Is your adviser on your side?

In my book – “When you are Super Rich who can you Trust’ (currently out of print, but a new batch should be in soon) I have a chapter on choosing and reviewing advisers.

There are various types of advisers, maybe you can recognise one or two:

·      The Jargon Bore

This is the sort of person who is up to date with the latest press releases, cases, budget announcements, legislation and all the professional classifications. The Jargon Bore writes long letters full of the latest extracts and quotes, which takes many hours to craft, proves his superiority but contains no practical advice or real understanding of his/her client’s concerns. Most Jargon Bores will not explain what the jargon means, because this would undermine their power. Less confident clients are attracted to Jargon Bores, because they assume they are intellectually superior, but forget that they are the client, paying for long letters of advice which mean nothing to them. My advice to any client is, if you do not understand what you are being told to do and why – don’t do it!

·      The Problem Finder

The Problem Finder is a special sort of adviser. Whereas professionals are paid to identify the risks, the problem finder goes well beyond realistic warnings. They like nothing better to indulge in the ‘what if’.  ‘What if your daughter were to be a surrogate mother?; what if your grandchild were to be cloned?; and what if your son were to be a sperm donor – how would this affect who could inherit?' Clients can forget they are paying their professionals to find solutions not endless problems. Most problems can be resolved with a simple practical solution which costs very little to implement and to operate, but to the Problem Finder a simple solution – does not ‘butter his parsnips’!

·      The Nit Picker

Every professional likes to have pride in his or her work – the lawyer loves good grammar, neat numbering and proper spelling. Taking care over defined terms and the inclusion of an ‘and’ or an ‘or’, or the use of capital letters for a defined term and not a small one is not nit picking, this level of detail can make a fundamental difference to the meaning in a common law document. However, when negotiating a document – the nit-picker takes minutiae to silly extremes. You will find nit-pickers holding up the execution of a document because the indemnity clause is not in their standard form, even though word for word, the indemnity clause in the document they have been given says the same thing. It is not uncommon for deals to fall apart because of a nit-picker, losing the client many hundreds of thousands of pounds.

·      The Jack of all Trades

Does the professional have any experience in the specialist area being considered? I am a common law trust specialist, so when I was asked to enfranchise our block, as a layman, I knew enough to steer the tenants in the right direction, but refused to take on the work professionally since I would be dangerous on the details. The professional world is now so complex that the Jack of all Trades, will make mistakes. I have seen numerous examples when clients have decided to save the costs of the specialist for a cheaper Jack of all Trades, only to find themselves embroiled in years of litigation trying to unpick the mess their preferred Jack made!

·      The ‘Default Position’ Professional

There are some things that can be changed and some things which cannot – wisdom is knowing the difference. Many professionals prefer a ‘quiet life’, unless a solution is tried and tested and recommended by their ruling professional body, they will not consider it. They tell their client, ‘times have changed, you have to accept it’, ‘it is the way of the world’, ‘this is the way we have always done it’ or ‘we don’t do that sort of thing’. The Default position Professional is not always to blame, in many organisations professionals are prohibited from thinking out of the box – looking out for the best interests of the client, because of ‘compliance’. So often clients are missing out on opportunities to escape from danger or save hundreds of thousands of pounds, because they have an adviser who is banned from thinking what is in the best interests of their client - they must first think what will make the most money for themselves and their organisation.

Billionaires are in no different position to anyone else; they, like so many other UHNWIs, cannot tell if their adviser is sound or simple. They are not trust specialists so need to find someone who is. Never before has this need been greater – the strategy of out of sight and out of mind relied on by many for decades is over thanks to the introduction of CRS.

At GFOS we make available to our clients our years of expertise and knowledge of dealing with trust structures of billionaires around the globe. Our trust review does not just extend to the ownership structure, but how it is worded, administered and managed. This gives us – and you - valuable insights into whether you are working with an adviser who is sound or simple, or simply needs to be set in the right direction.

Get an independent Trust Review

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Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline’s Book ‘Who can you trust when you are Super Rich?’ can be preordered from Svetlana  and her book ‘Winning Business from Private Clients’ can be bought direct from the website.

Who is the real boss?

Last week I was in Zurich for a client. During a meeting I was asked ‘Why do some families have more than one trust?’

My cynical reply was ‘So professionals can make more money!’

Everyone laughed, but, it is not actually very funny.

When I first met Bob, he had more than twenty trusts. He had set up his trusts to protect his hospitality business, and each time he developed a new line – glasses, furniture or bedding he was advised to set up a new company and trust so that if one part of the business was sued, the other parts would remain unaffected.

‘This myriad of trusts and companies may be great for preserving my business against litigation,’ I remember him saying, ‘but I need to consolidate the business so I can expand.’

My advice to him was to set up a captive insurance company in Bermuda to protect him from litigation and to consolidate the twenty trusts into one. At the same time, we explored the idea of setting up a private trustee company which would act as the trustee of his trust. All the Protectors were then engaged as directors in the trust, so all his close advisers remained engaged, but just in different, more suitable roles.

We then hired some competent administrators to run it. Bob took a small office and with the assistance of his strong board he has saved millions of pounds every year. He has since that day run his trust and family office exactly the way he and his board want to.

It never ceases to amaze me why so many UHNW families have trust structures which seem best to serve the interests of the professionals; not the family – and some, rather than providing protection, are in fact a beacon of attention to Governments keen to attack structures the moment they have the necessary information.

Another client of mine, who I will call Rajesh, had eighteen trusts, three for each of the six sides of his family. When asked why he had so many trusts Rajesh said ‘I was told I needed to diversify my assets across three different professional trustees and one for each side of the family’ ‘Why?’ I asked him. He was paying much more every year than he would if he had only one or two trusts.

I advised him to set up his own Private Trustee Company (PTC), put his own people on the board, and then the PTC would contract with a professional trustee, with whom he could negotiate a sensible annual fee. We saved him and his family many thousands of pounds every year.

As part of our Culture of Care we work only with clients who appreciate high quality service, and we engage only the top leading professionals across the world. Furthermore, to ensure we provide the best possible service at the best possible price, we have brought together their expertise into a package which can then be tailored to the particular needs and requirements of our exclusive clients. Quality, hand-picked professionals need not be expensive, if they are doing what they are good at, have clear instructions as to what to do and are unhindered in getting the job done.

The reason why professionals are often so expensive or get away with charging more than is necessary, is because many do so much work outside their comfort zone or in areas in which they are not specialists.

Clients need to engage specialists if they want to get the best possible outcome, for the best possible price.

Clients often fail to grasp this basic premise and merely add to this expensive merry-go-round, asking professionals who they already know to engage in work about which they aren't experts in. Let’s take Josh, he has used Serge for many years as his lawyer and CEO of his family office. Serge is very skilled and knowledgeable about corporate matters and in particular on acquisitions and mergers, Josh trusts Serge. Josh asks him whether his trust would be better located in Cayman Islands rather than in Jersey. Serge does not know. Should Serge accept the instructions and start to do some research or say ‘This is not my specialist area, but I know someone for whom it is.’

Get an independent Trust Review

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Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline’s Book ‘Who can you trust when you are Super Rich?’ can be bought on Amazon  and her book ‘Winning Business from Private Clients’ can be bought direct from the website or from Svetlana.

Death is a dead cert

One of the topics on the Big Questions last Sunday on which I was invited to speak, was death. Most of us are ,however, so busy living that we give scant regard to death. Only when it happens to someone else, like a parent, friend or child, or a doctor gives you a health scare that we give it any thought and to plan then, maybe too late!

 One gentleman in the audience spoke of inheriting sufficient monies to be able to retire, and that he had made gifts to his children to buy their first homes. For him giving large chunks of money to the next generation was not of concern, he just wanted to survive a further seven years so that his kids could inherit tax free.

The majority of inheritance tax payable in the UK is on estates where the deceased did not anticipate dying until it was too late or resented making gifts to their children while they were still alive and able to enjoy it.

For those with significant wealth the prospect of deciding to whom and how to leave it is a complex puzzle. At what age should a child inherit without conditions? Should they put monies aside in trust for the education of the grandchildren? How, if a child has more than enough wealth never to work, can a father motivate his children to be enterprising? If one child is in business and another running a charity for victims of sex slavery, is it fair that the child in business gets more? Is it right for one child to inherit the business and farm to keep it intact and the others get nothing?

In civil law countries, Napoleon resented the build-up of wealth and power in the hands of the eldest child, and decreed that all children should inherit equally as their right. In many cases this resulted in the selling of family companies and the division of agricultural land into small parcels which proved effective in dissipating the wealth in less than three generations. For founders of businesses keen to benefit more than just the first few generations and to keep the business or farm intact, a trust vehicle was a perfect solution.

However, not all founders of fortunes want to use trusts to create a dynasty. A client of mine from  one of the wealthiest families in India, Razak, took the decision that his children should inherit outright and equally the moment he and his wife died. The fact that two of his four children were passionate about horse racing and would no doubt squander their inheritance – was of little or no concern to him.

He nevertheless set up a trust during his lifetime, and he gave the following reasons:

‘I want to protect my wealth from opportunistic creditors and greedy governments during my lifetime for which the trust is a perfect instrument, but on my death I do not want my assets run by professionals and I do not want to give reasons for my children to fight and fall out.’

Razak then set up a trust to hold his business interests for his children under which all the siblings could benefit, but only from the income, not the capital. One of his sons, Asim, worked in the business, but his brother and two sisters did not. They resented their brother getting a big salary from ‘their’ business and started litigation to break the trust. The trust deed was not well worded and gave ample opportunity for his siblings to attack it. The dispute lasted nearly ten years and was hugely expensive in time and professional fees. The irony was that as the family fought the value of the business declined until it was sufficiently low for Asim to buy it with the assistance of a third party investor.

Asim has been working extremely hard ever since to build it to its former glory of his father's day. This led to even greater resentment among his siblings and they severed all connections.

A trust, whether to protect assets or to create a dynasty is an excellent tool, but it must be worded well and include strong, robust family governance processes. In this new era of automatic exchange of financial information, a trust now needs more than a Protector, Reserved Powers and a Letter of Wishes if it is to survive.

Get an independent Trust Review

UK Trustee Service we provide

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline’s Book ‘Who can you trust when you are Super Rich?’ can be bought on Amazon  and her book ‘Winning Business from Private Clients’ can be bought direct from the website or from Svetlana.

Plan B - Live on BBC 1

Last Sunday, I was invited by the BBC to join the Big Questions program at 10.00 am with Nicky Campbell in Salford Quays, just outside Manchester , to debate raising the top rate of taxation to 50% or above. We were told to be in Salford the night before, so I travelled by train from Euston, had supper in the Beefeater and stayed in the Salford Quays Premier Inn, curtesy of the tax payer.

It is not easy to prepare for such a debate, because it is hard to predict in which way the debate will go and to spout a prepared piece is not in the spirit of a debate. A lot of what I wanted to say, was not possible, and much of what I did say was not planned – hey, ho!

Nicky asked repeatedly those in support of raising the rate of taxation, whether it was a moral issue, or whether they thought that by raising the rate more revenue would be collected. He had the facts and statistics about the experience in France, when Hollande raised the upper rate to 75%; the deficit was EU 80 billion and the revenue only EU60 million. Most speakers in favour of a rise did not answer this question directly.

Nicky introduced me as someone who would not wish to see the rate raised, in fact I said I would like to see it lowered. I pointed out that the super-rich do not need to pay the higher rates – by changing their behaviour.

If they are non doms, they can keep their monies abroad, or if they are an entrepreneur they can keep their money in their company, thereby avoiding the higher rates of tax.  It will then only be the employed and the pensioner who will pay the higher rates of tax. Personally, I do not think this is fair.

I am all in favour of billionaires paying taxes, but we should not approach them with a hammer if we wish to fish for their business. My personal view is that we need to make our tax system attractive for billionaires to come to Britain, and to bring their billions with them. Why do we have a tax system which attracts billionaires to live in the UK, but yet encourages them to leave their billions stewing in Switzerland. Why not extend the reliefs to billionaires who bring their trusts to the UK? I have done my little bit through HighTrust International an onshore trust administration business. There are several tax advantages to having a trust in the UK and many practical reasons as well, but the Government could do more to attract billionaires’ and their billions to Britain.

Despite the best efforts of Gordon Brown to stamp out avoidance, there are still so many reliefs and easy ways the super-rich can avoid paying tax. I made the point that currently corporation tax is set at 19% and due to go down. This is great for businesses which are seeking to locate to Britain, where it is safe and secure to do business. The UK has a fantastic and experienced workforce, an excellent and fair judiciary, and it is a great place to live. But with the tax disparity between 19% corporate tax and 45% as the upper rate of income tax, the temptation for those who own a business to keep the profits in the company, is just too great. If they do not take the profits out as income, they will not then spend, and if they do not spend they are not supporting British Businesses and the country will not produce the revenue the Treasury is hoping for

From my experience of billionaires, they only hoard their wealth in their investment management company from which they invest direct into projects, many of which have social impact as one of the primary objects whether in sustainable energy, energy savings, or pharmaceutical advances. They use their money to fill the gap in funding which financial institutions cannot.

The comment made by Alex Wild of the Tax Payer’s Alliance was well made. In reality employees or shareholders are already paying 50% tax if not more, when taking into account the National Insurance, Pensions Contribution and the inequality of franked investment income. Sadly, although true, it is not understood by many journalists and so this fact is often overlooked.

Thank you Nicky and your team for inviting me to the debate. It was an honour to take part. May I also thank all of you who took the time to watch, and as always I welcome your comments and feedback.

Watch Caroline on The Big Questions

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Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline’s Book ‘Who can you trust when you are Super Rich?’ can be bought on Amazon  and her book ‘Winning Business from Private Clients’ can be bought direct from the website or from Svetlana.

Is your trust a sham?

Last week I visited Albany; an impressive new development in the Bahamas for the wealthy looking to invest in their future. The team there is focused; with a ‘can do’ attitude! There is a real sense of community and belonging, which makes Albany different from many places in the sun. 

For those feeling a twinge of envy, – the Bahamas is not immune from rain – it rained all day Sunday – horizontal rain, so driving in the golf cart gave me no protection from getting soaked! The other days were thankfully spent – under blue skies, on white sands, and in turquoise, aquamarine seas.

I wanted to see for myself how the Bahamas is bearing up under pressure from the OECD to ‘step in line’ with the other member countries.

Bahamas, keen to serve the best interests of its UHNW community, took a stand against the OECD with a bilateral approach to the automatic exchange of information – which means it will only exchange financial information with those countries with which it has an agreement. However, as brave as it was, it now recognises that it cannot afford to be black listed by EU countries and will capitulate to sign the multi-lateral agreement like the other OECD countries.

Ironically, the sooner it recognises its strengths and the reality of the world we are now living in, the better.  The Bahamas not only offers a world class place to live for billionaires and multi-millionaires, it is also a favourable place to base the global assets and businesses of the UHNW community. It has excellent professionals, a robust judiciary and is remarkably save, however, its professional trustees also need to be alive to the dangers – and do something about them.

Cem’s adviser Dishang came to see me the day after I came back from Albany. Cem’s trust structure was set up with professional trustees in one of the lesser known offshore jurisdictions two years ago. Last year the trust successfully sold his energy company for many hundreds of millions of dollars.

I asked Dishang how the trustees had coped with the sale of his company. Dishang said ‘Only Cem knows every detail of his company; it is only Cem who could have gotten the best possible price for his company’. Dishang, was quite adamant ‘Cem, has always been in control of his business assets, he tolerates his trustees, but only if they do what he tells them’.

I explained to Dishang that Cem needed to think very carefully about changing his trust ownership structure. His trust was in serious danger of being attacked by the tax authorities in his home country as a sham. Regardless of what the trust documents actually say; it was clear from what Dishang described that Cem de facto had the control of ‘his’ business assets which were ostensibly owned by professional trustees.

To drive home exactly how serious the current situation was, I quoted to Dishang what STEP (Society of Trusts and Estates Practitioner’s) says about sham:

‘The consequences when a trust is construed as a sham are: the court declares that the trust does not exist and has never existed; the funds have always been held by the ‘trustees’ on a resulting trust for the benefit of the settlor, and after the settlor’s death for the benefit of his estate. The settlor, or his estate may become liable to back-tax claims and increased estate taxes. Any funds distributed to other parties (beneficiaries apart from the settlor) have to be clawed back and may have to be repaid by the ‘trustees’ out of their own pocket. Fees received by the ‘trustees’ have to be repaid; the trustees may be sued by those who would otherwise have benefited from the trust if it had not been set aside as a sham; the ‘trustees’ may have to pay their own legal costs and may alsobe ordered to pay the costs of any court action; the reputation of the ’trustees’ may suffer. ‘

The Bahamas, cannot hope to gain a tactical advantage by being out of step with the rest of the world, but it can use its trust knowledge and expertise to see the dangers which are coming and doing what it can now to ensure their trust structures withstands any claim against the settlor for sham. No professional trustee in their right mind would want to get caught in the cross fire between the settlor and its tax authorities with the very real risk of being put out of business. The time to act is now – analyse every trust and ask the question – does the settlor have de facto control – if the answer is yes – do something about it, before something is done about it for you.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline’s Book ‘Who can you trust when you are Super Rich?’ can be bought on Amazon  and her book ‘Winning Business from Private Clients’ can be bought direct from the website or from Svetlana.

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