In this new era of data collection and automatic exchange of information UHNW individuals can no longer hide their assets in dark corners hoping they will not be found. However, not all wealthy families set up offshore structures driven by greed.
Alice lives in an apartment with her son Michael and his two children. The apartment was put into an offshore structure by Alice's late husband Giovanni, who as a Jew living in continental Europe remembers the atrocities of Nazi invasion and the importance of secrecy. If Giovanni's father had not squirreled the family's wealth into Switzerland during the war the family would have been left with nothing. As it was they had been able to keep some priceless art and a small fortune, which remained in Switzerland.
Giovanni bought the apartment in which his wife and son now live more than twenty years ago through a trust and company structure based in Jersey. Over the years the trust had been tweaked. Fifteen years ago Giovanni, anxious that the trustees had too much power over his loved ones and family wealth, restricted their powers, such that they could not dispose of the assets in the trust without the consent of a 'Protector'. He appointed a prominent lawyer (Alberto in Switzerland) as the trust Protector, but since his death twelve years ago Alice has not heard from Alberto and does not know where he was or how to contact him.
The trustees have not had to do much for their annual fee, and as far as Alice was concerned the trust was protection for her and her family, but dormant.
Alice like so many others was taught the value of privacy and for her husband it was paramount. He witnessed so much needless suffering due to religious ancestry and the loss of fortunes by those foolish enough to let information fall into the wrong hands.
For Giovanni his desire for privacy had little to do with not wanting to pay tax, he simply did not want his family wealth confiscated. Non-payment of tax was an added benefit of paying to keep wealth in an offshore trust and company structure. However Alice appreciates that tax laws have now changed and non-disclosure is not an option worth pursuing.
Over the last few years Alice has become increasingly distressed, not only does she have to pay the administration fee but in addition the Annual Tax on Enveloped Dwellings which is rising steeply year on year. She is aware that she needs to dismantle this structure, but was reticent to do so without an independent opinion.
For her, everyone has had their snout in her trough and she wants now to clearly understand her options and how to plan. Firstly I needed to talk to her about her concerns and priorities and allay any misunderstandings she has or expectations as to who was likely to do what. We settled on the following.
She needs to:
- plan for her succession; Michael was a responsible father so it made sense for her to separate her apartment into two leases, one for her and one for her son and family
- do things in the right order – two years ago one family were advised to continue to own their home through an offshore trust and company structure, but for the company to hold the UK home as a nominee. This family now faces an immediate and substantial inheritance tax charge because the trust now holds a UK situs asset.
- understand that her offshore trustees could not dispose of any trust asset without the consent of the Protector, Alberto.
- understand that her trustees would not go out of their way to track down Alberto. They may have grown fat on trust and company administration but this would not incentivize them to track down Alberto who would bring this structure and their fees to an end
- decide how complicated she wants her structure to be, and has decided not to take out a mortgage or life insurance.
Once we had worked out a plan, Alice has decided that she wants to continue to use her advisers to implement it, confident that the plan is in her best interests.
There are many people like Alice. Over the years they have paid good money to advisers and professional administrators only to find that as the landscape changed, so this money has produced no value.
Alice was exhausted following advice blindly. With the explosion of information she wanted to clearly understand her options and anything she did not understand she wanted explained to her. This is why she had sought out independent, impartial advice from me.
With a plan Alice feels confident to instruct her existing advisers, knowing that she was in control of her wealth and circumstances. She also knows what is needed to done before 1 April, not least for her to track down Alberto immediately without whose consent nothing would get done.