International families with wealth offshore in trust should take a leaf out of the nuns’ book in Co Galway, in Ireland.
In 2014, the nuns took over the running of the Kylemore Abbey and Gardens and since then have continued to enjoy growth, according to the accounts of its operating company Kylemore Abbey and Gardens Limited, last year.
This is more than can be said of many professionally run trusts, in which the beneficiaries and their advisers take no part. Currently private wealth of $9.6trillion, more than 4 times the UK GDP is owned by offshore entities over which the majority of beneficiaries or their advisers have little or no involvement.
On 7th November 2018, the Government published its paper on ‘Exploring the uses of trusts’ compiled by Ipsos Mori in 2016. Its research involved interviewing 40 ‘agents’ which set up trusts for clients and 20 settlors, of which only 2 had set up trusts offshore. Given my experience of setting up trusts offshore I thought I would add my comments to the Government’s findings.
The motivations for setting up a trust it concludes are
· Protection from people, this is a conclusion with which I would concur. Parents are almost unanimous in wanting protection from in-laws, excessive spending from their children before they are old enough to be responsible and unwelcome influences; drugs, religious sects or ‘gold diggers’ (you can read more in my book ‘When you are Super Rich who Can you Trust?) Trusts are also very effective in limiting exposure from creditors. This is of particularly important to citizens of the US, who are bombarded by speculative claims from opportunistic creditors eager to win some benefits from spurious litigation
· Taxes and costs, this is also a conclusion with which I concur – up to a point. Setting up a trust in the UK by a non-dom barely saves any taxes, although there are still tax advantages for a non-dom in setting up a trust offshore. Saving of costs, however – is debatable! I am a great believer that where value is added – it needs to be paid for, but if value is being diminished, I am not so keen. (Another topic I cover in my book). In so many cases I have seen, professional trustees insulate themselves with layers of indemnities and non-interference clauses that as and when troubles brew, resolution is neither swift, nor cost efficient. Furthermore, the fund gets weighed down with legal opinions and professional expenditure with little or no benefit for the beneficiaries.
· Control! This is where I applaud the Benedictine nuns of Co Galway. So many settlors abrogate responsibility for the decisions and running of their trust to professional trustees with only a fig leaf of control in the hands of a Protector, who has neither the information or funds to do the job of protecting the interests of the beneficiaries properly. As a matter of practice, the Settlor usually has a good working relationship with his trustees, but in the absence of good governance processes and mechanisms in place, this good relationship rapidly turns sour in the face of a dispute or tax investigation.
· Flexibility. Again, I concur here with the Government paper, but only if the family and its advisers are in control, like the nuns in Co Galway. In the absence of family control, the beneficiaries can find their trust and trustees remarkably inflexible which as and when this happens can make the trust inflexible.
The other finding of the Government paper, was that very few Settlors knew much about what a trust was before approaching an agent to set one up. They were therefore very much at the mercy of their adviser in deciding whether and what sort of trust is good for them and their family – which is another topic I cover in my book.
In the late 70’s when offshore trusts first started to be set up, on the lifting of exchange controls, the chance of anyone finding out who had done what was so remote that trustees had no problem in saying – in print- that in practice, they would do whatever the settlor asked of them. Now such a statement could invalidate the trust as a sham.
With the threat that all governments will now have all the information they need to start an investigation into all trusts offshore they now need, as a matter of urgency, an independent audit – what was good advice in the early 80’s may not be so water tight now.
But for the Benedictine nuns in Ireland who would appear to be fully aware of their responsibilities, they have no such fears. Let’s only hope that other beneficiaries of trusts offshore do likewise.
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