Allan has a trust which was set up for him, not by me, three decades ago. A professional trustee who I will call ABC Trustees Limited is trustee and does the trust administration and his local business adviser Mario is his Protector. Allan has a good relationship with ABC Trustees Limited.
He came to see me, because he was concerned about Mario. The trustees are obliged under the Common Reporting Standard not only to report on the identity of the settlor to Allan’s home country of Argentina, but also to identity Mario, as the Protector.
Allan is personally wealthy, independent from his trust, but Mario is not. Mario, simply could not afford to get stuck in the middle of a dispute or investigation and if this occurred on the death of Allan, Mario has said to Allan, that he would resign. He was not convinced that ABC Trustees Limited or Allan’s family would pay his legal fees as a Protector if anything went wrong, and given his exposure on Allan’s death would not continue in office.
What particularly alarmed Allan, was that ABC Trustee Limited, rather than give Allan assurance that his legal fees and costs would be covered in such a situation, said the opposite. If Mario were to use his powers to try to remove them, Mario’s legal costs would definitely not be paid out of trust funds.
ABC Trustee Limited also said to Allan that on reflection, they would prefer Mario resign, to avoid any suggestion that Allan’s trust should be set aside as a ‘sham’.
Allan did not want his trust set aside, but neither did he want ABC Trustees Limited, to have unfettered control of the trust assets and distribution. They were good administrators, but Allan was not convinced that they could take meaningful decisions without a legal opinion.
‘It would be like trying to run my business with my lawyers being asked to take all the decisions’ Allan said. ‘Mario can take sensible and swift decisions – he is man of business. I am more than happy for my lawyers to comment, but I would not want them taking the decisions, it would be disastrous. My lawyers are good, but they are risk averse, they know the law, but do not know how to run the businesses owned by the trusts.’ Allan was confused and angry.
‘I have come to you as an independent Wealth Protection Planner – what am I to do?
I pointed out to Allan, that the trust fund was legally owned by ABC Trustee Limited, and that Mario was right to be concerned, but that he should not blame ABC Trustees Limited. Setting up a trust with a Protector has, for decades, been standard practice, but with the introduction of the Common Reporting Standard, these arrangements now need a fresh pair of eyes’.
Mario was however, in an invidious position. If he felt it was in the best interests of the beneficiaries to replace the trustees, he may have difficulty getting the evidence he needed from the trustees to do so, if they disagreed, and would struggle getting his legal fees covered.
Even worse, the office of Protector was fiduciary, which means that he had to act in the best interests of the beneficiaries, which may prove tricky if the trustees were to become un-cooperative. Making good any loss to the trust could be significant. Mario may be protected by an indemnity clause – but it was not unlimited. In Allan’s trust deed the indemnity did not cover Mario if he failed to act in good faith – but in whose opinion – his, the trustees – or the court? It could be very expensive for Mario, in legal fees and court costs alone – to prove this!
Allan and I sat a long while talking about what he wanted, what risks he faced, and how to protect him, his family and his assets. Ideally, he wanted to continue to engage with ABC Trustees Limited, continue to rely on Mario for his knowledge of Allan, his family, businesses and concerns, and ensure as little information as possible be reported to his home country.
I agreed to set out our discussions in writing to list his options and the solutions available to him.
As a planner, I said to Allan that I needed to look carefully at the rules and to stay well within, not only the law, but also the letter of the law. Whereas for decades, out of sight and mind was a good solution this could no longer be relied upon and all professional advisers must keep well within the parameters set or risk being fined along with his or her clients.
This does not mean, however, that there is no room to plan, but it must be done well, mindful of all the laws, and all parties must be fully aware of what they are doing and why.
I also pointed out to Allan, that to plan would also be of interest to ABC Trustees Limited. If they failed to do anything which they could have done, and as a result caused loss to the trust, they could also be held liable for breach of trust and ordered to make good any loss incurred. Whereas planning may be a nice to have for Allan, it was in fact a ‘must have’ for the trustees.
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