAL INTO SUSTAINABILITY? EMMALENE HOLDEN Director, Albany Trustee Company Guernsey is a hub for wealth planning structures, and with the increasing professionalisation of family offices, we’re seeing a strong focus on corporate governance, which is increasingly extending into environmental considerations and impact investing. Families want to work with our fiduciaries for wealth structuring and bespoke structures. Guernsey can offer to help articulate their beliefs and values and facilitate sustainable investments alongside the targets of financial return. Guernsey’s trust law is very flexible, and with a discretionary trust you can have a specific provision in there that might allow the trustees to invest in sustainable investments. Or you can go perhaps a bit further and have prescribed directions within the trust documents that would enable a certain person to direct particular investments. Guernsey is very well positioned to offer a variety of flexible solutions to help clients achieve their goals. We have charitable trusts, purpose trusts and foundations, which lend themselves to more philanthropic investing and impact investing. REBECCA BOOTH Client Director, Carey Guernsey has the right products and services for this market. Our trust companies, fiduciaries, lawyers, custodians and the banking system are all plugged into that agenda for helping private capital invest in sustainability. It means that we’ve got an ecosystem here in Guernsey that really enables positive climate change.


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GUERNSEY'S INFLUENCE

the future, the way ′weIn measure impact

Our trust companies, fiduciaries, lawyers, custodians and the banking system are all plugged into that agenda for helping private capital invest in sustainability

will become more internationally aligned, and the important point here is that Guernsey is well placed to assist with that journey EMMALENE HOLDEN

We have had a twofold increase in investment in sustainability in the past two years, which really shows that our clients are interested in making that positive impact. Our private wealth clients feel that Guernsey is a safe and like-minded jurisdiction. It means that we are really getting traction with people wanting to set up their foundations, trusts and funds in Guernsey because we’re all on the same page, with the right products, access to services and positive change that Guernsey can help to make. EH Guernsey’s focus and joined-up thinking on sustainability goes through to our fiduciary service providers. All our businesses are thinking about it and we are educating ourselves so we can initiate these conversations with our clients across all generations. There is a growing interest in ESG, and the intergenerational nature of trust structures means that we are now increasingly working with the younger generations at the forefront of our client relationships. It’s a key topic for them. They have much greater environmental concerns and they are looking for trustees and their professional advisors to help them develop strategies that are aligned with their personal values. This can extend to longer-term investing, which works for trustees, given the long-term nature of trust structures. FW We’re now seeing impact funds here in Guernsey. Traditionally this has been the preserve of the private world, and we used to call it philanthropy. We have some fantastic structures here, particularly trusts, which have facilitated that over the years. We are

REBECCA BOOTH

seeing increased use of alternative structures, moving away from trusts into private trust companies and foundations, which allows the family to have more of an administrative role in the impact investment. On the funds side we have really good regulatory products that suit impact investing: our private investment funds for fewer than 50 investors who are sophisticated, or if there are going to be more than 50 investors, you are probably looking at a registered fund product. Both of these are quick to market and have a lighter regulatory touch.

GUERNSEY’S INFLUENCE ON SUSTAINABILITY FW Guernsey has had more than 40 years of experience of international engagement as a specialist centre for global finance. We have signed up to anti-money laundering, the Foreign Account Tax Compliance Act, the Common Reporting Standard and economic substance requirements, and as a result we have been whitelisted by the EU and OECD. Our regulator is accustomed to having international cooperation agreements. So it’s in our DNA. And when you take that concept of international engagement in the sustainability finance sector, we have continued this journey. Aligning ourselves to international standards has helped us to bring in a financial system network. We’ve learned from that, and we’ve also learned how to regulate it. We are really good at product development and so we’ve been able to share that expertise with our international partners, as evidenced by the Green Fund. EH It is fair to say at the moment that there isn’t really any global alignment in terms of what is a consensus for measuring impact.

Each impact fund investment or family will really set their own objectives here and then decide how they want to measure it. In the future, the way we measure impact will become more internationally aligned, and the important point here is that Guernsey is well placed to assist with that journey. AA ESG was mainstream before the pandemic, and what the pandemic has highlighted to us all are the systemic risks of the way we live and the consequences of our society. It has certainly brought it to the front and centre of people’s minds and it is now mainstream. I hope that what happens now is that it generates into more investment in this space. We certainly see more enquiries, and this topic has joined the everyday conversations. RB Corporate governance has always been at the heart of what Guernsey offers and what the financial services industry offers globally. Every jurisdiction has a corporate governance code. Who’s to say, in the future we might see an ESG code, where those corporate governance basics are expanded. ■

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Our panel were speaking at a Guernsey Green Finance conference, hosted as an official event of Climate Week NYC 2020. To watch the webinar in full, go to: www.weareguernsey. com/finance-events/2020/private-wealthfinancing-sustainability/on-demand

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IMPACT INVESTMENT VERSION REPRO OP SUBS

Making an impact

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Justin Sykes, CEO and founder of Guernseybased Innovest Advisory and a pioneer in impact investment, outlines the recent development of that sector

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We’re now starting to see asset How does impact address the eternal managers and banks really looking at conflict of outcomes and returns? the sustainable finance market as an The narrative around tension between opportunity to identify new investments returns and achieving non-financial in emerging markets and to respond to outcomes, whether they be environmental or social, and the argument that if you want a growing demand from clients to invest in a way that achieves positive impact for to achieve good, you have to sacrifice people and planet. returns, well that paradigm is pretty much dead and buried. As the sustainable thematic grows, so How can new structures enhance the does the range of sustainable and impact attraction of this sector? investment opportunities, We are seeing very strong and those opportunities growth in the development We’re starting to are expanding along a see asset managers of new instruments – funds, continuum of risk and return capital market instruments, and banks really and impact. and front-line businesses It is possible to invest with looking at the we call ‘impact SMEs’, where sustainable finance there is exponential growth. no tradeoff between impact and financial return. It just But when we look at market as an depends on the nature of financing the UN Sustainable opportunity to the investment. Lower-risk Development Goals and identify new investments can still achieve achieving those targets, investments in meaningful financial and we need to move from the emerging markets environmental returns. billions that currently flow from Often investors are willing the world’s richer markets to to make an investment we the poorer, to trillions. call ‘impact first’ – the impact is We get there through innovative the priority to them over the financial financing structures. Blended finance is returns. It really depends on the really fascinating – a concept where, if investors’ requirements. an investment may create challenges for an investor on issues such as risk return or liquidity, you create capital stacks that Where is sustainable finance today? bring different types of capital into the Over the past few years we’ve seen a deal. But we need to get these structures rapid broadening of the market and of operating at the level of not hundreds of the investor types interested or actively millions, but billions. deploying capital into sustainable and impact investing. This is seen as an opportunity for highIs it time for a standardised net-worth individuals to enhance their assessment framework? long-term philanthropic and charitable With regard to climate, there’s no question objectives. By investing in impact and that that mandatory reporting is coming – receiving a return, they can grow the pot the writing’s on the wall. of wealth that can ultimately be deployed If we go back five years, it very much for philanthropy. was an alphabet soup of standards. Now

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we’re beginning to see coalescence around a smaller group of core standards that are starting to become industry practice. That’s helpful to make signals to the market and for investors in making it easier to understand the space.

How important is measurement in this sector? Measurement of impact is absolutely critical for us. It defines this whole space. If you are unable to measure a clear impact, outputs and ultimately outcomes, it’s very difficult to defend against greenwashing or impact-washing. We sit down with the fund manager bringing a new impact or sustainable fund to market and have a tough conversation about authenticity and intentionality. If you put the words impact or sustainable in your fund, you are telling the market that you are planning to achieve a whole range of non-financial and financial returns. Immediately that language has weight and consequences. You’re holding yourself out to the market to, in effect, deliver a double bottom line, or even potentially a triple bottom line to investors. You are not only on the hook for financial returns but also for environmental and social returns. ■ Justin Sykes was speaking to Dr Andy Sloan as part of the Guernsey Green Finance podcast series. Search Guernsey Green Finance podcast in your podcast provider to find this and more than a dozen other interviews with leading figures in the international green and sustainable space.


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GUERNSEY AND HONG KONG

Simplicity is key for sustainable investment Kate Hodson, Partner and Head of ESG Funds at law firm Ogier in Hong Kong, says keeping it simple was the key message from a joint webinar between WE ARE GUERNSEY and the HKGFA

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uernsey has seen an increasing flow of business with Hong Kong in recent years, particularly in private wealth. The two jurisdictions also share a leadership position in green and sustainable finance. Both are members of the United Nations’ Financial Centres for Sustainability network and WE ARE GUERNSEY linked up with the Hong Kong Green Finance Association (HKGFA) for a webinar on funds structuring and the financing of sustainability. It is impressive to see the progress that both jurisdictions are making as a centre of green and sustainable finance. The learnings that I took from our chat on the webinar with Tracy Wong Harris, Deputy Secretary General at the HKGFA, were the need to keep things simple – we can take inspiration for that from what is happening with green investments on the bond market – and to learn to do all we can to avoid concerns about an ‘explosion’ of reporting demands, which could potentially create confusion in the market. The development of this sector in Hong Kong has been rapid over the past couple of years, fuelled by a mix of green finance policy enhancements, strong project financing and seeking to meet investor demands for environmental, social and governance (ESG) across Hong Kong and China. Recently the Securities and Futures Commission (SFC) of Hong Kong issued a consultation paper suggesting changes that would require fund managers to consider climate-related risks in their investment and risk management processes, thereby looking to align the

or even a separate report, says Guernseybased Kevin Smith from fund administrator Ocorian. Other challenges for the sector include increasing reporting demands on portfolio companies, and the subjectivity in the process, driven by a lack of a global standard, which is an issue raised worldwide. ‘There are so many taxonomies and Hong Kong funds industry with other principles out there, different for each international developments. The market in the global financial centres region, so it’s really difficult for the investors themselves to know and to get pioneering these developments is clearly a clear picture of what’s going on across poised for a wall of new capital flows. countries across funds and across different We have to look at ways to unlock this regions,’ he said on our webinar. fresh capital, and we can learn from the A key part of Guernsey’s contribution to experience of the bond market. But we the debate has been the development of can’t stop there, we need to look at all the Guernsey Green Fund, the world’s first areas of the finance supply chain, and the regulated green fund, which SFC’s latest move shows that was introduced to the market this is the direction Hong We need to look in 2018. Kong is headed. The product has created Certainly, the bond market at all areas of the finance supply interest from managers is at the more mature end of chain, and the worldwide, attracted by its the green and sustainable finance wave. In Hong Kong SFC’s latest move simplicity, transparency and robust nature, and the ability at the end of last year, total shows that this to structure further, including green bond issuance was is the direction sidecar arrangements and HKD26 billion. The Hong Hong Kong is co-investment. Kong government has headed The first such Green Fund issued its first HKD1 billion manager, ADM Capital, which green bond, which was is split between the UK and oversubscribed four times, Asia, reported that its fundraising was and it has since announced plans to issue a further HKD66 billion over the next five years. enhanced when it went out to investors with the backing of Green Fund status. Hong Kong’s green bond programme Guernsey’s combination of a simple, seeks to demonstrate government support flexible private fund regime, the respected for the sector, position the jurisdiction as a Green Fund regime and private wealth global market leader and set a benchmark advisory expertise can provide a winning for green bond products. combination for private investors looking to Aside from encouraging market invest sustainably. ■ developments, we also hear concerns that the complexity of the ESG, green and sustainable finance landscape could cause To view the webinar in full, go to: www. confusion and create extra costs. weareguernsey.com/finance-events/2020/ ESG reporting has, for some, grown from hong-kong-masterclass-funds-structuring-anda page of the annual report to 20-30 pages, financing-sustainability/on-demand

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DRIVING CHANGE VERSION REPRO OP SUBS

Pivot to ESG and sustainability the next step for private capital

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Rupert Morris, Chair of STEP Guernsey and a member of STEP’s worldwide Council, outlines Guernsey’s connections with the development of sustainable finance. He is a partner in Walkers’ Guernsey office and the head of the firm’s Channel Islands Private Capital and Trusts team

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Responding to concerns about the our key factors make ‘environmental, climate crisis and society’s increasing social and governance (ESG) expectations of purpose and impact investing’ and sustainable finance in the commercial world, there has been particularly relevant to private wealth a growth in the design of investments managers, trustees and those advising that seek, intentionally, to generate high-net-worth families: a measurable, beneficial social or ■ a growing societal awareness and environmental impact alongside a financial commitment to environmental causes; return. These are known as impact ■ a demographic transfer of wealth investments, and their focus includes to a younger and more socially tackling global issues such as climate conscious generation; change, poverty, education, healthcare ■ increasing pressure on reporting and the diversity and inclusion agenda. ESG metrics by governments and More and more family offices that we regulators; and deal with have these issues at the heart ■ the opportunity to ‘build back better’ of their wider agenda, with consultants with significant infrastructure investment advising on social and as the world recovers environmental measurables from COVID-19. and deliverables of While ethical investing As we enter a investments in the same way may have been little new decade, that they might report on more than a buzzword in the focus is now financial performance. years gone by, in today’s very much on In the private wealth world it has taken on a integrating an sphere an increasing number growing significance. of families and ultra-highAs it has done so, the even deeper net-worth individuals, often responsible investing commitment to via their family office, are continuum has expanded positive societal looking to deploy capital into from the principle of ‘do no investments that may have a harm’ to one where investors impact within investments personal and/or geographic are now seeking to achieve connection with the family, positive environmental and and which at the same time social impact alongside will have a positive impact financial returns – and not as on the world around them. Families are a tradeoff against them. As we enter a new allotting significant importance to impact decade, the focus is now very much on and sustainable investing within their integrating an even deeper commitment to businesses and investment portfolios. positive societal impact within investments.

THINK

Capital House, 25 Chapel Street, London NW1 5DH t +44 (0)20 3771 7200 www.thinkpublishing.co.uk

Creating a common set of family goals acceptable to each of the generations is becoming more achievable due to the increased metrics that can highlight their success or failure. As a result, those impact and sustainability goals, together with the methods for testing them, can be incorporated successfully into the investment strategy of the modern family office. It has been 15 years since the term ‘ESG investing’ was first used in an International Finance Corporation report, and all available evidence suggests that responsible investing is poised to grow far quicker in its second 15-year phase than its first. That change is driven partly by demands on institutional investors (particularly those managing capital for pension funds or sovereign wealth funds). But, at the same time, there are changes in the behaviour of those controlling the growing amount of capital in private hands to push it further in the direction of responsible investing. Guernsey’s role in the international picture is clear – it is a jurisdiction that combines the innovative structuring tools, quality professional expertise and financial services infrastructure to support cross-border responsible investment into the new decade and beyond. These efforts mean the island is primed to position itself as the jurisdiction of choice to deliver the professional services and responsible finance solutions that a new generation demands. ■

Sales Director Tom Fountain t +44 (0)20 3771 7250 e tom.fountain@thinkpublishing.co.uk Print: Full Spectrum, Basildon

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Intro europe

27 VERSION

Regional focus

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Europe

Border crossings

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Scottish and Spanish estates The implications of cross-border estates involving Spain and Scotland by Álvaro Aznar Azcárate and Nicola Neal.................................... 29

Christopher Corr / Ikon Images

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Between the misty highlands of Scotland and the summer shores of Spain, it shouldn’t come as a surprise that the number of crossborder estates involving the two jurisdictions is steadily on the rise. Álvaro Aznar Azcárate TEP and Nicola Neal examine the interaction between Scottish and Spanish estates on death, and emphasise the need for interactions between them to be ably elucidated. In this issue’s regional focus, we put a spotlight on Europe, with more articles featuring cross-border considerations involving the vast continent. Shai Dover TEP stresses the need for cooperation between advisors when calculating cross-border taxation, using German and Israeli tax law as an example, and highlights the importance of creating a professional network of tax advisors from different jurisdictions. Switzerland and Liechtenstein and their financial service offerings are often confused, even by international experts, Dr Ariel Sergio Goekmen-Davidoff TEP writes; and in his article, he provides clarity on the scope and utility of Swiss foundations. In Luxembourg, Sarah Verlende and Bertrand Géradin outline the new obligations for local and foreign trustees involved in fiduciary arrangements and trusts, following the passing of new anti-money laundering legislation in July 2020.

Much obliged New obligations for local and foreign trustees involved in fiduciary arrangements and trusts in Luxembourg by Sarah Verlende and Bertrand Géradin ...................33

Like clockwork An update on the usefulness of Swiss foundations by Dr Ariel Sergio Goekmen-Davidoff ........................ 35

Practice makes perfect The need for cooperation between advisors when calculating crossborder taxation, using German and Israeli tax law as an example by Shai Dover ................................39

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Utmost adv

ADVERTISING FEATURE VERSION

A proven solution for modern wealth portfolios

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Private market, alternative and non-traditional assets are a proven solution for modern wealth portfolios, writes Stephen Atkinson

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Three important trends have emerged in recent years as private clients and their advisors respond to changes in society and developments in the financial markets.

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focus on strategic 1 Awealth planning

This approach targets the preservation and transfer of wealth with an emphasis on futureproofing, by conserving the underlying assets, preserving the client’s lifestyle and passing on their wealth to the next generation.

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The inclusion of alternative/ 2 non-traditional assets in wealth portfolios as a means of diversifying investment risk

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Alternative investments have grown substantially in recent years, a trend expected to continue globally with growth of 8 per cent annually to reach USD24 trillion by 2024.1 Investment in alternative assets is compelling for investors who have a long time horizon (not less than five years) and who can forgo some of the flexibility provided by less liquid investments.

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The use of unit-linked life assurance as the preferred structure for many clients’ wealth planning This enables the protection and transfer of wealth, facilitates portability and provides access to a wide range of asset classes. The tax-efficient life assurance structure can hold a mix of traditional and alternative assets, allowing the asset allocation to take place efficiently within it. These three trends have seen advisors make increasing use of unit-linked life assurance structures to hold and administer portfolios of alternative assets. This has contributed to the growth in international life assurance premiums to GBP45 billion in Europe alone in 2019.2

Alternative investment asset allocation Alternative investments can provide exposure to sectors and companies underrepresented in public equity markets and thus increase the diversification of an overall portfolio. 1 Oliver Wyman/Morgan Stanley Research, After the Storm 2 Association of International Life Offices 3 UBS, ‘Allocating to private equity in a multi-asset class portfolio’ 4 Subject to our clients’ local tax regulations

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This diversification can smooth volatility and avoid excessive risk concentrations with non-correlated assets reacting differently to public market movements. Depending on their unique personal preferences, a proportion of up to 20 per cent of the asset allocation is typically viewed by advisors as being suitable for most private clients,3 enabling them to profit from higher expected returns without compromising on the flexibility or liquidity of the portfolio. Typical alternative investment assets in multi-asset portfolios include: • private equity funds (through direct investment in private equity funds or through feeder structures); • complex hedge funds (with limited liquidity and lock-up periods); and • private companies (including through unlisted equities and bonds). Many of these non-traditional alternative assets are complex to value and administer and are illiquid or have limited liquidity.

Benefits of an insurance structure holding the non-traditional assets The ability to hold such alternative assets within a unit-linked life assurance policy enables wealth managers to place their own end-to-end private markets investment proposition in a long-term wealth preservation and transfer structure. Alternative assets are complex in their make-up and reporting, and the unit-linked assurance structure removes the complexity of administering such assets individually and within a mixed portfolio. Utmost’s efficient solutions offer the flexibility of both traditional and alternative investment management options. With access to an extensive range of asset classes and multiple managers, our solutions can adapt as investment trends and client needs change.

How does it work? Each Utmost policy has an asset strategy run by the client’s chosen advisor on a discretionary or advisory basis. When an advisor asks to invest in an alternative asset, Utmost carries out extensive due diligence to ensure the asset is in line with the chosen policyholder strategy and The information presented is not tax or legal advice. This article has been prepared for general information purposes only. The companies in the Utmost Group can take no responsibility for any loss that may occur as a result of reliance on this information.

permissible within Solvency II parameters and local tax regulation. Please note that the ability to hold alternative investment assets in Utmost policies will vary by jurisdiction due to differences in local tax legislation and therefore it may not be possible to acquire alternative investment assets in all jurisdictions. Assets may be held in the Utmost name as well as in the name of the custody bank. However, given the complexity, it is quite common that custody banks are not willing to hold the assets in their names. Utmost offers full custodian and administration service for alternative and non-traditional assets, such as processing subscriptions, redemptions and transfers of shares/notes, managing capital calls and distributions (for private equity funds), reviewing independent valuations, recording all transactions and ultimately reconciling the positions for the purpose of overall policy valuation for the advisor to include in client reports.

Utmost expertise Specialist alternative asset services are provided by Utmost PanEurope dac in Ireland. Within Utmost PanEurope, a dedicated Complex Asset Dealing Team is responsible for supporting asset managers and policyholders in the on-boarding, custody and administration process for alternative or ‘complex’ assets. The Complex Asset Dealing Team handles long-term investments with limited liquidity, which include but are not limited to private equity funds, hedge funds, financial holding companies or special purpose vehicles, unquoted equities and unquoted bonds.4 Utmost PanEurope, currently administering an alternative asset book held in policies worth over EUR4 billion, has specialist expertise in on-boarding, investing in and administering alternative assets on behalf of its policyholders. Utmost PanEurope is part of the Utmost Group, one of the largest international life assurance companies with over EUR40 billion of assets under administration and a worldwide network of offices. The main insurance entities operating under Utmost also have Insurer Financial Strength ratings of ‘A’ with stable outlooks from Fitch Ratings. Stephen Atkinson is Global Head of Sales and Marketing at Utmost Wealth Solutions www.utmostinternational.com Utmost PanEurope dac is regulated by the Central Bank of Ireland. Utmost PanEurope dac is a designated activity company registered in Ireland (number 311420), with a registered office at Navan Business Park, Athlumney, Navan, Co. Meath C15 CCW8, Ireland.

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The number of crossborder estates involving Spain and Scotland is growing steadily, emphasising the need for interactions between them to be ably elucidated. What does it mean for me?

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What can I take away?

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Succession planning for people with Scottish/Spanish ties is not straightforward, so a coordinated approach to planning and seeking advice in both jurisdictions is advisable.

Scottish and Spanish estates ÁLVARO AZNAR AZCÁRATE AND NICOLA NEAL EXAMINE THE IMPLICATIONS OF CROSS-BORDER ESTATES INVOLVING SPAIN AND SCOTLAND

Álvaro Aznar Azcárate TEP is a Senior Associate at Buckles Solicitors, and Nicola Neal is an Associate at Brodies

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Practitioners should be aware of the necessary considerations where an individual is either domiciled in Scotland and owns Spanish assets, or domiciled in Spain and owns Scottish assets.

DOMICILE v HABITUAL RESIDENCE For individuals with cross-border connections, domicile is important, as this will determine the tax and succession regime applicable on their death. In the UK, a person will have a domicile of origin that they acquire at birth. This is generally the same as their parents’ domicile. However, it is possible for a person to acquire a new domicile of choice in another country. Spain is a signatory of the EU Succession Regulation (the Regulation),1 so the key factor is the habitual residence of the deceased. Before the Regulation came in, under Spanish rules, the relevant factor was the law of the deceased’s nationality. However, under art.22 of the Regulation, the testator can choose the law of their nationality to govern their succession. This choice is key in international estates involving assets in Spain and Scotland: if a Scottish

person dies intestate, but owned Spanish immovable property and was habitually resident in Scotland, Spain should accept the renvoi that Scots law provides for, and Spanish law will apply to that property. Consequently, the deceased’s beneficiaries may be entitled to a share in the Spanish property via statutory reserved heirships. On the other hand, if there is a will and a clear election to Scots law, the Spanish provisions will not apply. TAX CONSIDERATIONS In the UK, inheritance tax (IHT) is charged on an individual’s worldwide estate on death if they are UK domiciled. IHT is charged at 40 per cent (or 36 per cent if 10 per cent or more of the deceased’s property passes to UKregistered charities) on the net balance above the nil-rate band (GBP325,000). The estate may also qualify for the residence nil-rate band (GBP175,000) if certain conditions are met. Transfers between UK-domiciled spouses on death or during lifetime are exempt from IHT. Where the transfer is from a

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UK-domiciled spouse to a non-UKdomiciled spouse, the spousal exemption is capped at GBP325,000. Spanish IHT is paid where the beneficiary is: • tax resident in Spain, in which case Spanish IHT is payable on all assets received; or • non-resident for tax purposes but is inheriting assets located in Spain. Spain is divided into 17 regions or autonomous communities, and each has different allowances for spouses, ascendants, descendants and other relatives, which are generally divided into four categories: • Group I: descendants under 21 years of age; • Group II: ascendants, descendants and spouses; • Group III: collateral relatives of second and third degree (e.g. siblings); and • Group IV: collaterals of fourth degree (i.e. cousins) and other unrelated parties. There are regions, such as Madrid, where IHT is virtually non-existent between spouses. Groups III and IV not only have low allowances available, but are also subject to a multiplying coefficient that is applied to the tax payable, thus increasing the tax due. Other factors, such as the pre-existing wealth of the beneficiary, may also increase the tax due. If the testator has Spanish assets, they should consider leaving those particular assets to close family relatives to avoid potential high tax bills. Leaving an asset in Spain to a friend or an unrelated party can be costly. The application of UK and Spanish IHT raises the possibility of double taxation of Spanish assets where the deceased is domiciled in Scotland. There is no double taxation agreement between the UK and Spain. However, the UK unilateral relief provisions may provide some relief, whereby a credit may be given against UK taxes for foreign tax payable in Spain. If the beneficiary of a Scottish estate is tax resident in Spain, they must pay Spanish IHT on all assets passing to them. However, they may also be able to claim unilateral tax relief on the taxes paid in Scotland. Where a couple is domiciled in the UK and tax resident in Spain, UK IHT will be payable on their worldwide estates (subject to the spousal exemption that may apply) and Spanish IHT will arise on the worldwide estate that is passing to the spouse. Depending on the region of residence in Spain, taxes can be higher or lower. Local plusvalia tax is also charged by local authorities on the ‘deemed increase’ of the value of the land since the last transfer of legal ownership.

‘For a Scottishdomiciled testator owning assets in Spain, having a separate Spanish will to dispose of their Spanish assets can simplify the administration process’ WILLS Where multiple jurisdictions are involved, is a will required in each country where assets are located? One should certainly have a will in the country in which one is domiciled. Whether a separate will is required to deal with assets abroad is subject to some uncertainty and will ultimately depend on individual circumstances and the complexity of an estate. For a Spanish-domiciled individual with Scottish assets, there should be a separate Scottish will to deal exclusively with Scottish assets, as this will make the administration process more straightforward. In Spain, wills are also executed before notaries, who are not familiar with Scots law and may be reluctant to include Scots law concepts or terms in a Spanish will. For example, Spanish estates are not administered by a court order where a personal representative (or executor) is appointed. The concept of a personal representative is not entirely alien in Spain, as it does have (rarely used) albaceas, but they have very limited powers compared to those of a personal representative. It is therefore highly unlikely that Scottish courts would recognise an albacea as a personal representative. For a Scottish-domiciled testator owning assets in Spain, having a separate Spanish will to dispose of their Spanish assets can simplify the administration process, but it will depend on an individual’s circumstances. If multiple wills are drawn up these must be compatible, and a subsequent will does not revoke an earlier will. Although the UK has not signed up to the Regulation, it should still be considered when making a Scottish or Spanish will. The testator may want to include a preference in their will, stating whether the law of their nationality should apply. This choice will ultimately depend on which succession regime is

more aligned to the testator’s testamentary wishes, while considering the forcedheirship rules that apply in each country. In most cases, Scots are advised to have Scottish law apply to their estates to avoid a situation where part of their estate devolves under a different law. Forced-heirship rules The succession regimes in Scotland and Spain both include forced-heirship rules. In Scotland, legal rights apply if you are Scottish domiciled on death. Legal rights apply automatically in testate and intestate estates. They can be claimed by the deceased’s surviving spouse/civil partner and children. They are claimed from the deceased’s worldwide net movable estate. The legal right of the spouse is one-third or one-half of the net movable estate, depending on whether there are surviving children. Similarly, surviving children have a right to one-third or one-half, depending on whether there is a surviving spouse. Legal rights can be defeated only if there is no movable estate, so in almost every case, they will apply. If Spanish law applies to an estate, then the forced-heirship provisions will apply. In Spain, there are regional laws dealing with succession; Aragon, the Balearic Islands and Catalonia, among others, have different laws dealing with succession that will apply to an estate if certain conditions are met. Under Spanish common law (derecho común), the forced heirs are the descendants, ascendants and the spouse. If the deceased is survived by descendants and a spouse, the children will be entitled to one-third, to be distributed equally among them, known as legítima. In addition, one or all the children (at the testator’s choice) are entitled to another third, called tercio de mejora. The testator could leave this additional third to at least one child if they wish to. If a specific choice is not made, it will be distributed equally. The testator can freely dispose of the remaining third, known as tercio de libre disposición. The spouse will have the right to a usufruct or life interest trust over the tercio de mejora. PLANNING IS KEY Planning is key for cross-border estates; a straightforward scenario does not exist. Advice should always be sought in both jurisdictions, and coordinated between professionals. Remember, what is advisable and practical in one jurisdiction may not be in another. #CROSS-BORDER ESTATES #RESIDENCY OR DOMICILE #ESTATE PLANNING 1 Regulation (EU) No 650/2012

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Much obliged SARAH VERLENDE AND BERTRAND GÉRADIN DESCRIBE NEW OBLIGATIONS FOR LOCAL AND FOREIGN TRUSTEES INVOLVED IN FIDUCIARY ARRANGEMENTS AND TRUSTS IN LUXEMBOURG

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In the aftermath of the obligation to create a register of beneficial owners for all Luxembourg companies registered with the Luxembourg Trade and Companies Register (Registre de Commerce et des Sociétés), as enacted by the Law of 13 January 2019 establishing a register of beneficial owners (the Law), the Luxembourg legislature has now implemented a fiduciary agreements and trusts register (Registre des fiducies et des trusts, the Register). By passing the Law of 10 July 2020 creating a register of fiducies and trusts (the RFT Law), which came into force on 17 July 2020, the Luxembourg parliament has transposed the last part of the EU Fourth Anti-Money Laundering Directive,1 as amended by the Fifth Anti-Money Laundering Directive,2 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and enhancing the transparency of beneficial ownership of trusts, fiduciary agreements and similar legal constructs.

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SCOPE OF THE RFT LAW The RFT Law applies to: • all fiducies and trusts with a fiduciary agent (fiduciaire) or trustee established or domiciled in Luxembourg; • all fiducies and express trusts for which the fiduciaire or trustee is established in a third country, where the fiduciaire or trustee enters into a business relationship in Luxembourg with a professional, i.e. an entity subject to the Law of 12 November 2004 on the fight against money laundering and terrorism financing (the AML Law), or acquires real estate located in Luxembourg on behalf of such fiducie or trust; and • all legal arrangements that have a structure or function similar to that of a fiducie or a trust.

then required to file and maintain the following information: • identification number of the trust or fiducie; • name and address for natural persons and the company name and identification number for legal entities; • the information for each beneficial owner, including a description of the nature and extent of the interest effectively held; and • whether the trust or fiducie owns (directly or indirectly) a controlling interest in a company established outside the EU. There is a one-month filing deadline from the event triggering the registration obligation. The AED monitors compliance with the RFT Law and may impose administrative sanctions (ranging from a warning to an administrative fine up to EUR1.25 million) in case of failure to register the required information or the provision of inaccurate and outdated information.

INFORMATION TO BE COLLECTED AND KEPT BY THE FIDUCIARIES AND TRUSTEES All fiduciaries and trustees covered by the RFT Law must obtain and hold information on the beneficial owner/s of the trust or fiducies, including the identity of: • the settlor/s; • the trustee/s or fiduciary/ies; • the protector (if any); • the beneficiaries or the class of beneficiaries; and • any other natural person exercising effective control over the trust or the fiduciary. This information must be adequate, accurate, up-to-date and kept for a period of five years following the termination of the involvement in the relevant fiducies or trust. Upon request, the trustee or fiduciaire must make information available regarding the identity of the beneficial owners to national competent authorities or professionals within the meaning of the AML Law, such as, among others, the public prosecutor, the financial regulator (Commission de Surveillance du Secteur Financier), the insurance supervisory agency (le Commissariat aux assurances), the tax administration (l’Administration de l’enregistrement, des domaines et de la TVA, AED) and professionals with whom they enter into a business relationship.

1 Directive (EU) 2015/849 2 Directive (EU) 2018/843

THE OBLIGATION TO REGISTER Much in line with the Law, the RFT Law creates a central register of fiducies and trusts under the supervision of the AED. In principle, all trusts and fiducies must be registered with this central register. Upon registration with the Register, the fiducie or trust will receive a unique registration number and it is

Sarah Verlende is a Senior Associate, and Bertrand Géradin is a Partner, at Ogier, Luxembourg

ACCESS TO THE RFT REGISTER National authorities and self-regulated bodies have access to all information filed in the Register, as well as professionals who require such information in order to fulfil their obligations under the AML Law. Limited access to certain information is granted to any natural or legal person demonstrating a legitimate interest in preventing the use of the financial system for money laundering or the financing of terrorism. In this case, a duly motivated request must be submitted to the AED. SANCTIONS Administrative sanctions resulting from non-compliance with the RFT Law may be imposed on fiduciaries and trustees as well as on members of their governing bodies or other persons who do not comply with their obligations. Sanctions may also be applied to persons who make inappropriate use of the information, i.e. for other purposes than those for which access was granted. #TRUSTS #LEGISLATION #REGULATION AND COMPLIANCE

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The protected cell company in Liechtenstein

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by Thomas Nigg and Domenik Vogt

itself constitutes a separate legal entity.

Driven by the desire to provide investors with a contemporary and attractive company law, Liechtenstein introduced the protected cell company (PCC) on 1 January 2015. While the initial prevalence of the PCC was limited (at the beginning of 2018, there were 17 registered PCCs), it is steadily gaining traction. The PCC is a structure that offers various organisational and liability advantages. This article aims to give a short overview of the PCC’s essential characteristics and potential applications.

Establishment of a PCC Legal entities that are either required by law or voluntarily choose to be entered in the commercial register, and which solely pursue one or more of the following purposes, may be set up as PCCs: • common-benefit or charitable purposes pursuant to art.107 para.4a of the Liechtenstein Persons and Companies Act (Personenund Gesellschaftsrecht); • acquisition, management and value maximisation of participations in other enterprises or subsidiaries; • exploitation of copyrights, patents, trademarks, designs or models; and • deposit guarantee and investor protection systems under European Economic Area legal provisions. A legal entity may be structured as a PCC upon formation. Alternatively, existing legal entities may be converted into a PCC, provided that this is allowed for in their articles and provided that an audit/ expert report confirms that the creditors’ claims are fully covered. In particular, subsequent conversion into a PCC is also possible for foundations if the statutes allow for this or if the founder has reserved the right to amend the statutes.

Main characteristics of the PCC The PCC is not a type of legal entity. Rather, it is based on and modifies legal entities such as the foundation, the public limited company and the private limited company. Unlike an ordinary legal entity whose entire assets are liable for the obligations of the legal entity, the PCC is divided into a core and one or more segments (cells). Both the core and the individual cells of the PCC constitute separate, mutually independent bodies of assets. The assets of one segment are not liable for the obligations assigned to other segments. Principally, such a segregation of liability can also be effected by establishing a group of companies with several subsidiaries. However, in contrast to a group structure, the PCC does not require an appointment of executive bodies for each cell (subsidiary), which may lead to considerable cost savings. The cells of the PCC can conduct their business independently of one another and engage in various activities, such as the management of assets for a specific purpose or the operation of a manufacturing firm. Although the cells are treated as if they were independent companies, they do not qualify as separate legal entities. Only the PCC

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Liability and relations with third parties In the event that contract negotiations are started, the PCC must inform third parties in writing that it is a protected cell company. In addition, it must indicate what assets are available to meet obligations arising under the legal relationship concerned (i.e. the core assets or the assets of a specific cell). If these requirements are met, only the assets of the segment on whose field of activity the claim is based are liable for contractual claims and

the assets of the other cells remain unaffected. Only if the assets of a cell are insufficient to satisfy the claim, the core assets can be drawn upon. Non-contractual claims by third parties are limited to the core assets of the PCC. If these assets are not sufficient to satisfy the claim, the assets of the segment in whose area of activity the PCC has caused the claim are subordinated. Bankruptcy proceedings can be carried out both in respect of the PCC as a whole and in respect of each individual cell and the assets comprised therein.

of a PCC (i.e. applied to a foundation) further allows a targeted involvement of the heirs, e.g. by creating a separate segment (cell) for each descendant, to which the assets in which the respective descendant is to participate are contributed.

Succession planning The transfer of assets via inheritance often causes an unwanted fragmentation of assets, in particular if shares in a company are part of the heritage. Endowing the assets to a legal entity (such as a foundation) can be a sensible and sustainable solution to ensure the consolidation and continuity of a company. The combination of a foundation with the organisational form

Summary The PCC allows a clear separation of the assets comprised in each of the cells and from the core, thus enabling targeted risk management. In contrast to a group structure, the PCC does not require the appointment of executive bodies for each subsidiary, which may lead to considerable cost savings. The PCC is particularly well suited to charitable purposes, succession planning and usage in the insurance industry or investment management. While the initial prevalence of the PCC was limited, the PCC is steadily gaining traction and sparking interest. Due to its benefits, it is to be assumed that this development will continue in the future.

M.A. HSG Thomas Nigg, LL.M. is a Liechtenstein lawyer and citizen. He studied law at the University of St Gallen (Switzerland), where he obtained his master’s in Legal Studies in 2008. In 2007 he began practising as a lawyer in Liechtenstein and was admitted to the Liechtenstein Bar in 2010. In 2014 he was appointed Partner of Batliner Gasser Attorneys at Law (now GASSER PARTNER Attorneys at Law). In 2016 he was appointed Senior Partner. In 2018, he completed an LL.M. in company, foundation and trust law at the University of Liechtenstein.

Dr. iur. Domenik Vogt, LL.M. (WU), LL.M. (Cambridge) is a Senior Associate at GASSER PARTNER Attorneys at Law. He studied business law at the Vienna University of Economics and Business, where he earned his LL.B. in 2012 and his LL.M. in 2014. In 2015, he obtained his second LL.M. at the University of Cambridge and began practising in Liechtenstein. He passed the Bar exam in 2017. In parallel to his work at GASSER PARTNER, he completed the doctoral programme at the University of Zurich and wrote a dissertation on the Liechtenstein establishment (Anstalt).

Phone: +423 236 30 80 Email: thomas.nigg@gasserpartner.com Web: www.gasserpartner.com

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Swiss foundations are often technically confused with foundations in other jurisdictions.

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What does it mean for me? Practitioners should be aware of the scope and utility of Swiss foundations.

Like clockwork DR ARIEL SERGIO GOEKMENDAVIDOFF PROVIDES AN UPDATE ON THE USEFULNESS OF SWISS FOUNDATIONS

What can I take away? ART PRODUCTION

Clarity on the difference between Swiss foundations and foundations in other jurisdictions, including what they may be used for.

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Dr Ariel Sergio GoekmenDavidoff TEP is a Partner at Lindemann Law, Zurich

Most readers will know about the Liechtenstein foundation; however, its financial service offerings are often confused with those of Swiss foundations, even by international experts. This article will not discuss the Liechtenstein foundation in great detail, but rather will provide clarity on the scope and utility of Swiss foundations. Swiss foundations can indeed be used for a number of purposes: charitable, employee benefit, even to hold companies. However, the great majority of foundations, about 13,000, are active in the field of charity. It is widely believed by the Swiss foundation community1 that the OECD’s intention to include beneficiaries of Swiss charitable foundations in automatic exchange of information was the result of its recognising no difference between the Liechtenstein and Swiss models.2 The Swiss model cannot be abused to evade taxes, as Swiss foundations are supervised by a special authority and scrutinised by the tax authorities at the same time. A Swiss foundation cannot be controlled by the founder or the beneficiaries. The foundation council can only move within the restrictions of the law and the funds settled into a Swiss foundation are irrevocable. However, thanks to the intervention of SwissFoundations (an industry association) and the Swiss government, this misunderstanding is now cleared up and no information exchange on Swiss charitable foundations will take place for the time being. Imagine sitting on the board of a foundation that supports humanitarian causes in certain countries where the rule of law is not as well established, and the names of perceived

adversaries to the existing governments (who received your donations) get exchanged. Soon, the foundation would have no more beneficiaries to support. Switzerland has one of the highest densities of foundations per capita in the world. This is because Swiss foundations are mainly used for charitable causes and therefore donations can, under certain conditions, be deducted from income and profit. There are more than 13,000 charitable foundations registered in Switzerland, which means there are nearly 16 foundations per 100,000 inhabitants.3 By contrast, Germany has ten times the population of Switzerland and has more than 20,000 charitable foundations.4 A foundation is created based on the Swiss Civil Code (the Code)5 and is its own legal person with its own dedicated assets. Under the Swiss tax system, and based on art.335 of the Code, it is difficult to establish a foundation that would pay for the maintenance of a family, although it is possible under certain circumstances to allow benefits for the family, e.g. for educational purposes. Therefore, the overwhelming majority of Swiss foundations are founded for exclusively charitable purposes. This is probably the main difference to the Liechtenstein foundation. It is possible to create foundations that hold enterprises; in the author’s view, however, these are mainly established to ensure that a family corporation is not sold off by later generations. This does not always work, as sometimes the foundation council decides to sell the shares of the company it holds, e.g. to ensure the continuation of the business as the foundation founders stipulated.

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It is relatively easy to form a Swiss foundation, as there is no minimum capital required per se, although in practice the capital should be at least CHF50,000. The foundation starts its life by being registered in the Swiss commercial registry. This can be done during the lifetime of the founder or by virtue of the last will and testament. The disadvantage with the latter is that the founder cannot amend certain potential defects of their foundation, which will only become clear in practice. The foundation by virtue of the last will and testament can be established in this way if the majority of assets are, for example, an art collection or real estate and therefore illiquid. The foundation requires financial assets to execute the founder’s wish, which is, contrary to a board of directors of a corporation, what the foundation council has to implement.

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THE FOUNDATION’S PURPOSE Although it seems straightforward to establish a foundation, there are complications. The founders of a charitable foundation must make certain that the foundation’s purpose is accepted as charitable by the tax authorities. This will happen when the authorities are convinced that the purpose benefits Switzerland and its population and, in general, is truly charitable. In the tradition of Switzerland, which is a depositary state for 79 international treaties, including the Geneva Conventions, a foundation with a purpose that focuses on humanitarian causes anywhere in the world is acceptable. Therefore, great care has to be taken when formulating the purpose. For example, a foundation that intended to create a ‘retirement home’ for old riding horses would not be seen as charitable; it would perhaps be recognised as such if the purpose had been set as ‘providing a home for old horses that are not kept in accordance with animal welfare laws’. TAX CONSIDERATIONS Under Swiss tax law, it is also important to consider when the initial donation to establish the foundation is made. If the foundation is not definitely recognised as charitable, the donation will be seen as a gift among third parties, which carries a relatively high tax burden, which must be paid by the foundation. If the donation is given to a recognised charity, gift tax will not be applied. In the event of larger donations of millions, it is prudent to obtain a tax ruling from the cantonal tax authorities. It is a relatively cumbersome process to establish a new foundation and ensure that all aspects are satisfied. As is stated above, the purpose must be

‘The founders of a charitable foundation must make certain that the foundation’s purpose is accepted as charitable by the tax authorities’ clearly defined and, especially when the foundation has a charitable purpose, must be acceptable to the tax authorities. Although it is not a legal requirement, it is recommended to populate the foundation council, which carries a responsibility similar to that of a board of directors of a company, with people who understand what is expected from them and are able to implement the founder’s wish, even after they pass away. There must be enough capital and a capability to check projects submitted to the foundation to ensure that they do not conflict with the tax exemption of the charity. Therefore, in the Swiss foundation community, there is an opinion that a foundation that does not have at least CHF10 million in capital is not a viable project. The Swiss Federal Tax Authority, as well as the Swiss supervising body (Eidgenössische Stiftungsaufsicht), regularly monitors a foundation’s payments and activities, and it would be suboptimal if, after three years, the tax exemption were withdrawn from a charitable foundation due to a payment made to a beneficiary that is not in accordance with the exceptions foreseen in the tax law for charities. Dachstiftung In Switzerland, there is another alternative for which there has been growing demand in recent years: the Dachstiftung, an umbrella foundation. This foundation can be established with a relatively wide purpose and therefore permits other foundations to be attached under it, similar to the concept of a protected cell company.6 The foundations under the umbrella of this foundation are considered to be ‘non-independent’, yet enjoy the same benefits as the independent foundation they are attached to. However, they cannot change the wide purpose of the Dachstiftung but must be able to act within it. This means the umbrella foundation provides the fundament for all activities of the sub-foundation. There is already a pre-existing foundation board, with selected experts and personalities, which

can support the sub-foundation in the implementation of the founder’s wishes. The founders of the sub-foundation may be added to their own board, or advisory board, as appropriate. The umbrella foundation will have headquarters, usually with a director who leads all activities there and also receives correspondence for the sub-foundations, which do not have their own legal personality. Accounting and finances will be maintained separately for the subfoundation and a website outlining the work of the sub-foundation and indicating where donations must be paid should also be established. Most importantly, before distributions are accepted from the sub-foundation, they are approved by the foundation board and, therefore, checked to ensure that the payment is indeed charitable and compliant. This excludes any later surprises when officials arrive either from the Swiss tax authorities or the supervising body for foundations. Thanks to this umbrella, the founders of the sub-foundation have an ‘all-care package’, which includes every aspect of the foundation’s life. The founders can focus solely on doing their charitable work and, of course, attract donations to their sub-foundation. One of the advantages of using an umbrella foundation is that its non-independent sub-foundations can be quickly established and closed again, as negotiations of the terms are only agreed upon with the umbrella foundation and a contract is drawn up to determine the main points of the agreement. The other advantage is that the establishment and maintenance of a sub-foundation only carries a fraction of the cost of a large foundation. Usually, initial costs are around CHF10,000 for the establishment of a sub-foundation, compared to up to ten times as much for a customised, independent stand-alone foundation. The running costs are equally low, normally fixed at a percentage of the distributions performed by the sub-foundation. CONCLUSION The Swiss foundation has seen an increase in take-up, with one foundation being formed daily on average, and its advantages to charity are widely recognised.7

#FOUNDATIONS #TAXATION #CHARITIES #PHILANTHROPY 1 bit.ly/35HwdFq 2 bit.ly/2Hbyxei 3 Source: Professor Dr Dominque Jacob, University of Zurich 4 bit.ly/35FxTPC, accessed 4 July 2020 5 bit.ly/3lJOA2a, accessed 4 July 2020 6 A protected cell company (PCC) is a legal entity that consists of a core linked to several cells. Cells in a PCC have separate assets and liabilities and are independent of one another. 7 The author wishes to thank Nicole Tschirky, attorney-at-law, Wenger-Plattner, for her support.

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39

VERSION

KEY POINTS What is the issue? REPRO OP

There is a fundamental difference between international and local tax counselling in Israel.1 What does it mean for me?

SUBS ART

Advisors need to cooperate with tax advisors from other countries. A failure to do so might lead to poor planning, which will expose the client to high tax rates. What can I take away?

Practice makes perfect

CLIENT

SHAI DOVER STRESSES THE NEED FOR COOPERATION BETWEEN ADVISORS WHEN CALCULATING CROSS-BORDER TAXATION, USING GERMAN AND ISRAELI TAX LAW AS AN EXAMPLE

Shai Dover TEP is founder of SD Accounting Firm Trust & Tax Consultants

Shutterstock

PRODUCTION

The necessary considerations when planning in the international arena, and an understanding of the importance of creating a professional network of tax advisors from different jurisdictions.

THE DIFFERENCE BETWEEN LOCAL AND INTERNATIONAL TAX COUNSELLING Tax advice given to a client in a certain country, while the client is a resident of another country, or where the relevant income is taxable in another country, must take into account the tax implications in both countries (i.e. the client’s country of residence and the taxing country). Incorrect advice is sometimes a result of overlooking the implications of a double taxation treaty (DTT) or local tax laws in another country. In many cases, only cooperation between tax consultants from both countries can prevent dramatic tax mistakes. The question of whether a tax expert can claim responsibility only for their client’s taxes in the expert’s country is one that should remain theoretical. Mistakes can be made in almost any field of taxation. Below are a few examples in which tax planning in one country did not take into account the tax laws in the other: • Interest income: Although the client was exempt from taxes in the US on interest income from municipal bonds, said exemption was not valid in Israel and the income was subject

to taxes, a fact that completely altered the revenue calculations. Real estate sale: On the sale by an Israeli resident, who was also a US citizen, of a residential apartment in Israel, certain tax exemptions may have been relevant, but said exemptions were not valid in the US and the sale was subject to capital gains taxes (CGTs). Trust taxation: A trust not subject to taxes in South Africa was subject to tax in Israel, since trusts with Israeli-resident beneficiaries were liable to tax in Israel, in accordance with the provision of the Income Tax Ordinance (New Version), 5721–1961, even if all other beneficiaries were foreign residents. Permanent establishment: A company incorporated in Germany created a permanent establishment (PE) in Israel, since it failed to understand how the Israeli tax authority interpreted the legal requirement for PE in Israel. This case needed better practical knowledge of the Israeli tax authority’s position, rather than the DTT. Questionable residency: A South African citizen assumed in his planning that he was considered a resident of Israel; however, the Israeli authorities did not consider him as such and refused to grant him a certificate of fiscal residence.

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Example: a German operates in Israel Herein is a numerical example that demonstrates how planning in one country turns into a tax fiasco in the final calculation. This example includes a common situation where the client, an individual resident of Germany, where inheritance and gift taxes are imposed (they could be a resident of the UK, the US or any other country where these taxes exist), operates in Israel, where these taxes do not exist. The client is the shareholder of an Israeli real estate company that in the past purchased land in Israel. The client wants to gift the proceeds from the sale of this land to their children. The client has several options. Below are two that represent the best and worst options, from a tax perspective: • sale of the land by the company, distributing a dividend to the foreign shareholder and gifting cash to their children; or • liquidating the company and gifting the land to their children who then sell the land.

CLIENT

‘The difference between the two options ... when taking into consideration the tax in both countries, can reach more than 200 per cent after tax’ The difference between the two options above, when taking into consideration the tax in both countries, can reach more than 200 per cent after tax. However, when the calculation includes Israel only, the worst option would actually be the best choice. The cost of failing to choose the right tax option in real estate transactions, where the gains are high, can result in high taxes and it is not a coincidence that most malpractice lawsuits against lawyers in Israel are in this field. For the purpose of this example, Israel’s tax rates will be used, but since the law is very complex, the explanations will be limited. In addition, liabilities that should apply to both options (such as surtax) will not be discussed, and neither will complex liabilities that do not affect this discussion substantially (such as purchase tax on real estate gifts and company liquidation) and other municipal levies. A significant fact relevant to this example is that an individual selling

of this example, this article assumes the tax on dividends in Germany is 26 per cent and the gift tax is 15 per cent. Option 1

Option 2

Israel Corporate tax (23%)

EUR230,000

Dividend (10%)

EUR77,000

Individual CGT

EUR392,000

Germany

land in Israel, acquired on 1 April 1961, is liable for the highest CGT rate (39.2 per cent), while a person selling land acquired on 7 November 2001 is liable for the lowest CGT rate (22.3 per cent). Due to historical changes in the tax rates, any other acquisition date will result in liabilities that fall somewhere between these two extremes. Another important fact is that the transfer of land from a real estate company to its shareholder when liquidating the company is exempt from CGT and dividend tax in Israel (exceptions are irrelevant to this example). Also exempt from CGT is a gift of real estate given by parents to their children. However, neither case provides a new purchase cost nor an acquisition date, so the original date and cost of the land will be taken into account when the land is eventually sold by the children. The value of the land in this example is EUR1 million, and it had no significant value when it was acquired. Below are the relevant Israeli taxes, assuming the land was acquired in April 1961: Option 1

Option 2

Corporate tax (23%)

EUR230,000

N/A

Dividend (30%)

EUR231,000

N/A

Individual CGT

N/A

EUR392,000

Total tax

EUR461,000

EUR392,000

(%)

46.1

39.22

The conclusion is very clear. Whether the land was acquired in 1961, or on any other date, the second option is the preferred choice, correct? Absolutely not. An examination of these facts, taking into account the German tax law, reveals a different conclusion. The maximum tax Israel can levy on a dividend, according to the DTT, is 10 per cent. For the purpose

Dividend (26%)

EUR123,0003

EUR260,000

Gift tax (15%)

85,4704

150,000

Total tax

515,670

802,0005

(%)

51.5

80.26

As evidenced, in the second option there is no change in the tax liability in Israel. However, liquidating the company and transferring the land to the individual is not exempt in Germany, therefore we need to add 26 per cent as a dividend. On top of that, a gift of land to children is exempt in Israel but not in Germany, therefore we need to add 15 per cent gift tax on the gift of the land to the children. CONCLUSION The liabilities in Israel under the first option amount to taxes of 46.1 per cent, while the second option will not be higher than 39.2 per cent. The choice is seemingly simple, but when we bring this case to the international arena, the client’s liabilities under the first option will be 51.5 per cent, while the second option will result in a minimum of 65.5 per cent tax, and can reach as high as 80.2 per cent. It should be emphasised that this is the tax to be paid, leaving the client with a net of 19.8 per cent. As shown in the above example, which is not at all theoretical, the differences between domestic and international tax rates can be highly significant, and different options can take on entirely different outcomes. If a client operates or lives in another country, it will always be beneficial to examine the tax liabilities in cooperation.

#TAXATION #RESIDENCY #CROSS-BORDER ESTATES 1 The Israeli tax laws discussed in this piece are the Income Tax Ordinance (New Version), 5721–1961 and the Land Taxation Law (betterment and purchase), 5723–1963. 2 The highest possible tax rate is 39.2 per cent. Any other acquisition date would yield a better result, down to a minimum tax rate of 22.3 per cent if the land was acquired in November 2001. 3 After tax credit for the tax paid in Israel. 4 Gift tax on the remaining cash 569,800, after all other taxes have been paid. 5 If the land was acquired in 2001, meaning in the best-case scenario for this option, the tax is 65.5 per cent, still much higher than the alternative option. 6 Above note 4.

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TECHNOLOGY AND WILLS

42 VERSION

Dawn of a new era

KEY POINTS What is the issue? REPRO OP SUBS

The COVID-19 pandemic has caused a worldwide flurry of temporary and permanent legislation to recognise and allow electronic wills and/or the remote witnessing of wills.

KIMBERLEY MARTIN REFLECTS ON THE INCREASING RECOGNITION OF ELECTRONIC WILLS AND REMOTE WITNESSING OF WILLS IN RESPONSE TO THE COVID-19 PANDEMIC

What does it mean for me?

PRODUCTION

What can I take away?

CLIENT

Globally, there is a need for carefully considered legislation, policy and technology to regulate electronic wills and remote witnessing. Locally, practitioners must prepare themselves, and their practices, for electronic wills and remote witnessing.

Kimberley Martin TEP is Director at Worrall Moss Martin Lawyers, Tasmania

The execution of wills has, for centuries, been a very formal process, involving pen and wet ink, and physically present witnesses. However, a new era has dawned. The COVID-19 pandemic has seen the topic of electronic wills and remote witnessing of wills by audio-visual link ‘zoom’ to the forefront of discussion.1 Pre-pandemic, the US was the only country with jurisdictions that had introduced statutes governing electronic wills and remote witnessing.2 The US Uniform Law Commission had also released a model act, the Uniform Electronic Wills Act. Outside the US, tentative law-reform discussions had begun to take place in Canada and England and Wales. In response to the pandemic, temporary and permanent legislation, statutes and practice directions have been, and continue to be, introduced by governments and courts all over the world, including in Australia,3 Canada,4 England and Wales,5 New Zealand6 and the US.7 Unfortunately, but not unexpectedly, there is no consistency even between neighbouring jurisdictions and a miscellany of legislation has been introduced. Dan Mitchell / Ikon Images

ART

It is inevitable that the trend towards electronic wills and remote witnessing will continue long into the future. Practitioners should prepare for this, and begin to adapt.

KNOWING THE DISTINCTION Understanding the evolving terminology is vital. In recent times, leading practitioners, firms and academics have used key terminology interchangeably and confused the different concepts of electronic wills, remote witnessing and informal wills. This ST E P J O U R N A L I S S U E 6 2 0 2 0

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instils confusion, fear and hesitation, and should be avoided at all costs. When discussing electronic wills and remote witnessing, it is important that practitioners understand the distinction between: • a valid will signed by a will-maker and witnesses (in the physical presence of each other) using wet (ink) signatures; • a valid will signed by a will-maker and witnesses (in the ‘remote’ presence of each other by audio-visual link) using wet (ink) signatures (whether in counterpart copy, pass-the-parcel method, or otherwise); • a valid electronic will signed by a will-maker and witnesses (in the physical presence of each other) using electronic signatures; • a valid electronic will signed by a willmaker and witnesses (in the ‘remote’ presence of each other by audio-visual link) using electronic signatures; and • an informal will, being an electronic or physical document that purports to contain the testamentary wishes of a person that (due to circumstances such as error, mistake, impending death and suicide) does not meet the formal requirements to be recognised as a valid will, but is accepted ‘as though it had been properly executed’ using the dispensing powers, harmless error laws or substantial compliance laws.8 Each creates separate legal issues, and each represents a distinct aspect of the future of wills.


Importantly, and this must be stressed, laws that allow electronic wills and remote witnessing do not allow or encourage ‘email wills’, ‘video wills’ or ‘text message wills’, as some have suggested. In fact, laws regulating electronic wills and remote witnessing have significantly more formality (and formal requirements) than ‘traditional’ wills, and should not be confused with informal wills recognised using the dispensing powers, harmless error laws or substantial compliance laws. PRACTICE TIPS AND SUGGESTIONS For those practising in jurisdictions that recognise electronic wills, and particularly for those in jurisdictions where limited or no practice guidelines have been provided, it is recommended that the following be considered and documented as part of an ‘electronic wills/remote witnessing policy and procedure’: • What videoconferencing software and/ or e-signature software will be used? Elements of the software that should be considered include: user experience, security, privacy and compliance. • How will privacy and confidentiality be maintained? Issues to consider include: determining what steps to take to ensure that appropriate equipment is used; ensuring the conference cannot be overheard or ‘hacked’; the browser history is cleared; and the client cannot see the confidential information of other clients. • What execution statements are required? This will likely be a jurisdictional matter, as most jurisdictions require a specific statement, endorsement and/or declaration to be included. Where there is no such requirement, it is recommended that one be developed and used. • What is the safe custody system/ procedure for storing electronic wills? Matters to consider include: does the firm/practitioner have the ability to store the electronic will long term; who (if anyone) should be appointed as the ‘qualified custodian’ of the electronic will; and, if a qualified custodian is appointed, how can they cease to serve and how can they appoint/designate a successor? • How will a client be identified ‘remotely’? Firms/practitioners should develop a remote identification policy that details the identity verification evidence required, whether it be a form of government-issued ID or other information that verifies the identity of the will-maker. The use of ‘verification of identity’ software is recommended. • Should certain individuals be excluded from accessing remote witnessing procedures? Using the Florida statute

as an example, vulnerable people are excluded from being able to have their electronic will witnessed remotely, because of an increased risk that the process could be abused.9 Who is authorised to witness the signing of the electronic will? Particular consideration should be afforded to those witnesses remotely present by audio-visual link. In addition to the express legal requirements, best practice at this time includes ensuring that no ‘interested person’ is a witness (or present with the will-maker), and ensuring that all witnesses present by audio-visual link are in the same jurisdiction to avoid cross-jurisdictional issues. Should the videoconference be recorded? Recordings have high probative value, but it is vital that all obligations about consent, disclosure and approval from all parties who are participating in the recording are met. Recording participants without their express consent may amount to a breach of professional obligations, and may be a criminal offence. Should an ‘electronic will execution procedure’ and/or ‘remote witnessing procedure’ be developed? This will likely be jurisdiction-specific; however, a step-by-step process should be documented setting out the ‘who, what, when and how’ of signing. This should also include relevant questions (if any) to be asked of participants. Should an ‘electronic will execution’ and/or ‘remote witnessing execution’ checklist/file note be developed? This checklist/file note could include compliance matters, administrative details, safe custody details, consent matters, identification matters, key responses from the will-maker, capacity assessment matters and general matters such as key advice given. How often should a review be undertaken? Regular reviews are vital to ensure your system does not become obsolete; remains compatible with contemporary hardware; remains compliant with changes in legislation and policy; and is protected from hacking and fraud.

Further tips and suggestions • Take full instructions and provide all necessary advice. • Keep all records, including file notes made when working remotely. • Become familiar with the dispensing powers and case law (if any) about informal wills in the relevant jurisdiction. • Become familiar with the electronic wills and remote witnessing legislation (if any) in the relevant jurisdiction.

43

• Ensure that clients who have assets in multiple jurisdictions are referred to qualified practitioners (in each of those jurisdictions). FOREIGN WILLS Practitioners in jurisdictions that do not recognise electronic wills and/or allow remote witnessing must remember that many jurisdictions recognise foreign wills.10 It is a real and increasing possibility that an executor (appointed under the terms of a valid electronic will or will witnessed remotely) could engage a practitioner (in a jurisdiction that does not have such legislation) to obtain a grant of probate, a grant of administration or a reseal. CONCLUSION It is inevitable that the trend towards electronic wills and remote witnessing will continue long into the future. Practitioners should be prepared for this, and begin to adapt. There will be no sticking our heads in the sand: technology will find us there, and a millennial colleague will likely upload a video of us to social media. The transition to commonplace use will not, however, be easy, quick or smooth. Contrary to consumer expectations, the law, technology, policies and processes required will not materialise upon request. To ensure the right balance is achieved between the contemporary desire for expediency and the consumer protection concerns (including the risk of fraud, undue influence and elder abuse), practitioners in every jurisdiction must consider their position, communicate their concerns and contribute to discussions with academics, tech companies, legislative bodies and other professionals to ensure the right outcome is achieved. #DIGITAL ASSETS #TECHNOLOGY #ESTATE PLANNING #ESTATE ADMINISTRATION 1 For those who wish to read more on this topic, the author’s detailed paper Technology and Wills – the dawn of a new era (COVID-19 special edition), published in September 2020, can be accessed on the STEP website at www.step.org/thoughtleadership-and-research. Kimberley is a committee member of the STEP Digital Assets Special Interest Group and winner of the STEP Young Practitioner of the Year Award at the STEP Private Client Awards 2018/19. 2 Arizona, Florida and Indiana had enacted new electronic wills legislation; Nevada had revised its existing electronic wills statutes (introduced in 2001); and Bills had been considered in California, the District of Columbia, New Hampshire, Texas and Virginia. 3 Above note 1, part 5 (5.12), pp.44–51 4 Above note 1, part 5 (5.12), p.54 5 On 25 July 2020, the UK Ministry of Justice announced its intention to introduce temporary legislation, likely under the Electronic Communications Act 2000. 6 Epidemic Preparedness (Wills Act 2007 – Signing and Witnessing of Wills) Immediate Modification Order 2020 (New Zealand) 7 Many US states have introduced statutes to allow remote notarisation or remote witnessing on an emergency basis. Given that laws are rapidly changing in the US, a summary (including links to the relevant statutes) can be found at bit.ly/36S2RoC 8 Above note 1, part 4.3, pp.17–20; and part 4.4, pp.20–22 9 See Electronic Documents Act (HB 409) (2019) 10 Above note 1, part 5.14, p.56

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Tech and wills, 1

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VERSION

KEY POINTS What is the issue?

REPRO OP

Cybersecurity is critical for any business, particularly those that deal with individuals’ personal and financial matters.

SUBS

M

What does it mean for me?

ART

It is not just external attacks that put professionals at risk; a lack of procedure and care can be extremely costly through loss of data and business interruption. What can I take away?

PRODUCTION

With appropriate policies, business interruption and loss can be minimised.

CLIENT

£ Steven D’Alessandro is Professor of Marketing at the University of Tasmania and a member of the STEP Academic Community, and Adam Steen TEP is Professor of Practice at Deakin University, Chair of the STEP Academic Community and a member of the STEP Digital Assets Special Interest Group ST E P J O U R N A L I S S U E 6 2 0 2 0

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Cover feature, 1

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MAL-WEALTH STEVEN D’ALESSANDRO AND ADAM STEEN DETAIL HOW TO MITIGATE CYBERSECURITY ISSUES BEFORE THEY CROP UP FOR ESTATE ADVISORS

E Illustration: Grundini

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ESTATE PRACTICE AND CYBERSECURITY INTERNATIONAL

stimates of the annual cost of cybercrime run to USD6 trillion,1 with Dell reporting some 16 million types of malware programs present in its user base in 2013.2 Financial services, of which intergenerational wealth management forms an integral part, is now on cybercriminals’ radar. The constituency of the intergenerational wealth industry ranges from very large international practices to single operator practices. This article focuses on the smaller end of the industry: practices that typically could be classified as small- and medium-sized enterprises (SMEs). SMEs are particularly vulnerable to cybersecurity breaches, typically because they lack sophisticated defences, technology and training.3 Cybersecurity is particularly challenging in this context, due to the financially sensitive nature of the client information being collected, managed and retained by practitioners, large potential financial losses and potential reputational damage in the event of a breach. Estate planning and administration has, at its core, the management of wealth, which has its own challenges with respect to the digital world. Institutions and practitioners involved in managing money are an obvious target of cyber-attacks. Businesses both large and small have been the focus of attack, as Patrick Cleary of Alpha Architect notes: ‘In 2016, the SEC revealed a serious, highly embarrassing security breach of their main investor database.

Hackers were able to steal thousands of corporate releases and insider documents before their release to the public. The results were over USD100 million in illicit trading profits and other gains at the expense of everyday investors.’4 PricewaterhouseCoopers (PwC) notes that attacks on financial services and other sectors have grown in number, size and sophistication. It notes that fraud incidents, both online and offline, increased by more than 130 per cent during 2017, resulting in significant monetary and reputational losses for financial institutions.5 PwC notes that the number and range of vulnerabilities is growing as companies outsource internal processes, shift computing to the cloud and connect to customers through more channels. Although firms involved in financial services certainly benefit from digital networking, this also enlarges their ‘attack surface’ exposed to hacking. Such failures in cybersecurity have

‘Cybercrime is not confined to networking issues but includes crime from internal sources such as insider trading, theft and cyber-vandalism’

prompted data-privacy legislation to be introduced in more than 40 US states in an attempt to ensure firms are proactive in preventing breaches. PwC also notes that cybercrime is not confined to networking issues but includes crime from internal sources such as insider trading, theft and cyber-vandalism. Contractors and temporary workers can expose a firm to these causes of loss.6 The implication is that internal risk analysis, both to protect against nefarious behaviour and to identify workers who may have been unknowingly compromised, is important, as is protection from external threats. Many of those in estate practice are sole practitioners or employed in SMEs. A study by Symantec found that 43 per cent of all cyber-attacks target SMEs,7 with 60 per cent of these businesses unable to recover.8 Not only may SMEs be unable to cover the cost of an attack, but they may also lose customers who take their business elsewhere. Wellknown recent examples of cybersecurity breaches include the case of Cambridge Analytica, which harvested the personal data of 87 million Facebook account holders, and when millions of Yahoo accounts were compromised as a result of state-sponsored attacks that leaked the personal data and passwords of users. If these global technology giants can be successfully attacked, what can one conclude regarding the cybersecurity of confidential client information most estate and trust advisors have? SMEs face some different challenges to those faced by large enterprises concerning cybersecurity, as reported

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46 VERSION REPRO OP SUBS ART PRODUCTION CLIENT

in the findings of a recent survey.9 The top challenges reported by SMEs were a lack of finances to pay for security experts, the cost and complexity of regulatory compliance and a lack of appropriately qualified and experienced staff in the area. The survey went on to note that because of inadequate IT and cybersecurity staffing, 64 per cent of respondents would be unaware if a successful cyber-attack had taken place. For estate advisors and trustees, there is little by way of specific guidance on how to protect client and other data. There are, however, obligations that businesses must comply with. Countries around the world are introducing measures to protect business from cyber-attacks and putting additional obligations on business. In Australia, for example, the Office of the Australian Information Commissioner oversees the mandatory data breach notification scheme. The scheme applies to financial services firms with an annual turnover of more than USD3 million and any recipient of tax file number information regardless of turnover.10 Rapidly changing technology is making the setting of hard-and-fast rules difficult. However, IT security professionals typically note important security safeguards, including: • hardware firewalls; • encryption; • user provisioning and access management; • update and patch management services; • antivirus programs; and • secure remote access. Although these are all valid, they ignore the more human aspects involved in preventing security breaches. The issue is that cybersecurity is not only a technical issue, but also a governance issue about the management of risk. This is because the weakest links in cybersecurity are the actions of people, rather than the technology deployed. For a start, those with access to data and systems need to be

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ESTATE PRACTICE AND CYBERSECURITY WELCOME

‘Plugging into public Wi-Fi in an airport or café and looking at sensitive client information via email can expose one to significant risk’ informed of, and appreciate, the necessity for security systems and processes. One study, for example, showed that users in an organisation deliberately circumvented security protocols if they believed that password mechanisms were pointless.11 The greatest risk may also come from insiders. It is believed some 44.5 per cent of all cyber-attacks are caused by insiders,12 while human error has been known to account for 20 per cent of the two billion records leaked in 2017.13 Insider attacks or risks are particularly hard to prevent using technological means, as Elifoglu et al note: ‘Contrary to popular belief, most insider incidents are not based on sophisticated hacker tools. Most insider threat incidents are the consequences of human actions, such as mistakes, negligence, greed or reckless behaviour.’14 Accordingly, one of the most fundamental actions that can prevent security issues and loss is for practitioners to keep software, firmware and hardware current and patched.15 John M Green notes: ‘Security is as much a people issue as a technological one, since insiders feature statistically in around half of all cyber incidents: the naïve clicking on infected links or plugging in rogue USB drives, the disaffected equipping

themselves for their next jobs. Education will not stop the bad doing bad things, but it can stop good people being unwise or careless.’16 Hence the need for education, training and the creation of and adherence to suitable policies and procedures. This extends to clients, as clients who fail to maintain their own data security introduce threats to their privacy and data, potentially exposing themselves to identity theft and cybercrime, not only while alive, but also after incapacity or death.17 In addition to internal human error, a lack of appropriate management protocols can lead to loss, as highlighted by the following story: ‘On 15 July 2014, asset manager Vincent Le Stradic sat on the Eurostar train from London to Paris typing on a number of mobile phones. He did not realise that fellow passenger Alexandre Zaluski, a UBS banker at the time, could glimpse information on the phones. Zaluski tipped off a colleague about a soon-to-beannounced USD15 billion takeover bid by French mobile phone company Iliad SA for T-Mobile US Inc. Was this a case of wrongdoing on the part of the UBS worker, or sheer opportunism? Unfortunately, French regulators cleared Zaluski, declaring it was part of his job as an investment banker to share the tip’.18 Further, plugging into public Wi-Fi in an airport or café and looking at sensitive client information via email can expose one to significant risk of a ‘man-in-themiddle’ attack,19 where you think you have connected to a legitimate organisation’s Wi-Fi, but you have not. RECOMMENDATIONS There are a number of cybersecurity frameworks available that can be adopted at an organisational level. These have been written typically with larger organisations in mind, rather than the sole practitioner or SME.


As Sundberg notes,20 such frameworks include the International Organization for Standardization, the International Electrotechnical Commission’s ISO/IEC 27001 and the US National Institute of Standards and Technology’s (NIST’s) cybersecurity framework.21 The NIST framework, for example, involves five key areas: • Identify: understand what a business needs to track/monitor/mitigate. • Protect: develop appropriate safeguards for advisor data. • Detect: implement activities to identify an actual breach. • Respond: develop responses to cybersecurity events. • Recover: implement ongoing operations to get better and reduce the impact of a successful breach. Typically, cybersecurity in SMEs involves a focus on the prevention of breaches before they occur. Accordingly, the following steps can minimise insider attacks: • deterrence controls, such as encryption, access management, endpoint security, and mobile and cloud security; • detection controls, such as log management, security information, and event management and predictive analytics; • inventories and audits for computers, mobile devices, external hard drives and USBs both during and post employment; • list and regularly update all hardware and authorised software; • pre-employment background checks to screen out problem employees; • policies and procedures in place that help with the resolution of employee grievances and protect whistleblowers; and • termination processes in place that remove access as early as possible for a terminated employee. Overall, it is important to ensure cybersecurity policies are treated with the same importance as policies relating to financial control. A CHECKLIST TO REDUCE THE THREAT OF EXTERNAL CYBER-ATTACKS • Beware of fake update scams. Make sure all updates are downloaded only from a trusted provider (the original software manufacturer). Where downloading software, check digital signatures and certificates. • Install a virtual private network (VPN) on the router, computer, laptop, tablet and mobile phone. Always use a VPN when conducting financial transactions, especially when using public Wi-Fi. • Check that the modem provides a guest network access. If it does, install a guest network. Guest networks help protect the security of the router and internet.

‘The governance in an organisation in terms of reporting and training of staff is paramount, particularly if insurance is used to mitigate this risk’ • Use a password safe to store passwords and generate long passwords using mixed characters over a length of 12 characters. Make sure it has an export function (such as a spreadsheet mechanism), so that the provider can be moved, if necessary. • Do not store passwords on browsers (click ‘no’ when it asks to remember passwords). If they are already stored, reset the browser and remove all cookies. • Frequently (weekly) back-up data and store it on a removable hard drive. Disconnect after each back up and store independently away from the computer or device. • Do not share passwords with anyone. • Use, or set up, two-factor identification with all transactions where possible with a VPN. • Export and back-up emails at least once a year and important emails immediately. • There are ways of making emails safer; this is particularly important for those running their own business or with their own domain name (web address). Encrypt important emails with digital signatures. If unsure, get technical help to secure the email server. • When in doubt about whether an email contains malware, delete it. If it is important, it will be sent again. • Do not disclose confidential information to third parties who get in contact; it pays to be suspicious.

JOIN THE ACADEMIC COMMUNITY The Academic Community aims to further research in the fields of practice represented by STEP. The group provides a network for academics and practitioners who share a common interest in influencing cross-discipline and multi-jurisdictional knowledge, research and expertise on a global scale. Academic Community membership is free to both members and non-members of STEP. If you would like to join, please email ac@step.org

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• Be cautious of communications. Crosscheck any strange emails or communications with warnings from authorities. For example, ‘whaling’ or ‘spear-phishing’ attacks use LinkedIn, Facebook and other social media to find out when the chief financial officer or chief executive is travelling, and may schedule phony invoices to request urgent payment.22 CONCLUSIONS Cybersecurity should be considered a risk mitigation rather than IT issue. It is an issue for all members of the organisation. Responsible and open communication on this subject is vital. The governance in an organisation in terms of reporting and training of staff is paramount, particularly if insurance is used to mitigate this risk. Reporting is especially important given the requirements in many countries now around any breaches of privacy of client data. It would also seem reasonable to argue that there may be a higher duty of care for trustees and estate planners, made responsible for individual digital assets and identities. The authors welcome continued debate and discussion in this important area and are pursuing an active research agenda with estate planners to help inform practice and policy.

#DIGITAL ASSETS #TECHNOLOGY 1 Cybersecurity Ventures and Herjavec Group, 2017 Cybercrime Report, bit.ly/3nWz4Bk 2 Dmitriy Ayrapetov, ‘Cybersecurity Challenges in 2013’, CIO (13284045), p.8 3 The UK National Cyber Security Centre has a number of useful resources for small businesses at www.ncsc.gov.uk 4 Kitces, ‘Building the Five Pillars of SEC Cybersecurity Requirements as a (Registered) Investment Adviser’ (14 November 2018), bit.ly/358uJlY 5 PwC, ‘Fraud governance: It’s more than just compliance’ (July 2017), pwc.to/37dtc0A (accessed 30 November 2017) 6 PwC, ‘Here today, gone tomorrow: Contingent workers in financial services’ (November 2016), pwc.to/3nHBEKB (accessed 30 November 2017) 7 Symantec, Internet Security Threat Report (2016), bit.ly/2IUOIx8 8 Public Accountant, ‘Batten Down the Hatches’ (2017), bit.ly/3nXaalf 9 Aric Asti, ‘Cyber Defense Challenges from the Small and Medium-Sized Business Perspective’, SANS Institute Information Security Reading Room (November 2017) 10 Public Accountant, ‘No Place to Hide’, bit.ly/3j2CcYP 11 A. Adams and A. M. Sasse, ‘Users are not the enemy’, Communications of the ACM, bit.ly/2H3Zssw 12 David Zahn, ‘Combatting the insider cybersecurity threat’, Processing, bit.ly/3538eiy 13 IBM, IBM-X Force Threat Intelligence Index 2018, p.5 14 I. H. Elifoglu, I. Abel and O. Taşseven, ‘Minimizing Insider Threat Risk with Behavioral Monitoring’, Review of Business, 38(2), p.61, bit.ly/3j7ZNau 15 Sharon Hartung, ‘Windows 7 Died Without a Will and Estate Plan’, The Lawyer’s Daily, bit.ly/3j3Y06t 16 J. M. Green, ‘Security Breach’, Company Director, 34(5) pp.30–31 17 Above, note 15 18 Cameron Cooper, ‘The Perils of Remote Working’, INTHEBLACK (September 2019), p.51 19 A ‘man-in-the-middle’ attack is a type of cyber-attack where a malicious actor inserts themselves into a conversation between two parties, impersonates both parties and gains access to information that the two parties were trying to send to each other. 20 Michael Sundberg, ‘Cybersecurity Challenges for Financial Advisors’, bit.ly/344hjs8 21 bit.ly/2HkQbMX 22 Adam Courtenay, ‘Watch Out for this Scam’, INTHEBLACK (April 2017), pp.17–20

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INTERNATIONAL


JOINT VENTURES

48 VERSION

KEY POINTS

REPRO OP SUBS

What is the issue? Private clients’ high hopes for joint ventures can be jeopardised in practice unless specialist practitioner insight anticipates and provides for the issues that could arise. What does it mean for me?

ART PRODUCTION

Unique terms relevant to private clients and their advisors can be used to get better outcomes for the private client. These are different to institutional requirements in joint ventures.

Halos and wings, but no angels MUSTAFA HUSSAIN DETAILS THE INCONGRUITIES BETWEEN ASPIRATIONS AND PRACTICE IN JOINT VENTURES

What can I take away?

CLIENT

Private clients can fulfil their aspirations for diversifying through joint ventures, without ensuing chaos or disruption of relationships, if insightful provisions are used.

Mustafa Hussain is Private Office Legal Counsel at Accuro Fiduciary, London

What keeps private clients up at night? The answers may include relationships, risk, returns and other concerns. But prime among these nightmares is the fear of falling foul of that proverbial ‘rags to riches and back again’ tri-generational cautionary tale. Such fear pushes some private clients to diversify investments and pool their risk with like-minded others. After all, being a club member empowers you to make more friends, split costs and access more attractive opportunities. The preoccupation is to avoid the family ending up in those metaphorical rags. However, in steering towards the comfort of a sartorial status quo, negotiating the right terms with business partners is also key. In the absence of befitting legal precision addressing the expectations of private clients in entering such joint ventures, clients may find themselves acting on a wing and a prayer. Two phenomena illustrate the incongruity between aspirations and practice: The halo effect This phenomenon accounts for how clients are positively influenced by their previous observations, impressions and judgements. This affirmative bias sees them assuring themselves that past performance evidences future success. By way of illustration, consider a successful European theatrical production that desires to tour globally. The theatre company requires capital and a local sponsor to open the door to the Middle East. A senior Gulf-based mercantile patriarch with a successful track record in industrial sectors agrees to invest, in consideration of exclusive rights in the ST E P J O U R N A L I S S U E 6 2 0 2 0

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region. A joint venture can be used as a vehicle for this private client to channel the corporate finance and enter into agreements with the company. Through the lens of the halo effect, the creative directors anticipate a silent partner, who will meet drawdown requests on time and in full and who will support the resolution of local ‘roadblocks’. The halo effect also sees the investor count on returns (commensurate with those of Europe), the kudos of associating with the show/its stellar circle (supporting a sense of ‘arrival’ on the international scene) and achieving diversification. In the absence of the aforementioned contractual precision, the halos can be quickly eclipsed. The second phenomenon aids us in understanding why. The butterfly effect The butterfly effect refers to metaphorical theories best explained by an example. The tiniest flutter of a butterfly’s wings leads to a gust of air that builds to wind that swells to a storm that intensifies to a hurricane that wreaks havoc. Interconnectivity sees a negligible transpiration producing an incommensurable ultimate force. In our example, the patriarchal investor may assume that, since he has strong relations with the theatrical directors, this will transmute into the executives in his private office and those running the company collaborating efficiently and getting along. That may not be the case. As a family patriarch, he puts family first. In practice, this could, and frequently does, result in the company receiving requests to employ family members wishing to ‘dip their toes’ into the showbiz pool. Such requests might be divorced


side of the venture wants to maintain end-integrity. The other side cannot be associated with a project that causes loss of face or local offence. Ironically, local controversy could jeopardise the core sources of the private client’s income, thereby defeating the objective of diversification. The halos, so prevalent at the outset, fade when a request builds, butterfly-effect style, to a chaotic end result that can be destructive of profits and relationships.

‘In some cultures, loss of face can be far more serious for a private client than loss of profit. It may be helpful to include so called “antiembarrassment” clauses in the document’ from the suitability or eligibility of the candidate for fulfilling that role. Patriarchs are almost as used to hearing ‘yes’ as showbiz divas are. Seemingly abstract requests for performers to adjust flesh-revealing costumes (to meet the modesty requirements of local culture) or adjust storylines that portray the Gulf region in a negative light (not to mention the eradication of content offensive to religious morality) may seem reasonable to the host, but bring perplexing and creatively, as well as practically, insurmountable challenges to the company. In reality, outlandish requests for ‘my daughter to have the Harry Potter actor at her birthday party’ or ‘tickets to the premiere for 700 of my friends’ may be resolvable. However, fundamental amendments to the tried and tested business model, which assures the profitable results that lead to the halo in the first place, can be deeply problematic. The nature of the strong personalities on all sides can see cultural sensitivity slip in favour of entrenched positions. One

HOW CAN PRACTITIONERS HELP? Do not skip due diligence, even if handshakes occurred in a social setting. Also, have as detailed a term sheet as circumstances allow. If something is not right, walking away early trumps limping away later. If the investor is in a jurisdiction that has foreign remittance controls, or if they have a large variance in their liquidity, provide for fulfilment of drawdown requests to be late or appropriately rescheduled, rather than switching straight to default. Do not permit the principal’s passion to distract the appointment of non-executives, and ensure they have information access. Avoid shadow directorships, which are a real risk with principals who insist on turning up to board meetings, notwithstanding no formal appointment. Reserved matters schedules are beneficial for setting out the specifics that each party requires, thereby avoiding those tricky requests from which chaos can ensue. If a private client commits to making introductions, referrals or pushing business towards the venture, do not permit this to go undocumented. Failing to specify a volume or at least a best endeavours qualification to bind the principal may result in disgruntlement if such introductions do not materialise and there is no redress for the omissions. Privacy can be a big issue for private clients: the mandatory disclosure of owner/investor names and amounts should be carved out of confidentiality clauses, sensitively discussed and agreed between the parties. Private clients sometimes prefer to re-organise their group holdings and settle their investments into trust, so including the right to do this, or carving it out of non-assignment clauses, without consent is pragmatic. Reporting lines should be clearly set out. The principal will want the ability to

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receive information themselves, care of their private office and perhaps even to share this with their general counsel. If invested via a trust structure, the trustee will also need access to data regardless of the principal having received it directly already. Similarly, consider all the concerned parties when specifying who may give instructions on behalf of the principal or trust to the joint venture and its executives. In some cultures, loss of face can be far more serious for a private client than loss of profit. It may be helpful to include so called ‘anti-embarrassment’ clauses in the document. These enable recalculation of price or adjustment in scenarios where there are multiple investors coming in at different prices or terms. Though an exploration of the detail of these provisions is beyond the scope of this article, other helpful terms to include may encompass: • first rights of refusal; • sequel rights; • ‘golden’ shares (giving greater control); and • providing for appropriate dilution (or anti-dilution) if an individual private client is late or skips an investment round. Termination rights for slightly wider than usual reasons, such as ‘cultural differences’, may also help provide a basis for the parties to wind up the arrangements between them without overshadowing continuing social relationships. In drafting exit provisions, it can be unhelpful to provide for a specific timetable, such as the five-year horizon often used by funds. Private clients, especially those driven by passion, sometimes like to buy and hold. They can be truly committed to meaningful business relationships with their partners and value loyalty and longevity, rather than short-term flips. If the joint venture agreements are carefully prepared in a manner that embraces the idiosyncrasies of the parties (and anticipates outlandish requests), there is no reason why the halo effect may not persist long into the life of the investment and collaboration between the parties. Of course, there remains the rather important matters of performance and profitability. These may well cause the chaos of the butterfly effect to ensue. But the draftsperson’s role is to try to minimise the scope for disagreements and disputes, and these tools, tailored to private clients, may just help in crossing off one more worry from the list of things that interrupt a client’s nightly sleep. #FAMILY BUSINESS #BUSINESS PRACTICE #INVESTMENT

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Compliance and careers

51 VERSION

Issue focus

REPRO OP

Compliance and careers Room for growth

SUBS PRODUCTION CLIENT

When is a trust not a trust? Is unequal treatment of trusts and trust-like structures in 5AMLD a cause for concern? by Richard Frimston ................... 53

STEP’S NEW JOBS BOARD STEP has launched a new online Jobs Board platform for the trusts and estates industry, spanning legal, accountancy, trust and company service providers, private banks, multi-family offices and financial and tax advisory firms. The Jobs Board replaces STEP’s previous offering, providing better functionality for both firms and candidates. Firms can purchase single postings or multi-job packages, and candidates can search for jobs and sign up for tailored job alerts. Check it out at jobs.step.org

Building a growth mindset in business A survey of STEP Employer Partners explored what is meant by a growth mindset versus a fixed mindset by Jenni Hutchinson .............. 54

Trust the system The quirks and challenges of the UK Trust Registration Service by Parris Innis-Mckenzie ............57 ‘You’re still up and around?’ How practitioners can avoid unconscious bias when advising elderly clients by Eileen Gallo ............................. 58

Change is coming The STEP Diploma in International Trust Management has undergone an overhaul by Madeleine Jenness and Victoria Hand ...................... 60 In perfect alignment Advice for practitioners on how they can find purpose in their career by Maria Soler Terradez ............. 63

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Luciano Lozano / Ikon Images

ART

Creating and nurturing the right growth mindset within a business allows employees to flourish, and opportunities for business success. This issue of the STEP Journal has a focus on careers, and we invited STEP Employer Partners (EPs) to give us their views on what a growth mindset means. From collaborative idea management platforms to employee mindset growth workshops, read about the initiatives our EPs have implemented to encourage this growth on the pages that follow. STEP and CLT International have redesigned the STEP Diploma in International Trust Management to better reflect the needs of today’s students. Madeleine Jenness and Victoria Hand detail the changes for current and prospective students. As well as offering a number of articles to encourage personal and professional growth in the workplace, this issue’s focus explores how practitioners can ensure they are catering to clients from all walks of life. Eileen Gallo TEP offers advice to practitioners on how they can avoid unconscious bias when advising elderly clients in the US and elsewhere. Moving to compliance in the private client world, readers will know all too well about the EU Fifth Anti-Money Laundering Directive (5AMLD) and the obligations it imposed on trustees when brought into effect on 10 January 2020. Richard Frimston TEP asks whether unequal treatment of trusts and trust-like structures in 5AMLD is cause for concern. In May 2020, Her Majesty’s Revenue & Customs released a new microsite for the UK Trust Registration Service (TRS) to allow trustees and agents to maintain a trust record; Parris Innis-Mckenzie TEP discusses the trials and tribulations of the TRS.


Trusts

ISSUE FOCUS STEP JOURNAL COMPLIANCE AND CAREERS

53

VERSION REPRO OP

When is a trust not a trust?

SUBS ART PRODUCTION

RICHARD FRIMSTON ASKS WHETHER UNEQUAL TREATMENT OF TRUSTS AND TRUST-LIKE STRUCTURES IN 5AMLD IS CAUSE FOR CONCERN

CLIENT Shutterstock

Much has been written about the EU Fifth Anti-Money Laundering Directive (5AMLD).1 Readers are now only too aware of the obligations imposed on trustees under 5AMLD, which obliged EU Member States to bring it into effect by 10 January 2020, and which amended art.31 of the Fourth Anti-Money Laundering Directive (4AMLD).2 The UK committed itself to complying with 5AMLD, notwithstanding its exit from the EU. Beneficial ownership information must be logged in the central register, whether or not the trust generates tax consequences, and be registered in the Member State where the trustee resides. The question of trust-like structures is of particular interest in the EU, as shown in art.31 of 4AMLD; ‘trusts and other types of legal arrangements, such as, inter alia, fiducie, certain types of Treuhand or fideicomiso, where such arrangements have a structure or functions similar to trusts’. Not ‘and’ but ‘or’. Some Member States fought hard to insert ‘and’ but they lost the argument in the European Parliament.

WHICH LEGAL ARRANGEMENTS HAVE A STRUCTURE OR FUNCTION ‘SIMILAR TO TRUSTS’? The new para.10 required Member States to: ‘notify to the Commission the categories, description of the characteristics, names and, where applicable, legal basis of the trusts and similar legal arrangements referred to in paragraph 1 by 10 July 2019. The Commission shall publish

the consolidated list of such trusts and similar legal arrangements in the Official Journal of the European Union by 10 September 2019’. The European Commission (the Commission), however, did not publish its consolidated list until 24 October 2019.3 The Commission was not overwhelmed by notifications from individual Member States and, on 16 September 2020, the Commission and the European Council published their report assessing whether Member States have duly identified and made subject to the obligations of 4AMLD all trusts and similar legal arrangements governed under their laws (the Report).4 The Report does not make for particularly happy reading. Cyprus, Ireland, Malta and the UK notified that trusts are governed under their legal systems, based either wholly or partly on common law. Ireland and the UK specifically identified the express trust, while Cyprus and Malta referred to trusts in general. Cyprus also notified a subcategory of trusts, namely the international trusts. All four jurisdictions exclude those trusts that are imposed by operation of law or that result from the failure of an express trust, such as statutory, constructive or resulting trusts. The Report suggests that Treuhand and fideicommissum should be regarded as trust-like, even though none were reported, while residual fideicommissum should not. The Report follows the Financial Action Task Force (FATF) in stating that life

insurance contracts, escrow agreements and nomineeships should not be regarded as trust-like, giving some basis for the UK exclusion of life policy trusts. With masterly understatement, the Report concludes that ‘Member State’ notifications under art.31(10) of 4AMLD did not include all these arrangements, reflecting the lack of a common approach to what features define similarity with the common-law trust (whatever that may be). These notifications can therefore only provide a first attempt at identifying what similar arrangements to trusts are governed under Member States’ law. At the same time, such absence of a common approach to the identification of arrangements similar to trusts does not ensure legal certainty and a level playing field, and might leave loopholes that allow little-known arrangements to be used in money laundering schemes, as has been the case with legal entities. To tackle this problem, the Commission will consider the possibility of setting up an informal working group with academics, practitioners, financial intelligence units and competent authorities in order to identify common objectives and consistent criteria for the identification of the relevant legal arrangements governed under their law. Such an exercise could result in the issuance of a technical document. A preliminary analysis of the obligations imposed on such legal arrangements by Member States shows that the aim of establishing a consistent monitoring and registration framework may not have been achieved yet. At the same time, the review reveals that in the area of funds, transparency of beneficial ownership information might vary from one Member State to another, based on their legal form. This creates an uneven level of transparency, which might merit being addressed with common specific rules for funds, similarly to what the 4AMLD already provides for foundations. Discrimination does seem to be intrinsic in the unlike ‘trust-like’. Might the lack of the UK voice at the EU table mean that these issues are not vigorously pursued? 1 Directive (EU) 2018/843 2 Directive (EU) 2015/849 3 (2019/C 360/05), bit.ly/31iW040 4 bit.ly/3dGnu92

#TRUSTS #FOUNDATIONS #COMPLIANCE AND REGULATION

Richard Frimston TEP is a Consultant at Russell-Cooke, and a member of STEP’s worldwide Council

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ISSUE WELCOME FOCUS

54 54 VERSION

KEY POINTS What is the issue? REPRO OP SUBS

Now more than ever, in order to grow, organisations need to develop not only the systems and processes that support product demand, but also the right people. What does it mean for me?

ART

We invited STEP Employer Partners to give us their views on what a growth mindset means. What can I take away?

Building a growth mındset in business JENNI HUTCHINSON EXPLORES WHAT IS MEANT BY A GROWTH MINDSET VERSUS A FIXED MINDSET BASED ON A SURVEY OF STEP EMPLOYER PARTNERS

PRODUCTION

Insight into how cultivating a growth mindset culture benefits the business, and ideas for developing a growth mindset culture.

CLIENT

‘Never before has a growth mindset been so pertinent. As we all manoeuvre into an ever-changing “new normal”, every day brings experiences, scenarios and emotions that are new encounters for us’

Jenni Hutchinson is Head of Employer Partnerships at STEP

Shutterstock

Irwin Mitchell Carol Dweck introduced the term ‘growth mindset’ in Mindset: The New Psychology of Success. At the heart of it, her message is this: with the right mindset and support, people are capable of a lot more than we think. Someone with a growth mindset believes that the development of skills derives from personal will and effort. Their view is that innate talent is nothing; success is 99 per cent effort. Faced with challenges or failure, they will continue undeterred, seek to understand why, apply more effort and try new strategies. Conversely, the counterpart of the growth mindset is the fixed mindset. Those with this mindset believe that success is a personally defining label. If people work in an environment that values them primarily for innate talent, they have grave difficulties when their image is threatened. They cannot admit to mistakes or deficiencies and thus cannot take remedial action. A growth mindset is where opportunities lie and is ideally what you want your employees to bring to the table. A company that cannot self-correct cannot thrive. ST E P J O U R N A L I S S U E 6 2 0 2 0

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We invited STEP Employer Partners (EPs) to give us their views on what a growth mindset means.

WHAT IS A GROWTH MINDSET?

‘A growth mindset is evidenced by a person having the attributes of a disciplined life-long learner. This can be thought of as learning with purpose’ Autonomy First So what are these attributes? STEP EPs mentioned a variety of qualities that help individuals to cultivate a growth mindset, but the key traits identified are: • curiosity, self-awareness and an open-minded approach to life and work; • a desire to remain relevant in a changing world; • dedication to continuous improvement and progression in life; and • resilience and the ability to learn from mistakes, take on board feedback and bounce back from setbacks.

‘Having a growth mindset in the workplace means that as a business you believe that you can always do better, no matter how successful you may be already’ BDO


EPP, 1

COMPLIANCE AND CAREERS

The role of the organisation in this is to proactively nurture employees across all levels of the organisation, to hone their skills, build their experience and enhance their emotional intelligence in order to enable them to perform to the best of their abilities.

THE HALLMARKS OF A GROWTH MINDSET-ORIENTED COMPANY

‘We encourage a growth mindset through interventions that build an abundance of thinking. We strive for what is possible … we look to find a way’ JTC Group So, what are the key factors in creating and nurturing a growth mindset? Below are a number of common themes raised by EPs. Culture is key. First and foremost, the company needs to have a clear vision, purpose and values, within which a growth mindset is embedded and modelled throughout the company, from the top down. In addition, senior staff must model and encourage: • transparent and constant communication; • continuous development, both formal and informal – it is essential to provide employees with the necessary skills and resources to enable them to progress and maximise their potential, while contributing to the firm and their own career; • sensible empowerment and permission to fail (ideally within a controlled environment) within a no-blame culture; • courage to embrace challenges, try new approaches and accept change; • trust and teamwork, so that staff feel safe enough to admit vulnerability; • collaboration and knowledge sharing; • regular open and honest feedback on what is working and what is not, supported by developmental coaching; • continual reflection and critical analysis of performance and behaviours; and • celebration of successes.

‘Courage is king in the world of a growth mindset as we embrace challenges and overcome obstacles in a bid to stretch, improve and grow’ Accuro Trust (Jersey)

HOW TO CREATE A GROWTH MINDSET CULTURE A common theme throughout our EPs’ responses was that it is essential for the organisation to have a clearly defined core purpose and values that, together with vision

and strategy, give employees a shared frame of reference and language and provide a clear and consistent direction for building the future. This needs to start from day one within the organisation and so needs to be built into the on-boarding process. Intertrust reported that having a growth mindset is one of the organisation’s core competencies, and so the company ensures that a growth mindset is embedded in everything it does. The concept has been introduced through all its training schemes, from management and leadership development programmes through to individual modules available via its electronic learning platform. Below are just some of the initiatives that EPs have introduced to foster the development of a growth mindset culture: • Accuro Trust Jersey has introduced an employee benefit trust whereby 9.4 per cent of group shareholder value is allocated to all staff to incentivise appropriate thinking and behaviour. • BDO has introduced a collaborative idea management platform, Idea Drop, for people to share ideas and challenges in order to collectively shape solutions. The company also has ‘Innovation Champions’ who help to promote BDO’s innovation strategy and agenda and facilitate idea generation and sharing of best practice across the firm. • Blake Morgan runs milestone programmes to prepare recently promoted employees for their new roles. • IQ-EQ has replaced a previously laborious annual appraisal process with a new performance management approach named ‘Everyday Conversations’. It is all about forward-looking discussions, focused on performance, development and career progression. IQ-EQ is also trialling virtual secondments where people are able to work with different teams around the world without having to pack their bags. • MD Private Trust & Scotiatrust’s HR team facilitates one-day ‘Mindshift’ workshops focused on awareness of techniques and tips to foster a growth mindset at work. The company also encourages ‘out-of-the-box thinking’ and continuous improvement through various programmes. The Scotia STOP 100 programme encourages the company to challenge process flows and forms. • The Private Office recognises and rewards ‘out-of-the-box’ thinking with an ‘On The Spot Award’. • Vistra Switzerland has an initiative called ‘Optimistic Mindset at Work’, a programme for all local colleagues that comprises weekly modules. It also has a chat group, ideas e-box, fun office competitions, social events and an innovation platform to gather feedback and ideas.

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EPP UPDATE STEP’s Employer Partnership Programme (EPP) congratulates the following companies, all of which have renewed their Platinum Employer Partner (EP) accreditation: • Anderson Strathern • Apex Financial Services (Jersey) • Burness Paul • Foot Anstey • Hewitsons • New Quadrant Partners • RSM Congratulations also to Intertrust, which extended its Platinum EP accreditation to its Americas region in October 2020, and a warm welcome to Axis Fiduciary, which joined the programme as an EP in Mauritius. Find out more about the EPP at www.step.org/epp WHAT’S IN IT FOR THE BUSINESS? The benefits are clear, and not only in terms of strong commercial results. Partners report that prioritising a culture of growth and innovation sets the tone for many positive factors, such as employee engagement, increased productivity and a supportive environment within which collaboration and a continuous drive for improvement are key. The business thrives and so do individuals as they become aware of their own true potential. Ultimately, this is seen as contributing to low staff turnover and supporting the organisation in becoming an employer of choice. So, if you would like to nurture a growth mindset in your workplace, remember to: • ask questions frequently, face reality and be able to look failure in the eye; • listen and learn from colleagues at all levels of the business – welcome change and new ideas, regardless of their source; and • believe in human development and create a values-led culture of continual improvement, where employees are encouraged to innovate and collaborate.1

READ MORE To learn more about our EPs’ initiatives and how they have benefited partners, visit www.step.org/employers/employerpartnership-case-studies #CAREER AND PERSONAL DEVELOPMENT 1 STEP would like to thank the following Employer Partners who kindly contributed to this article: Accuro Trust (Jersey) Ltd; Autonomy First Pty Ltd; BDO; Blake Morgan LLP; Intertrust Group; IQ-EQ; Irwin Mitchell LLP; JTC Group; MD Private Trust & Scotiatrust; Saffery Champness Registered Fiduciaries; Stonehage Fleming; Summit Trust International Ltd; The Private Office; Vistra (Switzerland).

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MAKING A DECLARATION Once the trustee has claimed the trust and, where appropriate, the agent has been granted authorisation, information in respect of the trustees, beneficiaries and settlors can be maintained. There is no capability or requirement to update the type of trust or the trust assets, which will have been disclosed in the initial registration.

SUBS ART

Trust the system

PRODUCTION

PARRIS INNIS-MCKENZIE DISCUSSES THE QUIRKS AND CHALLENGES OF THE UK TRUST REGISTRATION SERVICE

Shutterstock

CLIENT

In May 2020, Her Majesty’s Revenue and Customs (HMRC) released a new microsite for the Trust Registration Service (TRS) to allow trustees and agents to maintain a trust record. This is the first substantial update since the initial launch of the TRS in 2017. The new software was introduced to help trustees with a UK tax liability meet their requirements under the EU Fourth Anti-Money Laundering Directive (4AMLD).1 To make a declaration, trustees are required to claim the trust and, where an agent has been appointed, authorise them to maintain the record by completing a ‘digital handshake’. Sadly, when HMRC released the updated 4AMLD service, very little instruction was issued, leaving agents to provide guidance and support to their clients in what can sometimes be a very challenging process. At present, there is no extension of the service for digitally excluded persons.

ISSUES WITH THE NEW SOFTWARE When a trustee claims the trust, they are required to enter some basic information about the lead trustee and another person associated with the trust, such as a co-trustee, the settlor or a beneficiary. The new software compares this information to the details of that individual held on their personal tax record. However, there are cases where the initial registration, submitted prior to the implementation of the new software, may not have been processed by HMRC because the details of an individual did not match their personal tax record.

An example of where this may be a concern is where a trustee is obliged to use a professional name (such as a maiden name) in the course of their business. In this case, the trustee is currently unable to use their professional name for TRS purposes to claim the trust. This issue is unlikely to have been flagged upon initial registration, as the software was not sophisticated enough to highlight this. A similar situation arises where information was incorrectly inserted into the initial registration. Unfortunately, when issues like these arise, the agent or trustee will need to call HMRC’s trust helpline to get the TRS record amended manually. At present, it may not be obvious that HMRC should be contacted, as the error message presented will say to ‘try again later’. HMRC has advised it is working on improving the clarity of these error messages to better assist trustees.

CREATING A GOVERNMENT GATEWAY For lay trustees, there is a lot of scope for human error when attempting to create a government gateway and claim the trust. The trustee must create an organisation gateway rather than an individual gateway. If the wrong gateway type is selected, the trustee will not be able to claim the trust and there is currently no facility for the trustee to go back and change the type of gateway created. In these circumstances, the trustee will need to create a new gateway and accurately select the type. Additionally, there have been a number of instances where the trustee has struggled with the creation of the right type of account and created multiple accounts that cannot be used.

MOVING FORWARD Trusts that do not have a UK tax liability have not been affected by these changes. However, software that will be compliant with the EU Fifth Anti-Money Laundering Directive (5AMLD)2 is currently being developed and is set to become available in early 2021. The 5AMLD-compliant system will create an obligation for more trustees to register on the TRS, regardless of whether the trustees have a UK tax liability. Trustees of UK-resident trusts, and trustees of non-UK-resident trusts where there are particular interactions with the UK, will be required to register on the TRS, providing they do not qualify for an exemption. STEP published an article on this in July 20203 and further guidance is likely to follow before the launch of the 5AMLD-compliant system. HMRC has said it recognises the obstacles in the current software and is working to rectify some of the issues. Unfortunately, HMRC is unable to identify the cases where an issue requires their digital input, and is therefore recommending that trustees claim and maintain their trusts well in advance of the 31 January 2021 deadline. Trustees struggling to navigate the new process should seek professional guidance.

HMRC intends to publish the guidance and have the trust register up and running as soon as possible in 2021, and STEP continues to talk to the TRS team about outstanding issues in relation to the practicality of the software and its interpretation of the directive.

#TRUSTS #COMPLIANCE AND REGULATION 1 Directive (EU) 2015/849 2 Directive (EU) 2018/843 3 bit.ly/3m6dKaX

Parris Innis-Mckenzie TEP is Assistant Manager of Professional and Private Clients at Crowe UK

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ISSUE FOCUS

58 VERSION

KEY POINTS What is the issue? REPRO OP SUBS

New insights into physical and psychological developments in elderhood call for us to update tired stereotypes and practices to work more effectively with elderly clients. What does it mean for me?

ART

People are living longer, and STEP members will serve more elderly clients for longer periods. What can I take away?

CLIENT

EILEEN GALLO ON HOW PRACTITIONERS CAN AVOID UNCONSCIOUS BIAS WHEN ADVISING ELDERLY CLIENTS

Eileen Gallo TEP is a licensed psychotherapist

Gary Waters / Ikon Images

PRODUCTION

‘You’re still up and around?’

This article shares ways practitioners can improve their understanding of elderly clients by integrating legal and financial data with them through listening, respect and empathy.

A 90-year-old man with a painful foot visits his doctor. The doctor’s exam reveals no signs of trauma. ‘Your foot is 90 years old, what do you expect?’ the doctor jokes. The patient replies, ‘My other foot is also 90, but it doesn’t hurt at all.’ This scenario is a classic example of an ageist microaggression. Most likely, the doctor meant no harm by their comment. However, the impacts of ‘minor’ dismissals and degradations accumulate and can be devastating to the elderly client. The COVID-19 pandemic has only magnified stereotypes of the elderly, ushering in a ‘parallel outbreak of ageism’, according to research published by the Gerontological Society of America.1 During the pandemic, the media has depicted people over the age of 65 as a homogenous and frail group who should be ‘walled off ’ and kept behind glass for their own benefit. Reactions to the novel coronavirus have widened the generational divide and are reinforcing outdated (and often harmful) ways that we think about and treat the elderly.2

Not only does ageism pose risks to the personal health of elderly persons, but misguided perspectives about ageing can also upend health systems. As geriatrician and author Dr Louise Aronson notes in her book, Elderhood, ageism matters because ‘when we accept the second-class citizenship of an entire category of human being, we set a precedent for treating others with the same disregard’. Medical and legal professionals often carry an unconscious bias when working with the elderly. But trust and estate professionals can prevent the practice by considering several alternative approaches suggested below.

FIRST, DO NO HARM: MICROAGGRESSIONS ON DISPLAY It is understandable that a busy doctor might express frustration with an elderly patient; they have a lot of people to see. There are around 7,000 geriatricians in the US, a mere fraction of the 70,000 paediatricians treating infants and children.3 In addition to the severe shortage of eldercare doctors in the US, the healthcare system favours cure over comfort, prioritises treating disease over prevention and is rampant with ageism, says Dr Aronson.

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PRACTICAL ADVICE The prevailing stereotypes T H L Do not dismiss the older client of older patients held by some O U O D 0 because you have to speak medical professionals include 4 A D louder or slower or repeat seeing them as invisible, 60 yourself. Be sensitive to elders’ obsolete, old hags, crones fragility without treating them and ill-tempered. As a result, INDEPENDENT like infants. Avoid using a common microaggressions sing-song baby voice or the when interacting with the royal ‘we’ when interacting elderly include: with them. • infantilising; Know yourself. It is • discounting; important to admit that • ignoring; DEPENDENT not every professional has • assuming; and BIRTH DEATH the disposition, patience or • condescending. empathy to work with elderly There is the doctor who Figure 1: Dr Aronson’s ‘life cycle’ clients. We all know attorneys, greets an elderly patient with financial advisors and others a condescending version of who have scant interest in the emotional A NEW SHOW OF COMPASSION ‘still kicking?’, ‘you’re still up and around?’ Stereotypes, microaggressions, unconscious issues troubling their clients, sometimes or ‘you’re so cute’. Also consider medical dubbed the ‘Kleenex’ clients. As one trust bias, whatever the preferred term, are professionals who literally turn their backs and estate attorney ill-suited to counsel a good starting point to introduce an on a patient to address the patient’s child seniors put it, ‘I just want them to sign enlightened form of compassion into our or caregiver throughout the office visit, work with the elderly. How can professional the papers’. essentially treating the patient as if they If that is the case, recognise your advisors practice true compassion and were invisible. avoid falling into the microaggression trap? strengths and deficits and look for clients Further, it is not just doctors who outside of the elderly age range. First, recognise the difference between commit these microaggressions. Many a 64-year-old client and one who is 84. professionals fall into these behaviours, FEWER RESTRICTIONS AND They differ psychologically and physically, perhaps without even realising it. and require an individualised approach, as MORE RESPECT Perhaps the most helpful attitude suggested by Dr Aronson. ‘LOOK AT THEM!’ adjustment lesson for practitioners In her rethinking of the life cycle, For example, one client, a very competent appears in Plato’s Republic, where Socrates illustrated above, there are small but and mildly ill 83-year-old woman, visited writes: ‘I enjoy talking with very old her trust and estate attorney and accountant essential steps under the wide umbrella people. They have gone before us on a road of elderhood. There is recognition of the team shortly after her husband died. These by which we, too, may have to travel, and I difference between young-old and old-old, long-serving advisors to her husband think we do well to learn from them what and dependence and independence are engaged in conversation among themselves it is like.’ throughout the meeting, frequently referring distinct phases we experience.4 Take the time to learn from the very old to her in the third person, as she sat in front and appreciate their evolved connection LIFE CYCLE of them. They failed to acknowledge her to time and to their continuing journey. Being aware of a client’s loss of existence, let alone her intelligence and Respect their dignity and their sense independence as part of the trajectory capacity to discuss her future. of identity. The elderly do not perceive acknowledges the very attributes On leaving that meeting, the woman meaning in the process of ageing; rather, (autonomy, loss of control and identity) retained a new team who did understand meaning comes from elders’ ability to be behind many of the conflicts and her situation. Never one to be treated with themselves in their old age. challenges we must resolve as financial disrespect, this woman later went to her We should look for ways to protect and legal professionals. Advisors can doctor, following a minor stroke episode. elders’ sense of control and discover educate themselves about capacity and She was accompanied by her daughter. the least amount of restrictions and competence and try to rethink easily In discussing his patient’s condition, the protections that will keep them safe. assumed generalisations, as suggested by doctor literally turned his back on her and And most of all, never lose sight of their Mary F Radford, Professor at Georgia State spoke only to the daughter. The mother University College of Law, who writes about humanity, for that is what stays with all of admonished the doctor with a call to ‘Look us and carries us all through until the end. elders and financial abuse.5 at me – I am the patient’. We can easily extend her clarion call beyond the medical arena to suggest that all advisors ‘look at them – they are the client’. Consider the observation, made more than 50 years ago by Pulitzer Prize-winning #CAREER AND PERSONAL DEVELOPMENT geriatrician Robert Butler, that the tragedy #US #VULNERABLE CLIENT of old age is ‘not the fact each of us must grow old and die, but that the process of 1 bit.ly/30LeBFO 2 Louise Aronson, ‘‘‘Covid-19 Kills Only doing so has been made unnecessarily, Old People.” Only?’, New York Times, 22 March 2020, nyti.ms/32QNJp1 3 NPR, ‘A Clearer Map For Aging: and at times excruciatingly, painful, “Elderhood” Shows How Geriatricians Help Seniors Thrive’, humiliating, debilitating and isolating’. 17 June 2019, n.pr/2HcjVvm 4 Louise Aronson, Elderhood: Butler’s ideas ring even more true today. Redefining aging, life, transforming medicine, reimagining life (New York: Bloomsbury Publishing, 2019), p.270. The elderly sick are living longer than they 5 M. F. Radford, ‘Balancing Autonomy and Vulnerability in the previously did, and the path of our final Golden Years: What If Granny Wants to Gamble?’ (ACTEC journey is more crowded, protracted and, Annual Meeting, Trachtman Lecture, La Quinta, California, March 2019) sadly, prone to erode our humanity.

‘Know yourself. It is important to admit that not every professional has the disposition, patience or empathy to work with elderly clients’ ST E P J O U R N A L I S S U E 6 2 0 2 0

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ISSUE WELCOME FOCUS

60 VERSION

KEY POINTS What is the issue? REPRO OP

STEP and CLT International have redesigned the STEP Diploma in International Trust Management to better reflect the needs of today’s students.

Change is coming

SUBS

What does it mean for me?

ART

Those who were considering taking the original diploma will benefit from the updated syllabus, and those who have paused their studies may find the new content more relevant.

PRODUCTION

An overview of what has changed, and what remains the same.

What can I take away?

CLIENT

THE STEP DIPLOMA IN INTERNATIONAL TRUST MANAGEMENT HAS UNDERGONE AN OVERHAUL. MADELEINE JENNESS AND VICTORIA HAND DETAIL THE CHANGES MADE, AND WHY

Madeleine Jenness is Senior Manager of Professional Development at STEP Worldwide, and Victoria Hand is Head of Marketing and Commercial Services at CLT International

Some 20 years has passed since STEP launched its Diploma in International Trust Management (the Diploma). The years that have followed have secured the course as the leading qualification globally for those working in the international trusts arena. Each year, around 1,500 people study the Diploma, which comprises four advanced certificates. In 2021, a curriculum redesign for the Diploma will launch. This is the result of extensive market consultation by STEP and CLT International (CLTI), with contributions from alumni, employers, branch committees and CLTI’s tutor network. The changes will bring together a modernised Diploma that is fully reflective of the changes in the industry and roles emerging within the workforce. A key finding of the consultation undertaken by CLTI and STEP’s Professional Development team is that risk and compliance are now at the epicentre of most business organisations. Successive transparency, information sharing initiatives and regulations including transfer pricing and base erosion and profit sharing (BEPS), economic substance, disclosure of tax avoidance schemes, beneficial ownership registers, trust registers and legal identifiers, have combined to underline the importance of robust risk management and compliance procedures. For STEP, the challenge has been to ensure that its qualification offer is

responsive to these changes in the industry, equipping its members with the necessary knowledge to meet these ever-evolving challenges in interpreting a fast-moving regulatory and legislative framework. STEP has recognised the growing importance of compliance in designing its new Diploma framework, with the inclusion of compliance as a mandatory technical area. As part of the changes to the Diploma syllabus, STEP will launch a new advanced certificate focused on compliance.

NEW AND REWORKED ADVANCED CERTIFICATES Advanced Certificate on the Principles of International Taxation, AML and Compliance STEP will launch the new Advanced Certificate on the Principles of International Taxation, AML and Compliance. The course introduces these topics with content tailored to the needs of the trust and corporate service provider industry. The course also takes syllabus content that was previously included elsewhere in the Diploma syllabus, incorporating updates and enhancements to content, as well as the principles of international taxation and risk management. Trustees’ Duties: Investment and Management of the Trust Fund The current Advanced Certificate in Trust Administration and Accounts and Advanced Certificate in Trustee Investment and Financial Appraisal courses are being combined and streamlined to create a new course: Trustee Duties, Investment and Investment Review.

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Enrolment for the new course will open in April 2021, with examinations taking place in November 2021. Online-only versions of the current courses will be available for the remainder of 2021 and will be discontinued in 2022. This content will be streamlined, with much of the theory removed, and a new focus on explaining to students how to prepare both trust and company accounts. The reserved powers, sham, confidentiality and compulsory disclosure of information modules have moved to the new Advanced Certificate in Trusts Law and Practice course. The more specialised modules on futures and ratio analysis in the current Advanced Certificate in Trustee Investment and Financial Appraisal have also been removed. The content that remains will be updated to make it more trust-specific and will include new modules on structured products, private equity and sophisticated investor funds.

Advanced Certificate in Trusts Law and Practice The new version of the Advanced Certificate in Trust Creation: Law and Practice, entitled Trusts Law and Practice (International), opened for enrolment in July 2020 for courses, with examinations in January 2021. An online-only version of the current course will be available throughout 2021 and will be discontinued in 2022. Extensive changes have been made to the course syllabus to bring it up to date to a new audience of practitioners. The two Anti-Money Laundering modules have been moved to the new Principles of International Tax, AML and Compliance course. The Distributions, Reserved Powers and Sham modules have been moved from the current Advanced Certificate in Trust Administration and Accounts to this course. The short module on variations has been removed, as the topic is one not often encountered in practice. A major innovation to improve the practice-based content has been the introduction of 32 specimen documents typically encountered by those involved in the administration of offshore trusts. There has also been a considerable expansion of the following topics: • settlor’s capacity; • remuneration methodologies; • transfer of trusteeship; • accepting additions into trust; • dispositive provisions, in particular a power of appointment and power of resettlement, and when and how to exercise such powers; • duties of trustees when distributing from a discretionary trust, risks including liability for foreign taxes and to third-party claimants, and

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BOOST YOUR CAREER Current curriculum

New curriculum

■ Advanced Certificate in Trust Creation: Law and Practice ■ Advanced Certificate: Company Law and Practice ■ Advanced Certificate: Trust Administration and Accounts ■ Advanced Certificate: Trustee Investment and Financial Appraisal

■ Advanced Certificate: Trusts Law and Practice (International) ■ Advanced Certificate: Company Law and Practice ■ Advanced Certificate: Trustees’ Duties: Investment and Management of the Trust Fund ■ Advanced Certificate: Principles of International Taxation, AML and Compliance

• • •

• • • •

mitigation of such risks by indemnities or court order; the administration of settlor-directed trusts; variations of a life interest trust; additional analysis of administrative provisions to modify • the prudent investor rule; and • the Bartlett duty to supervise management of investee companies; choice of law post-Crociani v Crociani;1 protectors’ duties post-JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev & Ors;2 reconsideration of ‘firewall’ provisions in forced heirship and spousal claim avoidance; and use of purpose trusts for employee benefit and pension schemes.

Advanced Certificate in Company Law and Practice The new version of this course opened for enrolment in July 2020, with examinations from January 2021. An online-only version of the current course will be available throughout 2021 and will be discontinued in 2022. Adjustments to the syllabus include moving the Regulation of Company Management Business and Taxation of Companies modules to the new Advanced Certificate in Principles of International Tax, AML and Compliance. As with Trusts Law and Practice, a major innovation to improve the practicebased content has been the introduction of 88 specimen documents typically encountered by those involved in the administration of offshore companies. There has also been a considerable expansion of the following topics: • lifting the corporate veil; • taking instructions to incorporate: duty to establish identity and residency of a client as a controlling person (for the Foreign Account Tax Compliance Act and the Common Reporting Standard) and beneficial owner (for new register); • beneficial ownership register, or equivalent; • review of reasons to migrate company;

• redundancy of memorandum of association in some jurisdictions; • a more detailed review of articles of association, comparing those based upon the old-fashioned Companies Act 1948 with the more modern Companies Act 2006 model; • extensive revisions of the module on Equity Finance and Distributions, in particular subscription, allotment, issue, transfer and transmission of shares, as well as the capital maintenance doctrine; • review of directors’ service agreements; • inclusion of claims that may be brought by minority shareholders; • revision of discussion on fiduciary duties, including the ‘no-benefit from third parties’ rule and anti-bribery legislation cases; • revision of discussion of duty of care (Lexi Holdings Plc (in administration) v Luqman and Others,3 cf. Madoff Securities International Ltd v Raven & Ors)4 and non-ratifiable breaches; • revision on appointment and role of registered agent; and • added new procedure of voluntary striking-off. WHAT DOES THIS MEAN FOR THOSE STUDYING THE DIPLOMA? When planning their studies, students should note the start date for each of the new advanced certificates and the date on which the previous advanced certificate is being discontinued. Arrangements are in place for those wishing to switch to the newer versions of the advanced certificates. With the new Diploma poised to go live in 2021, transition arrangements are in place to enable those who have taken an extended break from studies, or previously withdrawn from studying on the Diploma altogether, to return to their studies. For further information, please contact CLTI. #CAREER AND PERSONAL DEVELOPMENT #TRUSTS 1 [2014] UKPC 40 2 [2017] EWHC 2426 (CH) 3 [2009] EWCA Civ 117 4 [2013] EWHC 3147 (Comm)

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so, we are able to detect problems that need solving. This can trigger innovative new approaches, such as coaching family members rather than just producing a ‘silent’ piece of advice on paper. This could take the form of mediating between generations while working on a new letter of wishes, or educating the next generation while discussing succession planning with the older one. Therefore, practitioners with a holistic mindset could positively influence their clients as they are familiar with the traditions and values of the families they look after. A good understanding of the family business and ongoing communication with all family members can facilitate the smooth transfer of their wealth in the future.

REPRO OP

In perfect alignment

SUBS

MARIA SOLER TERRADEZ ADVISES PRACTITIONERS ON HOW THEY CAN FIND PURPOSE IN THEIR CAREER

ART PRODUCTION CLIENT Shutterstock

ALIGNING PURPOSE AND CAREER Seeking meaning in a career plays an increasingly important role in our society. This is especially true for the younger generation. But what gives meaning to a career? A meaningful career can involve working on something that will ultimately give purpose and add value to what we do for a living. This leads to the next question: what does it mean to have purpose in life? Purpose can be seen as a goal that we want to reach. Having discussed this with peers and some next-gens, purpose is the feeling of doing something that creates satisfaction, joy and self-accomplishment. Hence, purpose has a significant impact on daily business activity and helps one focus on their goals, provide a better service to their clients and be motivated by working on something that they are passionate about. In practical terms, purpose helps one to be more efficient, make better decisions and, hopefully, be rewarded for good work. A PURPOSE-DRIVEN GENERATION Today, it is particularly the younger generation that are looking for purposedriven workplaces. They want to contribute to society and make an impact; a monetary profit is not their only aim. There are opportunities for practitioners to serve their

clients in innovative and fulfilling ways. This can lead to a win-win solution for both the practitioners and the clients. One of the challenges that affluent families face today is that younger and older generations hold different value sets. These include reaching mutual understanding in business, investment strategies and/or succession planning. In addition, in today’s global world, family members often live in various countries, even on different continents. This can cause cross-border problems and increasing complexity in handling regulation, compliance and reporting requirements. Consequently, communication problems and new risks from digitalisation are on the rise.

DIVE INTO NEW TERRITORIES If the younger generations strive to make the world a better place, practitioners need to listen and consider their values when planning or acting as trustees. Their values may even be aligned with our own. For them, it is not just about profitable investments and tax optimisation to make wealthy families wealthier. They may also care about giving back and having a positive impact. For practitioners, this is an opportunity to dive into new territories. By getting in touch with multiple generations, or working with a lawyer or banker who does

UNCOVERING YOUR PURPOSE Practitioners are able to achieve a sense of purpose for themselves and for clients by encouraging and guiding them to use different financial vehicles to find purpose and have an added value, while preserving and managing the family assets. For example, when the powers of investment are vested with a practitioner, they could decide to make the investment into companies, organisations and funds with the intention to generate beneficial social or environmental impact alongside a financial return, such as into impact and sustainable investments. Another example would be having a charitable trust or foundation to preserve a family’s wealth and assets, while supporting different organisations financially and/or engaging directly in charitable activities. CONCLUSION The beauty of practising in this industry is the prospect of working with interesting clients from various backgrounds, handling different types of assets in various jurisdictions and collaborating with financial institutions and special advisors. No family and no mandate is alike, so practitioners need to be curious to adapt and be creative. This will help us to find satisfaction and joy in our jobs. The personal fulfilment is not only about helping others and making a meaningful contribution. It is also doing what inspires us and gives purpose to our career. #CAREER AND PERSONAL DEVELOPMENT #BUSINESS PRACTICE

Maria Soler Terradez TEP is a Trust Manager at VALUEworks, Zurich

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ISSUE FOCUS STEP JOURNAL COMPLIANCE AND CAREERS


PRE-NUPTIAL AGREEMENTS

64 VERSION

KEY POINTS

In good times and in bad

SUBS

What does it mean for me?

A DECADE AFTER RADMACHER, JANE KEIR ASSESSES THE LEGACY OF THE LANDMARK UK SUPREME COURT CASE AND THE RESULTING ENFORCEABILITY OF PRE- AND POST-NUPTIAL AGREEMENTS

ART

STEP members may be asked for advice from clients on the terms of a PNA and what the repercussions might be if they are not adhered to.

PRODUCTION

What can I take away?

CLIENT

An update as to the shift brought about by Radmacher towards upholding a PNA, and whether the client’s case meets those requirements.

Gregory Baldwin / Ikon Images

REPRO OP

What is the issue? As a result of the landmark UK Radmacher case, there has been an increase in cases where one party seeks to rely on the terms of the pre-nuptial agreement (PNA) to cut short the financial litigation on divorce.

Jane Keir is a Partner at Kingsley Napley ST E P J O U R N A L I S S U E 6 2 0 2 0

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It is now ten years since the UK Supreme Court handed down its decision on 20 October 2010, in Radmacher v Granatino.1 It would be fair to say that, at the time, it was a decision that took the family-law world somewhat by surprise. It represented a shift away from pre-nuptial agreements (PNAs) being seen as something that an England and Wales court was unlikely to uphold, to a position whereby parties were held to their premarital bargain where, per Lord Phillips at para.73 of his judgment, the pre-nuptial agreement: ‘was fully entered into by each party with a full appreciation of its implications, unless in the circumstances prevailing it would not be fair to hold the parties to their agreement’. Yet, although the British could be described as having had a certain squeamishness towards using PNAs in the past, and this has since given way to their use being much more common, a certain limbo remains. Such agreements still cannot exclude the discretion of the divorce judge altogether and are therefore not enforceable as a matter of pure contract law.

Gregory Baldwin / Ikon Images

RELYING ON A PNA So, where does that leave the spouse whose wish it was to have a PNA and who now faces divorce? They may have worked in close consultation with advisors and/ or a family office in making the decision to have a PNA, or it may have been the wishes of the family in terms of asset protection. For Ms Radmacher, it was the latter that led to a significant investment in legal and other professional fees to ensure that both parties had independent legal advice and that all the relevant formalities were complied with; before the agreement was signed in good time before the wedding. In broad terms, the answer is that clients who fully understand and sign a PNA are likely to be held to its terms on a divorce, provided it meets the needs of each of the parties. Even if that leaves a big disparity in the respective capital and income positions of the parties, it may still pass the test laid out in Radmacher. KA v MA It is also important that the spouse who seeks to rely on the PNA is determined and proactive from the start in looking to secure an outcome that effectively upholds or allows little room for increasing the provisions under its terms. This applied to the husband in the case of KA v MA (Prenuptial Agreement – Needs).2 Both parties had been married previously and were in their mid-50s when the case came before Justice Roberts in the England and Wales High

Court (the Court) in 2018. They began cohabiting in 2004 and had one child, born in September that year. They married in December 2008, some 18 days after signing a PNA; the husband had made it clear that he would not have married without it being put in place. Under its terms he agreed to make the wife a payment of GBP1.6 million on divorce, whereas she sought a payment of GBP6 million. The judge’s decision was that he should make a payment to her of GBP2.73 million, being a capital element of GBP1.6 million and a Duxbury fund from which to meet her income needs of GBP1.13 million, on the basis that she had some GBP200,000 of her own resources. Roberts J accepted the wife’s argument that the husband’s refusal to marry her without a PNA in place did not amount to duress or exploitation of a dominant position in the circumstances of this particular case. However, the consideration of fairness in the circumstances prevailing meant that the husband should pay the additional sum to meet the wife’s income needs, thus not holding the parties strictly to the terms of their PNA. In making the additional award of GBP1.13 million, the Court was closer by some way to the anticipated outcome under the PNA than to the wife’s overall claims of GBP6 million. This illustrates the shift brought about by Radmacher towards respect for the autonomy of the agreement they had reached as embodied in the pre-nuptial contract. BRACK v BRACK A further case that is significant in the evolution of pre-nuptial agreements came before the Court and the England and Wales Court of Appeal (the Court of Appeal) in 2018. Brack v Brack concerned a series of three PNAs:3 the ‘Niagara agreement’, the ‘Gothenburg agreement’ and the ‘Ohio agreement’. The husband and wife were Swedish and were married from 2000–2014. They had two children and assets totalling approximately GBP11 million. The overall effect of the three PNAs was that each party should retain the property that each acquired independently prior to or during the marriage; however, there was to be no maintenance following separation and the City Court of Stockholm would have jurisdiction to resolve any disputes arising out of the separation. The case came before Justice Francis at first instance. He held that the three PNAs (the most recent of which contained a maintenance prorogation clause) were valid and that there were no vitiating factors. However, he did find them to be unfair and insufficient to meet the needs of the wife or the children. He therefore limited himself to meeting the wife’s

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needs only when making his award. The wife appealed and the Court of Appeal held that the judge had been wrong to restrict his discretion to a needs-based determination only, having found that there was a valid, yet unfair, PNA. It held that the prorogation clause was invalid. The Court of Appeal said that the existence of a valid PNA did not necessarily lead to a needs-based outcome. Rather, such an agreement, entered into autonomously by the parties, is one of the factors to balance in the round. The Court of Appeal remitted the case back to the trial judge for a determination of the wife’s claims unrestricted to a consideration of her needs. Given the urgings from the Lords and Lady Justice in Brack to settle the claims by reference to negotiation or mediation after three gruelling years of litigation, it is not known whether Francis J was troubled to make a further determination or whether a compromise was reached. Although the Court of Appeal did not fetter his jurisdiction, it is tempting to think that the signing of not one but three PNAs by the wife might have resulted in the exercise of the judicial discretion closer to the needs-based range of outcomes all the same. CONCLUSION Even a decade on from Radmacher, we are still not as comfortable in England and Wales with the use of PNAs as we might be. This is perhaps concerning, given more and more cases are now coming through where one party seeks to rely on the terms of a PNA to cut short financial litigation on divorce. Unlike many other jurisdictions, England and Wales has no written constitution, bill of rights or civil code. Marriage in countries that do have these may mean opting in to a matrimonial property regime that states, in simple terms, for example, that assets owned before marriage belong exclusively to the party who owned them then, but after marriage income earned/received and assets accrued become joint property. In such jurisdictions, PNAs are used to opt out of such regimes with relative regularity and seemingly far less need for judicial scrutiny and protection. It seems extremely unlikely that any parliamentary time will be found in the next few years to devote to the reform of marital agreements. Therefore, we can only expect this state of limbo in England and Wales to endure, with our judges continuing to carry the burden of decisions on enforceability. #MATRIMONIAL #UK #ENGLAND AND WALES 1 [2010] UKSC 42 2 [2018] EWHC 499 (FAM) 3 [2018] EWCA Civ 2862

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DIGITAL ASSETS

66 VERSION

KEY POINTS What is the issue?

SUBS

What does it mean for me?

The digital tsunami meets estate administration SHARON HARTUNG AND JENNIFER L ZEGEL DISCUSS LESSONS TO BE LEARNED FROM THE CANADIAN QUADRIGA DEBACLE AND HOW IT INFORMS ESTATE PLANNING AND ESTATE ADMINISTRATION

ART PRODUCTION

This highlights the need for pre-planning, especially where digital assets are concerned. The financial or emotional significance attached to various digital assets and the potential loss of access should alarm estateplanning professionals, when digital estate planning is neglected.

CLIENT

The death of Gerald Cotten, his company Quadriga and its large Canadian cryptocurrency exchange QuadrigaCX has revealed dramatic implications for estate planning. Cotten’s story unravelled on social media, where clients complained about their inability to withdraw funds from their QuadrigaCX accounts, speculating about what happened to the funds held by the exchange.1 Cotten died without leaving information about the digital keys required to access the company’s encrypted vaults and wallets where most of the account holder funds resided. Given the inability of QuadrigaCX account holders to access their holdings, the company was forced into bankruptcy trying to recover funds for the creditors and account holders. However, consider this: what little information the investigation and bankruptcy proceedings were able to find about the dealings and transactions of the exchange is a harbinger of what might happen if a fiduciary is unable to access the digital assets of a deceased or incapacitated person. Even more compelling was the amount of digital information and electronic communications for the exchange unable to be accessed, even with the approval of regulatory powers, expertise and money to engage professionals.2

What can I take away? A knowledge of the pre-planning tools that all practitioners should have at their disposal to process estates with digital assets.

Sharon Hartung TEP is the author of Your Digital Undertaker and Jennifer L Zegel TEP is a Partner at Kleinbard

Shutterstock

REPRO OP

Gerald Cotten, Chief Executive and founder of cryptocurrency exchange QuadrigaCX, died without leaving information about the digital keys that provided access to account holders’ funds, with disastrous consequences.

ESTATE ADMINISTRATION OF DIGITAL ASSETS BEGINS WITH AN INVENTORY The Quadriga incident highlighted the need for pre-planning, as well as the hurdles to fiduciary access resulting from impenetrable hardware and software,3 juxtaposed against the basic steps of handling assets in an estate administration. Fundamentally, there are four observations about handling digital assets and devices that illustrate how ST E P J O U R N A L I S S U E 6 2 0 2 0

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a fiduciary’s duties could be easily frustrated in an estate administration if the decedent had not sufficiently planned ahead. Inventory Of significance for any estate is scouring hardware devices for digital assets such as cryptocurrencies, photos, manuscripts or other information related to physical assets. Gaining entry to encrypted devices is problematic and likely expensive. Even if these devices can be lawfully accessed by the fiduciary, access may not be technically possible. Many jurisdictions have implemented laws governing a fiduciary’s ability to access a user’s digital assets, but the rules are not uniform. Most jurisdictions that have digital asset access laws allow a fiduciary to enter a decedent’s computer or device. Even if the decedent left instructions on where to search, if devices are encrypted or the access information to the device is not readily available, the legal authority granted may be useless without proper planning.


Securing custody For Quadriga, there were inconsistencies in billing names that delayed access to the accounts. Just as you cannot easily access a bank account with a mismatched name to the legal documents for the decedent’s estate, you cannot access digital assets without accurate credentials. Once assets are accessible, they need to be safeguarded. In Quadriga’s case, approximately USD500,000 worth of cryptocurrencies that initially were accessible were accidentally transferred into the locked, inaccessible, cold wallets4 of the company.5 The perception of a fiduciary’s sloppiness during estate administration will magnify estate-planning negligence, and with no decedent to question, all eyes will turn to the fiduciary. When thwarted by the lack of pre-planning, a fiduciary must question the estateplanning scrivener when the beneficiaries ask, ‘why didn’t you provide my loved one with digital assets guidance?’ Corporate or professional fiduciaries will need to re-evaluate their policies with respect to wiping hard drives and handing devices over to beneficiaries. Consider the stories about client data breaches. Morgan Stanley learned that devices handed over to a third party in 2016 for data wiping may have still contained client data after the procedure.6 A modern-day fiduciary toolbox might actually need a real hammer and nail to ensure personal data is destroyed, in addition to relying on software.

‘The Quadriga incident highlighted the need for pre-planning, as well as the hurdles to fiduciary access resulting from impenetrable hardware and software’ The current trend for digital storage is cloud-based services, such that the digital device has little to no hard drive and is only a conduit to online storage services controlled by service providers. What is tangible and accessible under fiduciary access laws might result in a device only being a pipe to digital assets stored on remote storage services, governed by service providers under their terms of service agreements. Managing beneficiary expectations will be key. Without pre-planning, accessing encrypted devices and digital assets will be challenging, as many will think accessing online storage services will be akin to accessing a physical storage locker with a bolt cutter.

Discovery, evaluation and valuation In some circumstances, if the fiduciary does not take measures to contain and remedy security breaches, it could result in additional liability for the estate from issues that could have been avoided with proper planning. Examining the details of digital assets can be a labour-intensive process, particularly when the findings may require additional steps to preserve the value of the asset. Further challenging for digital assets will be valuation for probate, taxes and distribution. Digital assets may also have a tax-cost basis, requiring either a paper trail left by the decedent or, if not, a forensics exercise to determine their value.

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For an individual’s personal estate administration, a search for online accounts enables the fiduciary to inform financial institutions of the decedent’s death. Shutting down accounts includes social media, among others, as identity theft after death is fodder for bad actors. Disposition planning and final disposition As part of an estate administration, a fiduciary should maintain and update the decedent’s digital assets inventory and the final value of each asset on the date of disposition, prioritising, documenting and dating completed transfers, valuation and tax information and tracking issues as they occur. They will also need to grapple with any preplanning tools used by the decedent, such as Google’s Inactive Account Manager and Facebook’s Legacy Contact. PLANNING FOR DIGITAL ASSETS IS KEY The Quadriga story illustrates how estate-planning professionals must learn enough about technology and digital access laws to effectively advise clients in estate planning, and when additional measures are needed in more complex situations. A tsunami of complications in estate administrations from our technology dependency is coming, especially where pre-death planning did not take place. This story is one example, but it is reasonable to expect we will see more complex cases in the future.

#DIGITAL ASSETS #ESTATE PLANNING #ESTATE ADMINISTRATION #TECHNOLOGY

READ MORE If you are looking for further technical management details of the digital assets associated with the Quadriga bankruptcy case, join the STEP Digital Assets Special Interest Group (SIG) and watch for articles featured in the SIG ‘Digital Assets Deep Dive’ series. For more information, visit www.step.org/ special-interest-groups/digital-assetsglobal-special-interest-group

1 The Globe and Mail, tgam.ca/38XHFif 2 www.thelawyers daily.ca/articles/20424 3 bit.ly/34VZDhu 4 A cold wallet holds cryptocurrencies offline. 5 First Report of the Monitor, 12 February 2019, p.7, s.18. https://documentcentre.ey.com/#/ detail-engmt?eid=342 6 bit.ly/317DQm0

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69

VERSION

KEY POINTS What is the issue?

SUBS ART PRODUCTION

What does it mean for me?

CLIENT

Trustees and private wealth practitioners should consider undertaking a timely review of their clients’ PTCs and fiduciary committees to mitigate litigation risk and optimise their proper management for years to come.

The devil is in the detail

ROBERT LINDLEY AND WESLEY O’BRIEN DISCUSS THE UTILITY OF FAMILY-MANAGED PTCs AND FIDUCIARY COMMITTEES AND METHODS TO ENSURE PROPER MANAGEMENT

What can I take away? A knowledge of governance and succession issues for family-managed PTCs and fiduciary committees that arise in emergency situations.

Robert Lindley TEP is a Partner and Head of Cayman Islands and BVI Private Client & Trust, and Wesley O’Brien is an Associate, at Conyers

Recent world events have offered both individuals and businesses across the world an opportunity for introspection. In a period of constant change, the businesses that thrive will be those capable of rapidly adapting to new challenges and changing circumstances. For trustees and those operating in the private wealth sector, it is likely that recent events will accelerate and exacerbate existing challenges and trends. As such, there is no better time to review governing documents, corporate governance procedures and succession planning to ensure that they are fit for purpose. It is in times of crisis that corporate governance procedures are put to the ultimate test. This applies across the spectrum of private wealth structures, such as private trust companies (PTCs) and fiduciary committees appointed under trust structures. Alice Mollon / Ikon Images

REPRO OP

Family-managed private trust companies (PTCs) and fiduciary committees appointed under trusts with a high level of non-professional involvement, coupled with inadequately drafted trust and constitutional documents, may find themselves embroiled in litigation or paralysed due to inadequate governance or succession mechanisms.

PTCs PTCs have experienced varying degrees of popularity in previous years. At one stage, the establishment of a PTC to serve as trustee of one or more family trusts, particularly for Asian clients, was seen as

de rigueur in circumstances where wealthy families wished to retain a high degree of confidentiality or wanted to retain some control over the trust’s administration. Some settlors, particularly those resident in civil-law jurisdictions and not familiar with trusts and the role of trustees, often preferred to use the more familiar corporate form of a PTC, appointing family members to its board of directors. However, there are often disadvantages with PTCs and, in recent years, their popularity for some client groups may have waned. This may be due in part to the sometimes unnecessary complexity of a PTC, the annual costs of its administration, or the mismanagement of the PTC when in the hands of family members who may not fully understand or appreciate a trustee’s administrative role. Moreover, professional licensed trust companies will often have the resources and expertise to undertake the trustee’s administrative tasks, thus avoiding issues arising due to the PTC’s mismanagement and the ever-changing family dynamics that can give rise to potential disputes at the PTC’s board level.

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This is not to say that a well-run PTC with suitably drafted constitutional documents is not a good option for some families. The devil is in the detail and each family will have bespoke requirements and needs, which may or may not suit the implementation of a PTC in the trust structure. However, it is in times of disruption and emergency events when the stark reality of a mismanaged PTC, and thus perilous trust administration, invariably comes to the fore.

ART PRODUCTION CLIENT

PROTECTORS AND FIDUCIARY COMMITTEES COVID-19 has been a two-pronged sword, threatening both health and financial security in its rapid spread across the globe. The uncertainty that has accompanied the virus has prompted many people to confront their own mortality and consider whether adequate succession planning is in place for whatever the future holds. With these issues at the forefront of people’s minds, this is the ideal time for individuals and their advisors to review and, where necessary, revise existing arrangements; a matter often overlooked until it is too late. The issue is whether adequate provisions exist with regard to automatic succession of key roles, such as the protectorship of any trusts, or members of any management or fiduciary committee associated with a trust in the event of death or incapacity. With good planning, individuals and family groups can ensure that wealth structures are not ‘paralysed’ by the loss of a key individual; an outcome that would invariably add to a family’s difficulties in times of crisis. GOVERNANCE In times of crisis, it is important that a PTC’s board and any fiduciary committee can continue to hold regular meetings that are recorded by accurate and appropriately detailed minutes. Given that litigation often follows periods of crisis, minutes of meetings will often become critical in the determination of any disputes and/ or assessing the appropriateness of the board’s (and its individual members’) actions and conduct. Even for entities and structures that consider themselves relatively unaffected by the current circumstances, it is a fitting time to review whether existing governance procedures are fit for purpose, in that they are capable of responding to a variety of challenges (both known and unknown). Where they are not, remedial action should be taken sooner rather than later. Points for consideration and review include the following: Meetings Whether the governing documents, such as articles of association of a PTC or a

‘It is in times of disruption and emergency events when the stark reality of a mismanaged PTC ... invariably comes to the fore’ committee’s rules or by-laws, contain adequate provisions with regard to conducting meetings by electronic means. Although most modern documents contain provisions allowing attendance via phone or video, such provisions are not always fit for purpose, especially where meetings are to be conducted wholly electronically. This is unlikely to be an issue for recently incorporated PTCs, but for fiduciary committees appointed under trust instruments and perhaps with older-style rules and by-laws, it is timely to consider whether there are appropriate rules and procedures in place for the facilitation of virtual meetings, or to provide for meetings to be held through a combination of a physical and virtual format. In certain circumstances, it may also be appropriate to address matters such as how voting will take place and whether meetings should be recorded when conducted electronically. Proxies How to facilitate meetings where the governing documents (or some other legal requirement) stipulate that meetings must occur in a specific place. Because of the current restrictions on travel, questions may arise as to how such a requirement applies to attendance via electronic means, and whether a quorum can be achieved by appointing proxies to attend and vote at a meeting on a board or committee member’s behalf. Incapacity Whether there are adequate rules and procedures in place in the event that a director or other office holder, such as a protector, is incapacitated. This can be particularly important in a private wealth context where PTCs (or indeed any underlying companies of trusts) are often controlled by a small number of people. A settlor’s rationale for incorporating a PTC to act as trustee of a family trust may have been to ensure involvement of family members and/or close family advisors on the board of directors on the basis that such a board will be more familiar with the settlor’s family than an institutional

trustee. Succession planning is therefore critical to ensuring that a company or committee is not paralysed at a time of crisis when it may need to act quickly. In this context, it is important to review whether governing documents provide for the appointment of, in the context of a PTC, an alternative director or reserve director who can immediately act in the event of a vacancy due to death or incapacity of an incumbent director or office holder. It is worth noting that British Virgin Islands (BVI) VISTA trusts,1 which are often used to establish a purpose trust to hold the shares of a BVI PTC, can expressly provide under their office of director rules to deal with such events should the need arise to appoint replacement directors to the board of the VISTA trust’s underlying BVI company. Protectors Similarly, and of particular relevance to protectors, protector committees and other fiduciary boards established under the terms of a trust instrument, the definition of ‘incapacity’ contained in the trust instrument and the manner in which incapacity is determined and by whom should be reviewed to ensure that it is appropriate for modern purposes. A review of the protector provisions contained in trust deeds is timely and relevant to ensure that there is adequate provision that the trustee’s powers and duties may be exercised in the absence of a protector, due to death or incapacity, or at least to check if the express power to appoint a replacement protector is vested in someone other than the incapacitated or absent protector. Any trustee should have cause for concern upon realising that in the exercise of its powers and duties the appropriate consents had not been obtained, or were defective, thus jeopardising the validity of the trust’s administration, particularly if the absent or defective consent has remained undetected for a significant period of time.2 CONCLUSION With good planning, individuals and businesses in the private wealth sector can look to the future with optimism. Given recent global events, this is a good time for trustees and private wealth practitioners to review trusts’ governing documents, PTC and fiduciary committee governance procedures and succession planning to ensure that they remain fit for purpose. #FAMILY BUSINESS AND FAMILY OFFICE #COMPANIES #BUSINESS PRACTICE #TRUSTS 1 VISTA trusts are subject to the Virgin Islands Special Trusts Act 2003, as amended. 2 Y Trust No.1 (2016 unreported) – Cayman Islands

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NON-DOMICILE

72 VERSION

KEY POINTS

REPRO OP SUBS

What is the issue? Many STEP members will have clients whose tax efficiency depends on the client being non-UK domiciled, but recent developments means this tax status must be kept under review. What does it mean for me?

ART

STEP members should review the tax status of clients in their portfolio and consider if a nondomicile statement is appropriate. What can I take away?

PRODUCTION

The concept of being non-domiciled remains important but requires increasing attention.

CLIENT

We’re all dom’d?

David Kilshaw TEP is a Partner, and Jeremy Stein is a Senior Manager, at Rawlinson & Hunter

Dom McKenzie / Ikon Images

DAVID KILSHAW AND JEREMY STEIN ENCOURAGE PRACTITIONERS TO REVIEW THEIR NON-DOMICILED CLIENT PORTFOLIOS IN THE UK The ‘non-dom’ regime remains a very favourable one, albeit its scope has been significantly narrowed by legislation in recent years. Because it is so favourable, it is important to many individuals, offshore trustees and their professional advisors. Consequently, it is often under the spotlight. In recent times, the spotlight has fallen on three aspects. First, a concern that the remaining advantages of a ‘non-dom’ status will be removed via legislation by the UK government to plug the COVID-19-induced gap in its finances. Second, the trend in the number, depth and persistence of enquiries by Her Majesty’s Revenue & Customs (HMRC) into domicile cases. Most tax advisors will

have clients tied up in lengthy and often repetitive correspondence about a non-dom’s personal history and lifestyle. Third, on the jurisdictional questions on closure and information notices, as in cases such as Henkes v HMRC 1 and Embiricos v HMRC.2 It is suggested, however, that there is a bigger and more serious development in danger of being overlooked: HMRC is now winning domicile cases. It used to be a guiding principle that HMRC did not win domicile cases against living taxpayers. It was notoriously difficult to prove ‘intent’ (i.e. the intention to remain in the UK permanently or indefinitely being key to HMRC establishing, and persuading the courts, that the taxpayer had acquired a domicile of choice in the

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‘Advisors must challenge clients and ensure that the evidence to support their non-dom claim is as robust as possible’

UK) and, in practice, HMRC tended to accept this limitation. As a consequence, practitioners could deliver robust advice on a client’s domicile knowing that HMRC was unlikely to challenge it and certainly not successfully. This has led to many taxpayers who have lived for decades in the UK being regarded as non-domiciled by HMRC, their advisors, trustees and others. HENKES v HMRC It is suggested that the ‘non-dom’ status of many such taxpayers may now be more uncertain than was previously thought. This is not because the law has changed but because HMRC is now arguing its cases more forcibly and the courts are supporting it. The recent case of Henkes brings this into sharp focus.

The facts can, for present purposes, be briefly stated. Henkes was a 75-yearold Dutch man who had lived in the UK for nearly 50 years (with some overseas employment gaps). He had ‘retired’ in 2003, remained in the UK and devoted himself to various non-executive roles. Henkes had a substantial second home in Spain that he visited regularly, and his claimed intention was to go to Spain when he ceased to work. It is suggested that many practitioners would (as Henkes’ advisors did) file Henkes’ tax returns on the basis he was non-UK domiciled. However, the court disagreed and concluded that Henkes had acquired a domicile of choice in the UK. The case may be a wake-up call to taxpayers, particularly those who have lived in the UK for many years. Henkes did not lose the case because the law had changed. The judge rehearsed the law with which practitioners will be familiar, and emphasised in particular the need for a clearly foreseen and reasonably anticipated contingency that would cause a taxpayer to leave the UK (as opposed to a vague and uncertain possibility). The judge noted too that Henkes had no meaningful attachment to any jurisdiction apart from the UK and that the emotional attachment to his domicile of origin was weak. The judge was also clearly influenced by the identity and nature of the event that, it was claimed, would prompt Henkes’ departure from the UK and wondered if he would, in fact, ever retire. Domicile cases (as the judge emphasised) are fact-specific and, with the benefit of hindsight, it is easy to see that Henkes’ case was a weaker one (which is, of course, why HMRC pursued it). It is, however, unlikely to be a unique case. It is suggested that there may be many other taxpayers, seduced by HMRC’s previous laissez-faire attitude, who have a vaguely expressed idea of when they will leave the UK and/or only tentative connections with their domicile of origin or with the country in which

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their claimed intent is to spend the rest of their days. Such taxpayers should closely study the Henkes judgment and review their position. BEST PRACTICE Preparing a non-domiciled statement will be appropriate in many cases. Though such statements can (as noted in Henkes) be self-serving, their preparation will assist a taxpayer in explaining with greater clarity the circumstances in which they will leave the UK and in avoiding vague and inadequate statements. A review of the depth and reality of the ties with the overseas homeland should also be undertaken. The review of the domicile position should be a detailed and careful one. In Henkes, the judge was influenced by the inconsistencies in statements made at different times. Advisors must challenge clients and ensure that the evidence to support their non-dom claim is as robust as possible. In some cases, the better advice, unpalatable as it may be, will be to tell the client that they are now UK domiciled. Particular care may also be required where a taxpayer has lived for many years in the UK and is now deemed domiciled there,3 but decides to move abroad for a number of years to refresh their domicile before returning to the UK, with a view to restarting the ‘15 out of 20’ years clock. Given recent trends, elderly taxpayers in particular may find it difficult to explain why they are returning to the UK. CONCLUSION As we now have the concept of deemed domicile, whereby the remittance basis is not available once a taxpayer has been UK resident for at least 15 out of the 20 tax years prior to the relevant tax year, it may be questioned if domicile still matters. It does. Apart from the possible loss of rebasing relief, offshore trustees, for example, need to be sure their settlor is non-domiciled under general law since, otherwise, all capital gains of a settlor-interested trust will be taxed on the settlor under s.86 of the Taxation of Chargeable Gains Act 1992. The purpose of this article is not to suggest taxpayers are all now domiciled in the UK. Many taxpayers, even if they have resided in the UK for many decades, will still not have acquired a domicile of choice here. Rather, the purpose of the article is to suggest that, in light of the changing practical landscape, the old law should be reread and non-dom cases reviewed to ensure they are as robust as possible. #RESIDENCY OR DOMICILE #TAXATION 1 [2020] UKFTT 0159 2 [2019] TC 07083 3 Pursuant to s.835BA of the Income Tax Act 2007

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What led you into this particular field? As an advocate and solicitor, I advise clients in various fields of law including corporate, commercial and banking. I also advise and draft legal documentation for conventional and Islamic banking. That generated a lot of interest in estate planning, especially for my Muslim clients.

Do you think advisors need to educate themselves on Shari’a law and its interplay with common-law and other legal systems? Definitely, we live in a borderless, multicultural world. Advisors must be aware that trust and estate planning is a family law matter. Hence, we must equip ourselves with the knowledge of other laws that may affect our clients, not just Shari’a.

Farah Deba Mohamed Sofian TEP Farah Deba Mohamed Sofian TEP is an advocate, solicitor and Chair of STEP Malaysia. Farah specialises in inheritance and succession planning for Muslim and non-Muslim families at her firm Wong Lu Peen & Tunku Alina. As the trust industry in Malaysia experiences growth, she strives to encourage practitioners to consider how religious law can be interwoven into other legal systems to better serve clients from different backgrounds.

Court of Malaya and having my own firm.

What made you join STEP and how do you benefit from your membership? I joined STEP Malaysia in its infancy to learn how the offshore industry works. Being a STEP member means I have the opportunity to introduce domestic trust and estate planning industry issues for Muslims to a wider international audience; an awareness I want to create and share with fellow STEP members. What has been your greatest professional achievement? Being an advocate and solicitor called to the High

What do you think makes a successful advisor? Independence. Having hands-on practical knowledge of the structure and appreciating operational and administrative issues also makes a successful advisor. You specialise in estate planning for Muslims and nonMuslims; in fact, you were instrumental in establishing these services for your firm. Why is this so important? Shari’a will writing was new for Muslims back in the 1990s. State laws on wills were sketchy: there were no established legal processes and procedures that practitioners could rely on. I felt that it was the right time for our advisory services to take into account Muslims’ estate-planning issues. Even today, we are still developing the legal practice to suit our legal system. For me,

How has the recent pandemic impacted your work practices? With most court hearings conducted virtually, probate proceedings has been expedited. So, we have been rather busy. The new norm of having virtual meetings is good; I do not have to deal with traffic jams and jostle for parking spaces to attend a meeting. What would you say to members considering getting more involved? Try it; you will not regret it. The opportunity to learn from each other and the resources provided is exponential. STEP is a well-run international organisation with strong governance. It grounds you. So, do it!

personally, expanding services to Muslim families has its spiritual side too. What trends or challenges are you seeing in this area and how might we address them? The trust and estate planning industry in Malaysia is growing steadily. Many new licensed trust companies are emerging with various new products too. That is a good sign. I hope to be able to create a platform for the public to have the right knowledge to be discerning with their choices and decisions. What are some of the challenges facing your jurisdiction and how might they be overcome? Trying to synchronise the dual legal system efficiently can be challenging. As practitioners, we just have to manoeuvre our advice as best as we can under the circumstances and, at the same time, manage clients’ expectations.

FAST FIVE 1. If you were not a trust professional, what would you be? Landscape-cum-interior designer, if only I could draw. 2. What are you currently reading/watching/listening to? Blacklist, The Sinner and mostly police/detective stories. 3. Favourite cuisine? Any spicy Asian food. 4. What do you do when you aren’t advising clients? Gardening. 5. What is your professional philosophy? Keep a clear conscience, so that I can sleep at night and die a peaceful death.

ST E P J O U R N A L I S S U E 6 2 0 2 0

BLACK YELLOW MAGENTA CYAN

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REPRO OP

Tell us about your career and where it all started I graduated from International Islamic University, Malaysia, where I was taught the dual legal system. I went on to do a Masters in comparative intellectual property studies and alternative dispute resolution at King’s College London. These subjects, coupled with my study in Islamic law and common law in the context of the Malaysian legal system, piqued my curiosity. It is the comparative studies I did then that motivated me to want to see it through in practice.


Profile for Think Publishing

STEP Journal Issue 6 2020  

STEP Journal Issue 6 2020