Last Tuesday I was introduced to a new client who I will call Arpad. His father, who lives in Kenya, set up trusts for his son and his family which were now being administered in the Isle of Man. Arpad and his family were pleased with his trustees which had operated the trusts smoothly for the last twenty-two years.
Arpad’s children are now adults; Tina lives with her husband in the US and Franki is thinking of moving to Portugal with his family. Arpad, his wife and youngest daughter Amie continue to live in the UK.
A few months ago, Arpad was contacted by his trustees in the Isle of Man who asked him to fill out some forms. He did not like how the frequently the trustees had began asking for more and more information which he did not like giving, he was paranoid, especially at the thought of it being exchanged.
Arpad was particularly anxious that his father would be exposed in Kenya to queries and was not comfortable with this idea. His father was well-known nationally and had always been an outspoken person. Even though very successful, he was not universally liked.
During our long meeting I asked how the trusts had been set up; Arpad told me that twenty-two years ago, his father had been working for Arpad’s grandfather in Kenya. They worked well together and Arpad’s father was put in charge of one of his grandfather’s companies. Due to his hard work, the company was a great success and his father and grandfather found a buyer and sold it.
It was about this time that Arpad’s father decided to immigrate to the UK with his young wife and family and he took advice as to what best to do. Arpad’s father was advised to set up a trust before becoming resident, which he did, but the trust was in fact funded by his grandfather, which makes the grandfather, not his father, the economic settlor.
I told Arpad that this distinction is in fact quite material. Whereas there is no express guidance on the position, it is logical from the Implementation Handbook and the responses to the Frequently Asked Questions issued in June 2016 that the year in which the settlor dies his ‘equity interest’ (such as it is under the CRS) is regarded as having closed. It follows that if his equity interest has ceased, there is then no ‘equity interest’ capable of being reported and equally he cannot be a Controlling Person of a trust. This position is understood and accepted by HMRC – which is hopefully the same position in other countries as well.
Arpad looked relieved. I said he would need his trustees to seek independent legal advice to confirm what Arpad believed to be correct to back up a decision not to report the grandfather as a Controlling Person. He may also need to seek tax advice to know what the tax consequences of his grandfather having been the economic settlor rather than Arpad’s father and whether there were any tax consequences on his death.
Arpad quizzed me about his exposure as a Protector. I told him that we were seeing an increasing number of clients giving up their role as Protector as we advise them to have a more hands-on role that does not leave them exposed. Our structure is far more robust and flexible and gives him the opportunity to have a meaningful involvement without the danger of sham argument. Arpad was keen to find out more.
Arpad had seen the press release for my book ‘When you are Super Rich – Who can you Trust?’ and wanted a structure in which his Ring of Confidence – close circle of advisers would be represented. I suggested he join us for the book launch on the 7th November at the Institute of Directors and for us to arrange a time to discuss further.
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