The hand that feeds you

Arayan lives in the UK, but was born in India and grew up in UAE. He came to see me a few days ago with some questions.

Although Arayan has a prestigious business track record - from property development to key roles on boards of large technology companies - he is also an exceptional human being to whom people are drawn as if by a magnet. His knowledge on a broad range of topics is extensive but they are always tempered by a deep love of people and his opinions are therefore always thought provoking, independent and intuitive.

Having known him and his family for many years, I was keen to ask after his wife and children – growing up all too quickly. But on this occasion his attention was on his mother Pari.

Arayan’s father had been very successful in the petrochemical, oil and gas industry when he was growing up. However, he died nearly twenty years ago and Pari had inherited the family fortune. She had taken advice and settled her husband’s estate on trust in Guernsey and made Arayan the Protector. After a few years of living as a widow in UAE, she returned to India to live just outside Mumbai in a substantial home where she spent much of her time indulging her grandchildren.

Pari is in good health but at 86, Arayan was concerned that she should be protected from any family dispute or tax investigation. Arayan, who is always mindful of his close family and friends has been following the OECD initiatives on the erosion of privacy on offshore financial information with concern and interest.

‘There is no doubt in my mind that the Indian Tax Authority will use the information exchanged from Guernsey about our family trusts to harass my mother now that she is living in India. The fact that she is unlikely to be taxed on the trust fund, since she has not received a benefit, will not deter it. The case Commissioner of Wealth Rajkot v Estate of HMM Vikramsinhji of Gondal, 2014, is very helpful, but once the Indian tax authority see the size of our trust fund it will want to see how else it can raise taxes. I do not want my mother to be involved in any form of investigation or family dispute which would be extremely distressing for her’.

He went on, ‘My mother made me Protector of her trusts and over the years has relied on me completely.  The trustees always look to me before making distributions to my siblings, two of whom are dependent on her trusts for their quality of life. They have also invested extensively into my projects – which has resulted in a quadrupling of the trust fund’.

‘I am concerned that the Indian Tax Authorities will argue that because of my close relationship with her trustees that it will argue the trust is a sham and tax her as if she continued to own the fund outright. Such a claim, which is of course ridiculous, could give rise to years of distressful and unnecessary correspondence with my mother’.

Arayan and I discussed the situation in some depth and I came up with a number of solutions for him to consider.

With regard to his siblings’ dependency on the trust fund he said ‘My brother and sister have never worked. They live in the UAE totally dependent on my mother’s trusts for their quality of life. It would suit them if the trusts were set aside, since in her Will all her assets are to be divided between her five children equally.’

Arayan looked to me for solutions - should she change her Will, and if her trusts were not to be put aside, what could he do to make his mother’s wishes more robust?

I had to agree with Arayan, I was not convinced that her Letter of Wishes would deter his siblings from mounting a claim. ‘I have seen so many Letters or Wishes and non-binding Family Constitutions torn up if the beneficiaries are not provided for as generously as they had hoped' I explained to him.

I put to Arayan a number of options based on my decades of experience – which we also discussed at some length.

Please watch the press releases for our books below:

'When you are Super-Rich who can you trust'

'Uncovering Secrets: Winning business from Private Clients' 

Feel free to contact us if you have similar concerns or would like to discuss matters surrounding CRS, privacy and control of our wealth ownership structure. 

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

When you are Super-Rich, who can you trust?

What is it like to be Super Rich? By all accounts, it is better to be rich than poor! 

So if all is good, what keeps the Super Rich awake at night?

My book ‘When you are Super Rich who can you trust?’ gives food for thought – it is for everyone who is rich, will one day be rich, has ambitions to be rich and/or serves the UHNW community.

One of my clients, who I will call Francis, came to see me several years before he sold his company which was then worth, just north of, $200 million. He wanted to know whether he should set up a family office and if so what he needed to do.

I took him through the eight step plan which I outline in the book. As we talked about his aspirations, vision and concerns about being liquid rich, it soon became clear that he was not interested in setting up his own family office to manage his investments and non-liquid assets, he just wanted to make sure that, post liquidity, he had a lifestyle, such that he and his family could feel good about money, know they wanted to achieve and had the right people around them who they could trust to get them there.

Once we had worked through the eight step plan it took us a few months to implement it, which included how to pick his cabinet of advisers - his Ring of Confidence –and the structure needed to keep them in line. 

In my book, I discuss the pitfalls which many Super Rich fall into which is to choose their advisers on the recommendation of a friend. Why do you think Madoff did so well once he had got established? He had a good track record on the surface, but no credible reason for producing these returns year on year – the rest was personal recommendation.

At first blush, recommendation sounds an excellent way to choose an adviser, but only if you do not leave your suspicions on the doorstep. I have seen some shocking choices of professionals in positions of key responsibility which on a little scrutiny would have been weeded out long ago.

The analogy I use in my book is, would any professional you engage survive a board room of experts following an annual report? If you had thrown Madoff into this ring – would he survive? If the answer is yes – you have the wrong ring!

Most of us imagine the thrill of having huge wealth but it can be daunting and expensive if you trust the wrong advisers.

Unlike what many advisers may say - there is no right or wrong. If you want to blow your money at the Casino – fine, but at least make sure it is in accordance with your plan so you are not led astray by others, who have a plan – but not in your best interest - theirs.

With a serious set of goals, you can then move onto the second step; planning. The aim of the book is that by the eighth step you will have developed a lifestyle to manage your wealth and your advisers so that you can sit back and enjoy it.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline's books 'When you are super rich who can you trust' and 'Winning Business from Private Clients' will be republished on 11th October at Waterstones Piccadilly. 

FATCAts

Now that everyone is returning to work after the long summer break, we begin to hear the cogs of business clanking back into action. But all is not as it was.

It is now September and families with trusts offshore are looking to see what they can do to maintain the confidentiality of their trust assets and their own details as participators ahead of the arrival of the automatic exchange of financial information, which in some cases starts now.

For these trusts it is already too late – reporting entities across the globe have collated information and exchange is now due. For any trust which switches trustees now, careful planning needs to be done in order to evaluate whether or not they have missed the boat.

Numerous professional trustees have seen an exodus of business to S Dakota, Alaska or Nevada, some before 2017, but many more this year.

Jules was one of the people who came to see me earlier in the year. He has many well-known businesses around the world and years ago decided on the Bahamas as the jurisdiction for setting up his trust. Antonio, an adviser in Jules' home country of Argentina, had approached him with the idea of migrating his trust to Nevada. Antonio, according to Jules, was very persuasive. 

Antonio knew the natural fear and paranoia which Jules has been experiencing over the last few years with respect to confidentiality. ‘The US is not a signatory of CRS, the Trustees will not need to report to the IRS, so your financial information is safe in the US!’  Antonio told him.

Jules was uncomfortable as he was not convinced it was as simple as Antonio was making it look. He had heard of me from a business colleague of his for who I did some structuring work so he approached GFOS for an independent opinion.

I pointed out to Jules that Argentina had entered into an ‘Agreement for the Exchange of Information relating to Taxes’, with the US, on the 23rd December 2016, for tax information arising as from 1st January 2018.  

Under this agreement the exchange of information from the US to Argentina would be either, ‘Upon Request’, ‘Automatic’, and/or ‘Spontaneous’. Jules was shocked; if there was such a treaty in place, why was the US such a safe haven? Why are advisers taking their clients willingly into the US trap?

The difference between the US and a CRS country, I told him, was that CRS countries are obliged to collate and report on all financial information on accounts held by foreigners, whereas the IRS will only report on financial information which comes its way.

Crucial to this special status is that the trust has a FATCA-sponsoring entity, which means an entity which will divulge all information about the assets and participants of the trust on demand.

If the trust does not have a sponsoring entity, or it loses its sponsoring entity status, the trustee must register the trust as a foreign US-based trust with the IRS and the trust will be issued a ‘Global Intermediary Identification Number’ (GIIN). Such a trust has ‘Chapter 4 FATCA status of a participating FFI’, which is indicated on its W-81MY or W-8BEN-E - forms it is obliged to fill out. This information will then automatically be exchanged with Argentina.

The million-dollar question is therefore how likely is it that information will be requested of the sponsoring entity? The answer is, quite high. First information may have been exchanged from the previous trustee if, like Jules his trust is in a jurisdiction which is within the CRS regime, second it could arise from the amnesty demands - most residents in Argentina have declared trust and non-trust assets. Third, if a distribution is made to a beneficiary then the beneficiary must declare that as a distribution from a trust, and fourth, if any one of the beneficiaries opens an account in the US, has assets in the US or in any other way becomes known to the IRS, information will be automatically exchanged.

Before Jules makes a decision, however, he needs to be aware of the consequences of any leaked information which to put it lightly will be catastrophic.

Under US tax law the assets of a grantor trust are treated as the assets of the grantor. It is a small and simple step for the tax authorities of Argentina to declare that the assets of a grantor trust are to be treated for all tax and reporting requirements as belonging to the Grantor.

This is much simpler than arguing that the trust is a sham meaning they don't even need to bother with sham arguments or years of investigation. If the Argentine tax authorities, with the information in their possession, argue this point there is no plan B and almost no wriggle room – Jules would be a sitting duck to be shot at by the Argentinian tax authorities who would not waste a minute to make an example out of him.

Provided some modifications were put in place to his trust and assets in the Bahamas he could not only keep the trust assets and its participators confidential but of even more importance, should there be any leakage, the consequences need not be disastrous!

Jules didn't want to play Russian Roulette and provided we carried out a health- check on his structure, he will keep his trust in the Bahamas. 

If you would like an Independent Trust Review please get in touch with us direct.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline's books 'When you are super rich who can you trust' and 'Winning Business from Private Clients' will be republished on 11th October at Waterstones Piccadilly. 

Interview with the Financial Times

Last week Matthew Vincent, the leading journalist on the private client industry for the Financial Times, called to ask a few questions about the ‘value added’ services that Family Offices can provide.

I am close to a number of CEOs of Single/Multi Family Offices and decided to pick up this issue with them. For many of them I was part of the team that created the family office structure they are running so they felt comfortable to speak openly to me.

First all the CEO’s I spoke to said there was a real distinction between a Single Family Office, where the family or in some cases families have formed a Family Office to look after their financial interests, and the Family Offices which have been formed by investment managers. These investment managers could have come from a range of backgrounds; private banks, hedge funds or fund managers to form a boutique that acts for UHNW families. The attitudes, philosophy and goals of the two are very distinct.

A multi-family office – which is the term I will use for the investment manager led office, has as its primary goal to win new business; increase AUM, and will use many of the methods applied by the institutions they have come from; networking with intermediaries, hosting conferences and an active profile on LinkedIn.

The most pressing challenges faced by single family offices are to reduce costs and drive up returns on investments. Top priorities in reducing costs are to minimise the fees paid to banks and intermediaries, tax and any form of dispute.

For those family offices which either alone or combined with other families, can boast institutional wealth, a reduction of costs is easy if they can secure the same privileges and rates as institutions. They will then invest in these funds available only to institutions; pensions and insurance companies, which are blessed with the best deals, the best professional opinions and the best financial analysts.

The value added for these families in the future is their eagerness to buy the fiduciary arms being shed by global institutions, which could then be built into the private banks of tomorrow.

The families who do not have institutional wealth have different value add objectives. They are looking to private equity to increase returns but recognise that it is a risky proposition.

To minimise the risk, SFOs are first looking for deals which have been pre-qualified by one or more investment analysts. Then they need access to a team of advisers – which we call the inner Ring of Confidence, to monitor the development of the private equity investment, make the most of tax breaks and diffuse disputes before they escalate into a costly problem.

These investors are also looking for a secondary market so that as and when an equity investment succeeds, they can take profits, by selling part to other SFOs.

Notwithstanding the risk, there are some interesting added advantages to private equity investment; first with a good spread, one or two investments will come good, which will be taxed as capital gains against which any losses can be set off, second there are numerous tax breaks for investing in private equity, not least business property relief for inheritance tax and third families like to co-invest – or at least talk about it – sharing is caring!

There have been a variety of initiatives keen to use digital technology to meet the needs of these Single Family Offices. If any-one succeeds which is likely, much needed finance for small to mid-cap private equity will be available and more jobs for professionals eager to work with and for SFOs will be forthcoming.

On tax and Brexit, all Family Offices, large or small based in London, are disappointed that the UK has not followed the Singapore model, which encourages wealthy families to live in their country. As the UK haemorrhages its lead by diluting its tax breaks for non doms, other European countries have taken the initiative and UHNW families are considering seriously emigrating to their shores for the tax breaks; Italy, Portugal, France are keen to attract wealthy families, to name but a few.

All SFOs, whether onshore or offshore, large or small are affected by the speed of change to their world. A few however are excited that the change has thrown up opportunities. If you are one of these few please feel free to comment.

If you have other questions on setting up a Family Office, managing your FO or have other questions please get in touch with us direct:

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Caroline's books 'When you are super rich who can you trust' and 'Winning Business from Private Clients' will be republished on 11th October at Waterstones Piccadilly. 

A woman's weakness

With so much attention on the death of the Princess of Wales over the last few weeks, my attention was drawn to the rich and successful women I have worked with and for, over the years. One particular woman came to mind – the details of her case are altered and I have her permission to write under the pseudonym of Janet.

She lived in the Midlands with her husband of twenty years whose name was Alan. He had worked all his life as head of a depot and even though they lived a simple life, they had two children they adored, many friends and considered themselves happy. Quite unexpectedly twelve years ago, Janet received a telephone call during which she was asked to confirm her maiden name and the name of her father, which she did eventually albeit reluctantly. She was then told that her father’s brother, Bernard had died in a car accident in Australia and she was now the main beneficiary of a trust set up under his Will of many hundreds of millions.

She knew little about her uncle other than he was a successful businessman in mining but had brought disgrace on the family by declaring his homosexuality at a time when it was illegal. Janet asked Mark, the caller, to write to her to set out what she could expect and what she needed to do.

I had been Bernard’s adviser for many years and was responsible for setting up the trust under which Janet was to benefit so Mark referred her to me.

We met in the café in the Royal Academy in London and she couldn't be more different than her uncle Bernard - he was flamboyant, stylish, outspoken and sometimes even brash. As we talked through the circumstances of the trust and what she is to inherit, she was of course thrilled but no one could predict how the new found wealth would influence her life.

With her first lump sum, she paid off her mortgage and put some money aside for the children. Alan gave up his job at the depot and Janet and he went on a three-month cruise around the world.

Alan supported Janet by taking it upon himself to liaise with the trustees and conveying to them their needs and interests, and all was fine for many years. Then, Alan developed prostate cancer and had to undergo surgery and chemotherapy. Janet found herself not only looking after Alan bt also dealing with the trustees which he had done fore years. Unfortunately, she discovered that significant payments had been made by the trustees into their joint account, out of which Alan had transferred substantial sums to himself. 

The relationship between Janet and Alan quickly began to break down. She felt betrayed, she felt that the unfortunate illness had taken a toll on their marriage and soon started looking for ways to become more independent. She bought an apartment in London where she was spending more and more time with her personal trainer Jason, about 25 years younger than her.

She also began building an impressive jewellery collection; she acquired some pieces from teh Elizabeth Taylor collection and had some other priceless pieces of museum quality. She was often asked to lend her pieces to exhibitions and Jason was there to travel around the world with her and help with whatever she needed. Every next time I saw her she always had something new to show me. 

About two years ago, Jean her fine jewellery adviser phoned me in a state of high agitation saying he had seen one of Janet’s pieces for sale. 'Why was I not informed?’ he shouted. We got in touch with Janet and she didn't take Jean's concerns seriously; she actually laughed and said the piece was safe at her London apartment (where she kept most of her jewellery). Jean being Jean and having had experience in dealing with cons demanded to see it for himself and when Janet showed it to him he immediately realised that what she had in her possession was a fake! Her piece was replaced with a fake and the real one was on sale with Christies! 

After a very unpleasant and very long discussion, going through CCTV in her building, aquiring from Christies on the seller of the jewel, Jason was called to explain. He was the only person, other than Janet, who had access to her jewellery. He told us how he had made copies of Janet’s favourite pieces so that Janet could wear them while they were away at museums and didn't think of informing the trustees or even Janet herself because he didn't want to trouble her as she had a lot on her plate. When he was approached by a buyer it was too easy and too tempting not to start selling of the real pieces. He quickly turned vicious, calling Janet all sorts of names and boasting at how easy it had been to rob her.

Janet was distraught; as the case against Jason progressed, she began drinking heavily. I told her that she needed to gather around her professional advisers, who she could trust and gave her my Guidance Notes on how to build an inner Ring of Confidence (which you will find attached to my book When you are Super Rich who can you Trust? due to be republished on 11th October) to work through.

When she had finished, we sat down and worked out what she wanted to do and how we could put together a Ring of Confidence – specifically selected for her. Once a strategy was in place we looked for someone who could help her with her drinking.

I found her an incredible woman who despite the many knocks was still able to simply brush it off and move on, she carried herself with dignity and never complained. Many mistook her for weak or for a fool but Janet learned quickly that the 'friends' you attract because of money can be your worst enemies. She was smart, tenacious and wanted to be surrounded by the right people.

For Janet, I am pleased to say there was a happy ending. Her Ring gave her the confidence she needed to make decisions and it did not take her long to find a new man friend; a private banker. He was perfect for her. He was not her private banker but was someone she could trust because he is able to give her advice whenever her professional advisers are suggesting things of which she is not sure.

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Contact :          svetlana@garnhamfos.com

                        020 3740 7423