The Duke of Westminster dies aged 64

Gerald Cavendish Grosvenor, the 6th Duke of Westminster has died of a heart attack aged 64, at the Royal Preston Hospital in Lancashire last week. He was the third richest Briton – worth an estimated £9 billion. 

His estate included 100 acres of Mayfair and 200 acres of Belgravia. 

His son, Hugh Grosvenor, who is Prince George’s godfather will inherit the entire estate at the age of 25, as the only son despite not being the eldest. The Grosvenor Family Trusts still favour primogeniture. However, unlike the Royal Family which changed the succession to the throne under an Act of Parliament, the Succession to the Crown Act 2013, there may be little the Grosvenor’s can do about it.

I do not know the Grosvenor family, but I have worked with another family which owned large swathes of London. I have therefore witnessed first-hand some of the pressures these families are under due entirely to the fact that they are the beneficiaries of a substantial estate trust fund and they cannot live their lives as they chose.

Whether Hugh Richard Louis likes it or not he is now the 7th Duke of Westminster with all the responsibilities, pleasures and burdens that this brings with it. He is now heir to a vast fortune, but is unlikely to have any control over it, and will have little say over the investment strategy or distribution policy. The responsibility for taking these decisions will be on the shoulders of the family’s trusts trustees. Yet despite having little control or say over the vast fortune, he is still treated by the press and everyone else as if it is his.

Vanity Fair described Hugh as ‘baby-faced’ and ‘absurdly rich’ – but the estate is not technically his it is owned by the family’s trustees.

Most heirs surround themselves by those who have similar pressures and concerns, which is why it is not surprising that Gerald was so close to the Queen and Prince Charles. However, unlike the Queen or Prince Charles Gerald never thought he would inherit the title or the vast family fortune. His uncle was the Duke, but he died without heirs and so his father Robert inherited the title and the estate, which then put Gerald first in line.  

Gerald was brought up in a remote part of Northern Ireland and lived a simple rural, unaffected, unspoilt life with aspirations of being a beef farmer in Northern Ireland. Not for him the life of chauffeured limousines, even after he became the Duke he would prefer to drive himself when in the country in a battered old land rover wearing baggy corduroys.

Like his father, Hugh has inherited the title and the estate in his twenties. Hugh is currently working as an account manager at a coffee recycling firm, which collects waste coffee, grounds and converts them into bio fuels and biomass pellets. On his father inheriting the title and becoming a trustee of the estate, Gerald was forced to abandon his dream of a career in the Armed Forces. Quite probably, the trustees of the family’s trusts will have similar plans for Hugh.

The pressure of being a Duke and head of a vast fortune, accompanied by the vast number of charitable functions he is expected to attend nearly led Gerald to a nervous breakdown for some years ago. He had so much handed to him on a plate and so much was expected of him he nearly cracked under the pressure, despite having experienced trustees doing most of the work for him. As I learned from my experience dealing with London land owners, it is hard for them to find something of which they are proud. I remember driving my client, the heir to the title and a vast London estate to our next meeting in my battered old car for which I apologised. His response was ‘Don’t be ashamed, you should be proud, I have never earned money to buy a car, they are all given to me’.

This is why Gerald’s success in becoming a commanding officer in the Territory Army was so important to him. His promotion was entirely due to his own efforts.

How will Hugh rise to the burdens and challenges of being a Duke?

In 1992 his father told the Independent ‘My main object will be to teach himself self-discipline and a sense of duty. He’s been born with the longest silver spoon anyone can have, but he can’t go through life sucking on it. He has to put back what he has been given.

If you would like to discuss your succession, estate, or privacy planning with Caroline or wish to talk to any of her colleagues on dispute resolution, matrimonial or other issues facing UHNW families please contact Svetlana on svetlana@garnhamfos.com or call 020 3740 7422.

Sinister!

Last week, I met with Jane Gilbert, a friend of mine for breakfast. She is an expert in kidnap and extortion insurance and we met to discuss the kidnap of Bernie Ecclestone’s mother.

Whilst kidnapping for ransom continues to be an everyday occurrence in many parts of the world, the crime continues to develop.  Today, for example, a virtual kidnap.  Virtual kidnapping is going global; it is now endemic through Latin America and Mexico and has spread to the Middle East.

The significance of 2017, is that this is when the Common Reporting Standard will be implemented world-wide. The advantage of Virtual Kidnap is that it is a perceived kidnap; it is not real. A Virtual Kidnap avoids the need for more than one person, weapons, a safe house and the risk that the victim will be able to identify them.  Some criminals try their luck (with success) just with a mobile phone and a telephone directory.

Mandy is the daughter of a wealthy entrepreneur Peter who is in the food importing business set up by Peter’s Polish father Nicolas. As Mandy is having coffee in Dubai where she lives, she is jostled and her mobile phone which is in her hand is stolen. She is annoyed, but not alarmed, all her details are backed up.

An hour later, Peter receives an anonymous call, ‘Hello, we are holding Mandy your daughter, she is wearing a blue shirt, white trousers and a Rolex watch. Transfer £1million to us and she will not be harmed’

Immediately, Peter calls Mandy on her phone, but he gets no reply he tries again and again, no reply. He panics, so he pays the money.

A few days later Mandy contacts her father Peter to say that she now has a new contact number and he finds out she has not been kidnapped, but merely had her phone snatched.

Now let’s fast forward to 2017. Peter is a beneficiary of a trust, the Sunshine Trust set up, by his late father, Nicolas in Jersey twenty years ago. He is the Protector of the trust, but has never received any payments from it. The trust has £30million in a bank account in ABC Private Bank in Jersey. Jersey like most other countries now demands every financial entity in the jurisdiction to report all accounts of foreigners with the amount, the distributions and to whom and the identity of everyone who has significant influence over the account under the Common Reporting Standard.  ABC Private Bank therefore has to disclose to the Jersey authorities the deposit of £30 million it holds on behalf of the Sunshine Trust, of which Nicolas is the Settlor and Peter is the Protector.

Peter receives a call in 2017, ‘Hello, we are holding Mandy your daughter. Transfer the sum of £30million which you hold at ABC Private Bank on behalf of the Sunshine Trust and she will not be harmed’.

How did the criminals get this information – both Jersey and the UK have in place rigorous processes to ensure the privacy of this information? There are however, numerous examples where rogue employees whether in government or in a bank simply steal the information and sell it. We have also seen seemingly impenetrable systems hacked and information made public.

As Protector of the Sunshine Trust Peter can indeed call the trustees and ask them to transfer to him the £30million to pay the ransom, but that is not all. The payment to Peter is a distribution from the Sunshine Trust, on which he is liable to pay tax. The Jersey authorities are obliged to report to the Jersey authorities which will automatically exchange this information to HMRC and Peter will need to pay tax on this money - but Peter does not now have the money to pay HMRC!

There are plenty of things Peter could have done, had he known the risks.  He can insure against such a risk, but he can also minimise the risk through ‘Privacy Planning’. He can change trustees in favour of those resident in a more suitable jurisdiction, move the administration of the trust from Jersey and the account from ABC Private Bank.

Tax evasion and aggressive avoidance are not to be tolerated anywhere in the world, and any professional which is complicit with a taxpayer in concealing funds from the taxman, will find themselves paying fines or worse. However, there are people, like Peter who have no intention of evading or aggressively avoiding paying their taxes, but will not compromise the safety of their family and will do what is necessary to protect them.

If you wish to book an appointment with Caroline or one of her team for privacy planning, the review of an offshore structure, estate planning, family governance, dispute resolution matrimonial concerns or any of the subjects discussed in this paper contact Svetlana on svetlana@garnhamfos.com or call 0203 740 7423.  

The kidnapping of Ecclestone’s mother-in-law

The mother-in-law of Formula 1 billionaire Bernie Ecclestone has reportedly been taken hostage for £28 million; believed to be Brazil’s biggest ransom demand.

Aparecida Schunck was allegedly abducted from her home in Interlagos, Sao Paulo, according to Brazilian Veja magazine. The 67-year-old mother of Ms Fabiana Flosi the 38-year-old wife of Mr Ecclestone presumably does not have this sort of money to pay her abductors, but her son in law does!

Ms Fabiana married Mr Ecclestone, 85, in 2012, after he divorced his wife Slavica Radic. He is reputedly worth an estimated US $ 3.1 billion.

Sao Paulo is not new to kidnap. It reached its peak in 2001/2 with more than 300 reported kidnaps a year. However, Brazil is still in the top five countries for kidnap with more than 1,000 reported a year in 2012. The actual number is likely to be many, many times more than this.

Abduction, however, is less common than ‘express kidnap’ which is commonly done by police, demanding the victim go to an ATM at gunpoint to pay to them a ‘bribe’.

Is it hardly surprising therefore with this going by the police, that some countries are refusing to sign a bi-lateral agreement with Brazil for the automatic exchange of information on financial data.

Governments across the globe are committed to the eradication of tax evasion which is good, tax evasion is not to be tolerated. The OECD Council approved The Common Reporting Standard (CRS) on the 15th July 2014. Each jurisdiction which signs up is committed to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.

Guidance on what information is to be collected, which financial institutions are required to report, the different types of accounts and the information of the taxpayers as well as the due diligence procedures to be followed were first published in July 2014. However, concerns were soon expressed as to whether the information collected and exchanged would be secure in the hands of some of the ‘home’ countries of the beneficial owners such as Brazil.

While it is expected that most countries will sign up to CRS via a multilateral convention, some jurisdictions such as Hong Kong have adopted a ‘bi lateral’ approach, which means it will sign up only one country at a time and will not sign up to some of the less developed and secure jurisdictions.

The OECD is keen to stress that each country must meet certain standards to safeguard the information and if these standards are not met, other countries need not exchange the information collected with them. This let out clause is naturally not welcomed by many of the poorer developing countries which see themselves as being denied access to the information collected but then not exchanged. The OECD acknowledge this concern and has tasked the Global Forum to work with the OECD Task Force on Tax and Development in finding a solution.

It is public knowledge that Bernie Ecclestone is a billionaire and he would have been well advised to insure against the risk of his mother in law’s kidnap. However, as from 2017, the risk of kidnap of anyone who has an offshore bank account is likely to increase dramatically. The only way for these people to sleep soundly at night is to either move their account onshore, or to a country which has not signed a bilateral agreement with their home country or to countries which will not exchange the information collected until their systems are secure from hacking by criminals. Even if secure from hacking anyone with monies offshore should be concerned that their information could be sold by corrupt employees of these government institutions. It happened in Liechtenstein and could happen anywhere.

Privacy planning is, for UHNW families with investments world-wide, not a nice to have, but a must have. As from 2017, the confidentiality of financial information wherever it is, can no longer be guaranteed, unless it is in a country which does not collect or exchange information.

I welcome your comments and if you would like to know about privacy planning, estate planning, family governance, dispute resolution or matrimonial concerns contact svetlana@garnhamfos.com or call 020 3740 7423.

Are we going to be queuing for an EU passport?

Last week I was invited to Cyprus to visit some clients and catch up with some professionals on the island.

One of my clients, who I will call Ivan, owns a substantial Russian company which specialises in precious stones. He has long taken advantage of the beneficial tax treaty between Russia and Cyprus to extract profits from Russia and then to send them on to the BVI.

Sadly for him both Russia and the BVI were closing in on him and he was concerned. As from January this year, Russia expects every company owned by a Cyprus company to have an office in Cyprus. Ivan has therefore taken space in Limassol, an attractive city on the sea and has mapped out a schedule of visits to coincide with board meeting and annual reports. His company had an apartment in Larnaca, but it was too small for his family.

He was also concerned about the sudden change of direction in the BVI. As a British dependent territory the BVI has to keep a register of wealth owners, their interests and details under the common reporting standard (CRS) which it is under pressure from Britain to make available to the public. It would be bad enough to know that his interests in the BVI would be known to Russia, but for it to be made public was a real worry for him.

Ivan invited me to his office to discuss his options. He confided in me that he had recently remarried and had two daughters under five, but was not seeing them as much as he would like. He was also fearful for their safety. A friend of his who I will call Sasha, had his bank account in Liechtenstein hacked and as a result he and his family were blackmailed; the blackmailer knew all his account details, the names of his family and where his daughters went to school. It was unacceptable to him that his daughters could be at risk from crooks for whom the CRS is a license to print money.

We explored a number of options some of which were very attractive. He was eager to pursue the transfer immediately so that he could sleep at night. 

We then turned to his desire of wanting to spend more time in Cyprus. I suggested that he buy a really nice holiday home in the luxury resort of Paphos which was only 40 minutes from Limassol by car. He could then bring his family with him when he needed to work for the holding company, and spend with them some quality time together.

Cyprus is a destination of choice for 2.5 million tourists every year, who come to enjoy its clear blue waters, ideal climate and sandy beaches. Ivan and I visited some fabulous new residential homes on the seafront which were designed for luxury family life. Ivan was clearly excited.

I pointed out that with a quality home came the added advantage of an EU passport.

This was clearly of interest. As a frequent flyer to European destinations, Ivan was fed up with queuing for immigration and had frequently been caught short by an out of date visa. Cyprus is not only a member of the EU where there is freedom of movement, but has an extensive list of countries which entitle the passport holders visa free travel. Passports would also be available for his wife and two daughters.

The other advantage was that if ever he felt it necessary to leave Russia in a hurry, he had a safe place to which he could retreat where his daughters could enjoy quality education and health care.

As a Citizen of Europe he and his family would also be entitled to a European Health Insurance Card which provides insurance for emergency medical treatment insurance when visiting other participating countries. The look on Ivan’s face said it all, it was just too good to be true.

I said that I could make all the necessary arrangements for him; relocate his wealth and trust from the BVI, introduce him to people for priority property purchases and obtain for him and his family Cyprus passports.

Last week was the first time I had been to Cyprus, but what struck me, in particular, were the people. They were keen to innovate for the benefit of their clients, eager to work with a sense of urgency and exuded a pride in their ability to provide a quality service.

Cyprus was the perfect location for Ivan and his family, and I suspect it could be the perfect location for many others as the world becomes an ever more hostile place for the UHNW families to live.

If you would like to book a meeting with Caroline or one of her colleagues, for estate planning, privacy planning, dispute resolution, matrimonial concerns, offshore trust review or investment strategy, please contact svetlana@garnhamfos.com or call 020 3740 7423.

We need to rethink Privacy Planning

Twenty years ago I was approached by a professional trustee who I will call Jack, who had taken on the office of Protector of a Trust which owned a very substantial trading company. ‘I am nervous,’ he said. ‘If there is a claim against the company or the trust I could get dragged in personally. I have no funds at my disposal with which to defend any claim other than my own personal finances and have only limited information or right to information. A claim could wipe me out!’

I looked into the situation for him and wrote a report. He was in deed in a precarious position. He had a fiduciary duty towards the beneficiaries of the trust, which meant he had to act in their best interests even if it meant being proactive without being paid for his services. At the same time his hands were tied; he had no funds to take a legal opinion and no legal right to access information even if he did have the funds.

My report for Jack was put to the settlor who will I will call Joseph, who was luckily alive and well disposed towards Jack. He had not realised that Jack was, as the ‘Protector’ of his trust in such a vulnerable position to carry out his obligations in protecting his trust.

Joseph instructed me to see what solution we could find. He wanted Jack to remain in a decision making role, wanted him to have access to resources of information and funds, but did not want him to be exposed personally.

Between us we came up with the solution of setting up a private trustee company which was at that time, to my knowledge, the first. Jack was appointed a director, and as such had limited liability, had access to funds should he need to use them to fulfil his fiduciary duties, and access to information so that he could do his job properly. The professional trustees were then appointed under a contract of services to continue doing their job in administering the trust, but were relieved of their obligation to take fiduciary decisions which were now assigned to Jack and his fellow directors.

There are many trusts still being administered successfully by professional trustees to which powers, such as the removal and replacement of trustees have been reserved to a Protector. In some cases, the powers reserved are limited and in others they are extensive. Some trusts such as those governed by the International Trust Law of Cyprus, can reserve a power to a Protector which can determine when and to whom distributions are to be made without invalidating the trust. Whether the powers are limited or extensive, these powers give the Protector ‘significant control’.

Under the common reporting standard due to come into force next year tax relevant information will automatically be exchanged between jurisdictions and it will include the identity of the Protector and trust of which he holds office.

The definition of ‘beneficial owner has been extended in the CRS to include PSC’s; ‘persons exercising significant control’ as follows: 'Beneficial owner refers to the natural person who ultimately owns or controls a customer or the natural person on whose behalf a transaction is being conducted. It also so includes those persons who exercise ultimate effective control over a legal person or arrangement.’

The concern for every Protector is what will the tax authorities do, as and when they get hold of their name and the trust of which they are a Protector? Will they start an investigation under the Tax Information Exchange Agreement between the two countries?

The Protector, as I have said before, is in an invidious position; he or she does not have the resources to comply with a full investigation and neither will he or she have the necessary information, even if they were funded to comply.

The role of the Protector is to give the settlor some control over his assets, should the trustees begin to act in a manner which was not in line with his wishes. In most cases however the role of the Protector in practice is removed from the activities of the trust and so it may come as a real shock when the tax authorities start to investigate.

My advice to anyone who is concerned about their involvement with an offshore trust, whether as a Protector, settlor, beneficiary, trustee or director of a Private Trustee company is to get an independent review of the structure not only to protect the Protector, but also to ensure that the family knows who is reporting what and if necessary make changes.

Privacy Planning has nothing to do with the evasion of tax or any other illegal activity. For example, I will not take on any client if I have reason to believe they want privacy to evade tax. However, many wish to protect their family from an unwanted and expensive investigation and to do so they want to know what changes they need to make this year.

If you would like to book an appointment to see Caroline or any one of her team on succession, estate planning, offshore trust review, dispute resolution, matrimonial concerns, or investment strategies, please contact svetlana@garnhamfos.com or call 020 3740 7423.