Last week, I received a number of e mails informing me that as a Protector of specific trusts, I would be included in a Register of Persons of Significant Influence (PSI). In each case the Trustees had taken legal advice and perceived themselves as being a ‘Financial Institution’ under the Common Reporting Standard (CRS) and a Protector of any trust to whom powers were reserved to remove and appoint a new trustee, was a PSI and needed to be reported as such.
It feels as if, like Alice in Wonderland, I have had a nasty fall, and nothing is as it was before! In one particular case, I was appointed as a Protector fifteen years ago, but have not seen the family for at least twelve. I do not charge an annual fee – maybe I should, or perhaps it is better just to resign.
At best being a Protector is a mug’s game. Legally the office carries fiduciary responsibilities to act in the best interests of the beneficiaries, but it is arguable that these responsibilities include failing to do something when clearly something needs to be done.
But, if as a Protector I do not know what is going on, because no one tells me, and I have no legal rights to demand information, I can have no idea as to when a situation or transaction is in the best interests of the beneficiaries or not. Let’s say that the trustees decide to liquidate a company holding a residential property in London for which no permission is required by me, the Protector, and in doing so the settlor becomes liable for £1.8 million capital gains tax bill.
Let us also assume that the settlor cannot afford this tax bill and looks around for someone to sue. The trustees are an obvious candidate, but they have access to funds in other trust assets they hold for the client and have a strong indemnity. The Protector, me, also has a strong indemnity, but no funds under management out of which to pay legal fees for taking advice and no right to information. To make matters worse, as a Person of Significant Influence the Government can also pursue me, the Protector, for being complicit in non-declaration of the taxes due. Furthermore, as a resident in the UK, I as a Protector am much more likely to be pursued than offshore trustees. Is it hardly surprising that I would wish to resign!
Clearly with people like me wanting to resign who were appointed to protect them – what can families do to protect themselves from unscrupulous professionals?
My advice is that in today’s hostile climate, a trust structure should not be reliant on a Protector, to provide the beneficiaries with protection from disruptive professionals holding an office.
Instead of appointing a Protector, the family should consider appointing a Private Trustee Company in place of the professional trustee, of which the Protector can be appointed a Director. In this way the Protector has limited liability, access to funds and is fully up to date with what is going on as well as having access to information as and when required.
Where the Private Trustee Company should be situate would however be dependent on a number of factors, including the need for privacy, personal connections, time zones, tax and availability of good STEP qualified professionals. If the assets of the trust are substantial – and the way of gauging this is to estimate how long the assets are likely to stay in trust following the death of the settlor – consideration should be given to putting in place Family Governance processes.
Just as a significant trading company has checks and balances at every level, so it should be with an offshore trust. There should be a way to limit the power of any one individual, provide for accountability, set out a clear understanding of what is expected, make sure notices and rules of meetings are adhered to and information is properly made available with clear enforceable rules as to when an officer can be removed and replaced. Such good governance rules enable disputes to be resolved before they can begin to damage the family wealth.
If you would like to find out more or arrange a time to meet with Caroline, please contact our business development manager Svetlana to arrange a meeting or write to her on firstname.lastname@example.org.