John did not know

I met John when I was in Monaco recently. He was referred to me by his bank in the principality. His business partner Manuel had recently died and his heirs were taking legal opinions as to their rights.

Manuel, was survived by two children, Josh and Ben, who were 18 and 21. He was divorced from his second wife and had a new partner, who was not his wife. He had however also been survived by another child by his first wife, Mark, aged 32, from whom he was estranged.

Five years ago, both John and Manuel put their business shares which were held through a British Virgin Islands company into a trust in the Cayman Islands for their respective children, although in Manuel’s case he did not include Mark as a beneficiary.

On the death of his father, Mark sought legal advice. He was told that if he could prove that his father set up a trust to defeat his entitlement it could be set aside. If he was successful, the business assets, which were considerable, would be distributed according the forced heirship rules of Monaco where he was resident.

I explained to him that the main drawback of living in Monaco is that it is a civil law country. This means that on death, the children have rights with regard to the deceased’s estate and they are treated as inheriting immediately. These rights are considered to be public policy in Monaco and therefore any attempt to deny an heir their presumptive right is taken very seriously.

Mark had been advised that he should start a claim in Monaco to establish his entitlement to a share of the trust assets. He should then take it to the Cayman Islands to be enforced. Normally this would be almost impossible, given that the Cayman Islands does not acknowledge the judgements of another country against trust assets, provided they were settled more than six years ago. However, Manuel set up his trust only five years ago, and Mark is of the opinion that he could prove that one of his intentions was to cut him out.

As might be expected, his half-brothers Josh and Ben would fight his brother’s claim, because if Mark were to succeed Manuel’s share of the business would have to be paid out to Mark as well as to Josh and Ben, which would mean their father’s share of the business would have to be sold and the proceeds split between them. Josh and Ben do not want this. The business was very profitable and they wanted it to stay intact and in trust rather than be sold.

There was also the distinct possibility that their father’s partner, Sophie could also get a share, in which case the interests of Josh and Ben would be diminished still further.

John was concerned. He and Manuel had set up trusts in the Cayman Islands to protect their business interests from such claims, he had no idea that they remained exposed for six years. I pointed out to them, that if they had set up a Bahamian trusts, their assets would now have been protected from such a claim.

It is not just the claim which is so damaging, it is also the cost of lawyers to fight it.

The Thyssen family head tried to unravel a trust set up for the benefit of his past wife and her children. When a new wife and more children arrived he tried claims to unravel it. The litigation allegedly necessitated the building of a new court room and legal fees exceeded $100 million. I had been asked to represent one of the parties, but advised that the only way the dispute could be resolved, was through mediation. After long years of litigation, it was finally decided to resolve the dispute through mediation which is what they finally did!

Family disputes of this nature are extremely damaging, but are not new. In Dickens book Bleak House, the Jarndyce family were in dispute over their inheritance and went to court to get the matter resolved. In the end, the Judge tells them to go home –  the entire estate of the late Jarndyce had been spent in legal fees and there was nothing further to fight over!

The good news as far as John is concerned, is that as the family slug out their differences in and out of court, the legal fees will build up and the value of the business will inevitably decline. Therefore, when it comes to be bought, John will be able to buy Manuel’s share at a knocked down price.

I also advised John to get his trust structure reviewed to see whether and how he could make it more robust, so that if at any time there is a family dispute or other form of litigation, it is resolved outside the courts and with the minimum of cost and disruption.

Caroline can be contacted on svetlana@garnhamfos.com or on 020 3740 7423

Her book ‘Who can you trust when you are Super Rich?’ can be bought from Amazon or direct from Svetlana and her White Paper ‘How to win business from Private Clients’ can also be bought from Svetlana.

Tsunami of Hostility

Sipping fizzy water at the Café de Paris, in Monaco last week, I soaked up the warm sunshine; it felt good. Strolling through the opulent streets of Monte Carlo, there was no hint of concern that the rich community which inhabits this 2 square kilometres bordering the Mediterranean is about to be hit by a tsunami of hostility and litigation.

At the Wealth Forum, the conference I was speaking at, the mood was sombre. Governments around the world are broke (with the exception of Monaco – which ironically is a zero tax state). Having sought extra funds through tax amnesties, higher tax rates and increasingly complex tax legislation, Governments are now united to flush out tax evaders who hold funds offshore. And they are brutal. If a Government suspects that you have evaded tax whether rightly or wrongly, it will embark upon an investigation under which you will have less rights than a murderer. Think about how difficult it would be to prove that you have not evaded tax, when you do not know what information is held by a Government on your offshore financial position, or indeed what misinformation it has!

Governments care little as to the discomfort and distress of their tax payers even if innocent. If a Government is found to have been misinformed, it will not pay a penny in compensation, neither will it indemnify you for the years of legal costs you may have incurred in proving your innocence.

As if the threat of a tax investigation on the back of misinformation is not enough to worry about, there are other people keen to know what are your financial interests and where; disgruntled heirs, estranged spouses, former business colleagues, the press and crooks; such as thieves and kidnappers who will pay significant sums for access to such information.

As you can imagine the more people who have access to sensitive information the greater is the risk that someone will be able to pay to get it. A Government employee could be bribed or geeks paid to get into into the Governments computer systems.

Julian inherited a business with his brother Manuel on the death of their father. The brothers found it difficult to work together and as they bickered and bothered the value of the business declined. Eventually, it was worth only a fraction of what the boys inherited and Julian eventually bought out Manuel. In due course, Julian got the business back on track and paid the excess profits into a Swiss bank account, to finance his passion for skiing and his chalet in Verbier.

Manuel managed to acquire information about Julian’s business including his Swiss bank accounts. He hired detectives to bug his brothers phone, pester his wife and follow his children. Julian was distressed and paid an agent to find out who was behind this mischief. He took out an injunction against Manuel who responded by suing Julian for fraud. Manuel then managed to get Julian’s worldwide assets frozen. It took Julian three years, an enormous amount of pain from the betrayal from his own brother and hundreds of thousands of pounds to clear his name, and unfreeze his assets.

With the increase in the availability of sensitive financial information due to be exchanged this year, Julian’s story will no longer be unusual. It will be commonplace; privacy is valuable but for some this fact will have to be learnt the hard way.

The sad truth is that the best people to inform the UHNW community how important privacy is to them are their private bankers; but they have been gagged. Why? Because they are fearful of being fined.

Credit Suisse in 2008 was fined $2.4 billion for criminal conspiracy when informing their clients that they could avoid US withholding taxes by setting up a company in the BVI. Since 2008 private banks have paid an eye popping $321 billion in fines. No industry can brush off such costs without making some changes; the changes they have made, is to keep schtum.

This does not mean that private bankers do not care – they do, so if they cannot advise their clients directly, they direct them to someone who can – GFOS. We are now on the panel of approved advisers of the most prestigious private banks world-wide.

We review a client’s offshore structure, their personal goals and concerns and the reason why they have financial interests offshore. We can look for solutions to asset protection, succession, control and for ways to secure privacy, but will not advise if the aim is to evade tax.

GFOS is able to advise, because we are under no obligation to report, we have no agreement with the private banks as to how we will advise, we are independent and will not act for anyone for whom we do not know the source of funds or who is not tax compliant.

Caroline can be contacted on svetlana@garnhamfos.com or on 020 3740 7423.

“When you are Super Rich who can you Trust” Caroline’s book, can be bought on Amazon or direct from Svetlana – see above.

Where can a thirsty man find water?

The private client industry grew during the twentieth century to serve the needs of clients ravaged by war and desperate to protect their wealth against an invading force. Switzerland responded with numbered bank accounts and neutrality.

Peace has now been enjoyed by Europe for over seventy years, during which time we have seen exchange controls abolished, travel become more available and the globalisation of businesses.

The private client industry was slow to respond; secrecy became self-serving, clients were treated like ‘muppets’, fees were hidden, worthless stocks offloaded and sales pitches masqueraded as advice. Eventually poor practices were found out.  Since 2008 private banks have been fined $321.4 billion. These fines cannot be ignored. Private banks have responded by putting a moratorium on sensitive advice; tax mitigation, succession, structuring and privacy issues.

Wealth planning teams in banks formerly the lynchpin for new business, have been neutered; they can now only guide. Clients must be referred to independent professionals for advice. Although some banks gave duplicitous advice, there was also a lot of creative thinking and good planning within private banks; this has now gone.

UHNW families have responded by setting up their own offices to manage their wealth, but the family office is only as good as the guys they hire and more often than not do not have the strength in depth offered by the larger private banks.

Of course there are other professionals; accountants and lawyers; but very often their skills tend towards highlighting the dangers, not in finding simple solutions. They are paid to find problems, and the more problems they find, the higher the fee. Simple solutions do not make money.  They like complexity; the more documents the bigger the fee.  The trustees they appoint are complicit, – the greater the number of trusts, the higher the fees, but increased complexity does not always best serve the interests of the client.

Private banks may have had their problems but they were good at finding simple solutions and then distilling them into a ‘product’ which could be sold. The gagging of the private banks has therefore left a knowledge gap.

The erosion of privacy is one such issue the seriousness of which needs to be fully understood and a simple solution found to resolve it.

With more people having access to sensitive financial information it is inevitable that some information will be leaked, hacked, bought or stolen from the weakest link and will find its way into the hands of an interested party; an estranged spouse, a disinherited child, a former business colleague, an envious competitor, the press or any manner of crooks; thieves, blackmailers or kidnappers. At best the wealth owner will be pestered, but this can easily escalate into full blown litigation which is ruinous to a family’s business, reputation, harmony and peace of mind.

Some seem to underestimate how grave and real the concerns with privacy are. Giovanni was in charge of a family fashion business which was given to him and his brother Luigi by his father. Giovanni could not work with his brother so he bought him out and they went their separate ways. Over the years Giovanni built the business from a lack lustre brand to a very successful business. He then began to take profits and deposited them in a foreign bank account – on which he paid his taxes in full.

A few years after their father’s death the fact and amount of Giovanni’s bank accounts were leaked to Luigi. At first he did not want Giovanni to know that he knew about his foreign bank accounts so he hired private detectives to follow Giovanni, and send unpleasant messages to his wife about the whereabouts of their children. In due course, it came out that Luigi was behind this menacing behaviour and Giovanni went to court to stop him. At this point Luigi started litigation against Giovanni for fraud for manipulating the profits of the business at the time he was bought out, then subsequently bringing the company back to its full potential at which point he could take large dividends out of the company for his own benefit.

GFOS is on some of the top banks' panels of preferred advisors as we are increasingly being approached by private banks to advise their clients. If a banker were to refer someone like Giovanni to us we would tell structure to protect his assets from litigation, ensure that all disputes are resolved by mediation rather than court disputes and find solutions to protect sensitive financial information from being leaked. GFOS would then make sure these are implemented for the minimum costs. 

Ironically, every time we are brought in by a bank to work with one of their clients, he or she is keen to give the bank more business.

You can buy Caroline’s Book, ‘When you are Super Rich Who can you Trust?’ from Amazon, or direct from Svetlana.

If you would like to get in touch with Caroline or any one of her team please call Svetlana on 020 3740 7423.

You are paying for fugazi!

A man builds a house, it is a beautiful, on top of a cliff overlooking the sea. He engages the best architect to prepare the drawings, his wife enthuses about the colour scheme, curtains and carpets, he shows his friends, work colleagues and advisers. The building is the pinnacle of his success, the house of his dreams, the place where his children will go and remember what he did for them. Then one day an elderly structural engineer says gently ‘Of course you realize that the cliff is falling into the sea; your house will be gone in twenty years!’

The underpinnings of a family business empire, like the foundations of a house, need to last for many generations, but - most are rotten with the seeds of nightmares. These business empires are destined to fall into the sea of litigation, high taxation, poor investments, family infighting and dissipation, before the founder’s grandchildren reach middle age. Most often the seeds of destruction stem from some form of professional fugazi. Advice which better serves the adviser than the client (see Matthew McConaughey in Wolf of Wall Street).

The founder of a business empire needs to find an adviser which is looking after his best interests; not his own pocket, what we call ‘A Culture of Care’. A family office is on the side of the client and fights fugazi on his behalf.

Samir came to GFOS for a wealth ownership structure for his business empire which would survive the test of time and give him and his team control over his assets when in trust. It was a brilliant structure – and one I use a lot now. We were working day and night to perfect it. But what neither of us had anticipated was that a former business partner was to serve a legal claim against him for fraud. If we had known, we would have transferred all his assets into a trust immediately and perfected the structure later; at least then his assets would have been protected, but they were not.

Samir had to abandon his wealth ownership planning to fight the litigation. It took five years of his life and absorbed him completely. His business suffered, his reputation was questioned in the press and the pressure took its toll on his family. A wealth ownership structure is not therefore a ‘nice to have’; if you value your business, your reputation and family harmony – it is a ‘must have’ and time is of the essence. Perfection can come later.

Moises was another client.  A resident of Brazil, he set up a trust for his worldwide empire with ABC Trustees Limited as the trustee. His lawyer advised him to write a detailed letter of wishes which set out his philosophy; who should receive what and when, and reserved extensive powers to himself, as Protector of the trust.  Moises wondered why he was spending so much money on a letter which was not binding, and why the trustees were being paid so much, when in effect he was making all the decisions, but his lawyer seemed not to be bothered, so he did not ask.

As Moises got older, he fell out with his son Andre, and ABC Trustees at the insistence of Moises, removed him as a beneficiary. Andre was furious, so he took advice and was told that he could have the trust put aside as a sham, Moises had too much control. Moises sought advice from GFOS.

‘I cannot believe that I have spent so much on a structure which is worse than useless!’ he exploded ‘I made it very clear to my lawyer, that the last thing I want is debilitating litigation against a family member, which could damage my business, and get splattered all over the press – my wife wouldnot tolerate it –she would divorce me!’

I explained to Moises, that all was not lost; he could have control, but not through the trust, he could ensure that his son did not benefit for as long or as short as he wanted, but not through a letter of wishes and he could protect the structure from litigation. 

To do so, I told Moises, would take an initial six weeks for GFOS to scope out the problem and a further two weeks to write a report. This would set out the problems, recommendations and detail as to implementation.  We estimated that to implement the basic structure would take a further two months.

Moises was delighted, we saved his business empire from a sea of litigation, replaced his complex and unworkable structure with one which put him and his team of advisers in the driving seat, protected matrimonial harmony and protected the structure from litigation.

At GFOS our ethos is; a Culture of Care, but we are also not afraid to find solutions for our clients. The great monster on the horizon is the erosion of privacy. As from September 2017, financial information is to be exchanged by many countries across the world and in most cases relates to their financial position as of 2016.

As sensitive information reaches more hands, the greater is the likelihood of it being sold to interested parties; former employees, estranged spouses, business colleagues, spendthrift family members, the press - not to mention crooks, blackmailers, kidnappers and thieves. GFOS has solutions; – but time is of the essence. By 2018, the only relevant information you want reported is that the account was closed in 2017.

If you have a business empire or substantial wealth which you do not want to fall into a sea of litigation, you need to act now. Time is of the essence. Dithering could be the most expensive waste of time in your life.

To contact Caroline:

E mail: svetlana@garnhamfos.com

Telephone: Svetlana 020 3740 7423.

Caroline’s book, ‘When you are Super Trust who can you Trust?’ can be bought from Amazon, or direct from Svetlana.

What is the risk?

This Note is dedicated to Simon – my insurance broker for my professional indemnity cover. Last Friday he invited me to lunch in the City which was delicious to introduce me to my Lloyds broker – David. On arriving at the restaurant, I asked Simon who the fourth person was going to be since the table was laid for four, ‘No-one’ he said. ‘I always book a table for four even if I have only one or two guests – I like the extra room and privacy!’.

I usually prepare for meetings – I believe it is courteous and produces a better outcome, but on this occasion I assumed, since both Simon and David knew everything about my business, I did not need to. I was a bit thrown when David said ‘Tell me a bit about what you do?’ I fluffed thinking about claims and premiums.

The truth of the matter is, that working with high net worth clients in a family office is more than being a highly qualified technician. I set up GFOS because I am passionate about my clients. Sometimes they need educating, sometimes they need to be told that they cannot do what they say they would like to do, and sometimes there is a better solution than what they have suggested. The consistent theme is we put put the best interests of our clients first.

Sadly, this is not the attitude throughout the industry. Most clients do not know enough about tax, cross border succession, security, governance, philanthropy, setting up family offices, dispute resolution or whatever other issues which affect them and their money, to know when they are being given a sales pitch and when they are being given good advice.

Our ethos is to operate a ‘Culture of Care’. Much of my work is therefore educational. In my view each client needs to understand the nature of their issue before deciding what they want to do. If what they need is outside our area of expertise we will introduce them to other professionals who we will then instruct, negotiate the best possible price and monitor progress.

On occasions however a situation is serious, I will then nag a client to take action, even if at that time he or she may not see the seriousness of their situation.

One of my clients who I will call Saud wanted to set up a structure while still in his mid-fifties, because he wanted to run it with his family while he was still alive. I persuaded him to start with a simple trust and private trustee company but to set it up swiftly; we could sort out the details over time.

Three years later, his former business partner Ahmed sued both Saud and another business colleague Sacha. Saud’s business interests were in trust and so he was untouched by the claim, however, Sacha faced five years of litigation; his assets were not in trust and therefore not protected.

Another similar case, involved a trust structure which was governed by a lengthy letter of wishes, which I advised was not fit for purpose. My client, AT, prevaricated, but I insisted that he incorporate some simple family governance changes immediately. Eighteen months later he came to see me ‘Thank you so much for pushing me to make the changes’ One of the advisers on the board had taken sides in an unwelcome family dispute. Under the new family governance structure, this adviser could be removed. If we had not made these changes, the family would have had to negotiate a settlement which would have been costly and difficult and could have jeopardised the family harmony.

In another situation, I was approached by a family keen to know what to do with their house in London following the changes in tax legislation for non-UK doms. His situation was convoluted and tricky, but rather than write a five-page report on his options, I simply advised him what the tax position was and to take out life insurance. I then introduced him to the best person I know, and negotiated and monitored the process. It was the right solution for this problem.

So in answer to David’s question the simple answer is ‘GFOS is highly qualified to deal with a whole range of issues faced by high net worth families; we are not always the best people to deal with the concerns of our clients, in which case in accordance with our culture of care, we will introduce the client to the best professional we know and will ensure he gets a very good service at the best possible price’.

If you would like to book a meeting with Caroline contact Svetlana on 020 3740 7423 or e mail her on svetlana@garnhamfos.com.

You can buy Caroline’s book “When you are Super rich who can you Trust?’ from Svetlana or from Amazon.