Protecting Protectors

Allan has a trust which was set up for him, not by me, three decades ago. A professional trustee who I will call ABC Trustees Limited is trustee and does the trust administration and his local business adviser Mario is his Protector. Allan has a good relationship with ABC Trustees Limited.

He came to see me, because he was concerned about Mario. The trustees are obliged under the Common Reporting Standard not only to report on the identity of the settlor to Allan’s home country of Argentina, but also to identity Mario, as the Protector.

Allan is personally wealthy, independent from his trust, but Mario is not. Mario, simply could not afford to get stuck in the middle of a dispute or investigation and if this occurred on the death of Allan, Mario has said to Allan, that he would resign. He was not convinced that ABC Trustees Limited or Allan’s family would pay his legal fees as a Protector if anything went wrong, and given his exposure on Allan’s death would not continue in office.

What particularly alarmed Allan, was that ABC Trustee Limited, rather than give Allan assurance that his legal fees and costs would be covered in such a situation, said the opposite. If Mario were to use his powers to try to remove them, Mario’s legal costs would definitely not be paid out of trust funds.

ABC Trustee Limited also said to Allan that on reflection, they would prefer Mario resign, to avoid any suggestion that Allan’s trust should be set aside as a ‘sham’.

Allan did not want his trust set aside, but neither did he want ABC Trustees Limited, to have unfettered control of the trust assets and distribution. They were good administrators, but Allan was not convinced that they could take meaningful decisions without a legal opinion.

‘It would be like trying to run my business with my lawyers being asked to take all the decisions’ Allan said. ‘Mario can take sensible and swift decisions – he is man of business. I am more than happy for my lawyers to comment, but I would not want them taking the decisions, it would be disastrous. My lawyers are good, but they are risk averse, they know the law, but do not know how to run the businesses owned by the trusts.’ Allan was confused and angry.

‘I have come to you as an independent Wealth Protection Planner – what am I to do?

I pointed out to Allan, that the trust fund was legally owned by ABC Trustee Limited, and that Mario was right to be concerned, but that he should not blame ABC Trustees Limited. Setting up a trust with a Protector has, for decades, been standard practice, but with the introduction of the Common Reporting Standard, these arrangements now need a fresh pair of eyes’.

Mario was however, in an invidious position. If he felt it was in the best interests of the beneficiaries to replace the trustees, he may have difficulty getting the evidence he needed from the trustees to do so, if they disagreed, and would struggle getting his legal fees covered.

Even worse, the office of Protector was fiduciary, which means that he had to act in the best interests of the beneficiaries, which may prove tricky if the trustees were to become un-cooperative. Making good any loss to the trust could be significant.  Mario may be protected by an indemnity clause – but it was not unlimited. In Allan’s trust deed the indemnity did not cover Mario if he failed to act in good faith – but in whose opinion – his, the trustees – or the court? It could be very expensive for Mario, in legal fees and court costs alone – to prove this!

Allan and I sat a long while talking about what he wanted, what risks he faced, and how to protect him, his family and his assets. Ideally, he wanted to continue to engage with ABC Trustees Limited, continue to rely on Mario for his knowledge of Allan, his family, businesses and concerns, and ensure as little information as possible be reported to his home country.

I agreed to set out our discussions in writing to list his options and the solutions available to him.

As a planner, I said to Allan that I needed to look carefully at the rules and to stay well within, not only the law, but also the letter of the law. Whereas for decades, out of sight and mind was a good solution this could no longer be relied upon and all professional advisers must keep well within the parameters set or risk being fined along with his or her clients.

This does not mean, however, that there is no room to plan, but it must be done well, mindful of all the laws, and all parties must be fully aware of what they are doing and why.

I also pointed out to Allan, that to plan would also be of interest to ABC Trustees Limited. If they failed to do anything which they could have done, and as a result caused loss to the trust, they could also be held liable for breach of trust and ordered to make good any loss incurred.  Whereas planning may be a nice to have for Allan, it was in fact a ‘must have’ for the trustees.

To get an independent trust review or discuss all matters relating to trusts, privacy, control and protection of your assets please contact us direct.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

To buy Caroline's books please press here:

But... What do you do?

When I was at Simmons & Simmons a partner in the corporate department, Richard, collared me in the corridor, ‘I don’t know what you do exactly, but could you meet two brothers; clients of mine, who are about to sell their company for hundreds of millions of pounds… they would like someone to talk to!’

Of course, the answer was yes, I saw them and they became clients of mine; a relationship which lasted many, many years – but, what did I do for them?

To answer this question, we need to understand the real concerns of my clients. They were a little concerned about tax, a little concerned about succession and a little concerned that the family would remain harmonious when the fruits of their labour – the shares in their family company – were turned into cash, but none of these aspects really bothered them – what was of real concern, was who could they trust once their money was in liquid form.

It was my relationship with these two brothers, which sparked the idea for my book – ‘When you are Super Rich who can you Trust?’.

To explain, let me turn to Johnny who is five years old. ‘Imagine you have lots of sweeties, Johnny, and none one else in your class has any sweeties, what would you do?’

Johnny might say ‘I would give some sweeties to the people I like, Rupert and Jessica, but I would not give any sweeties to Max – because I do not like him. I would then put the sweets left over in a jar, and give them to Mummy to keep safe until I want them.’

I might then say to Johnny ‘What would you do, if your Mummy does not like you having sweeties and will not let you have your sweeties back when you ask for them – what would you do then?’ Johnny might say ‘I would not give her my sweeties, I would put them in a jar and hide them’.

Most wealthy people are like Johnny. They have had their fingers burned by people they have trusted and so are more cautious. Instead, they would prefer to put their money offshore where hopefully no one will find it. The problem is that with the introduction of the Common Reporting Standard, there is nowhere to hide wealth now – so the issue of who to trust has become more important than ever.

The challenge which I address in my book ‘When you are Super Rich who can you Trust?’ is to ask each adviser, ‘How do you make your money and what keeps you awake at night?’ I then compare the situation of a wealthy individual with a shareholder. A business owner does not trust just one person to run his business, he appoints a board – and so it should be with the management of personal wealth.

I encourage my clients to form an inner ‘Ring of Confidence’ – a team or cabinet, who will decide which investment manager, lawyer, accountant, art adviser, yacht broker to pick. This team then monitors their performance and reports back to the wealth owner once a year at the ‘Annual General Meeting’. However, I have not always been successful in persuading clients to accept the wisdom of this advice.

A client of mine with whom I worked with for many years insisted on having a professional trustee not only to administer and manage his substantial wealth, but also to be responsible for making the decisions – who to engage to invest and how much and when to give to a beneficiary.

On his death, without the client to guide the professionals, their duties and responsibilities began to strangle them. They were first fearful of losing the business – their biggest clients, secondly, they were fearful of being sued by one or more of the beneficiaries and thirdly they were fearful of being in breach of their compliance obligations. They were therefore reluctant to make any decisions without a legal opinion or a court order.

As a result, the trust fund became stagnant in its operation and stilted in its duty to act in the best interests of its beneficiaries. Their indecision and prevarication, which was perfectly understandable given their circumstances, served only to drive deeper the differences between the beneficiaries – despite a forty-page Letter of Wishes.

The outcome of nine bitter years of feuding and fighting was the division of the trust between the beneficiaries. During this time, the only parties to benefit were the professionals. The beneficiaries, although the rightful heirs, were powerless to pull the professional noses out of the trough which was intended for them. They could do nothing, but watch their father’s hard-earned fortune filter down to the families of his trusted advisers.

So, what do we do for our clients?

We can be trusted to provide personal, professional, independent planning for wealth ownership. We identify what your priorities are, how you wish to preserve your wealth and what your vision is for the future. We work closely with our clients to provide a very personal service in a legally compliant, cost effective and efficient manner.

In short, we are ‘Wealth Protection Planners’

To get an independent trust review or discuss all matters relating to privacy, control and protection of your assets please contact us direct.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

To buy Caroline's books please press here:

Interview with The International Tax Review

Josh White of International Tax Review interviewed me last week on the Paradise Papers; please find the script (with a few tweaks) below:

 Should high net-worth individuals fear this kind of media exposure and a crackdown on tax havens?

“The answer is a massive and resounding ‘yes’. However, it’s not so much the media which is of concern, it’s what Governments will do with this information. This is the big question.

Can Governments be trusted?

If you are evading taxes – then Governments can be trusted to investigate and come down upon you hard and without mercy, but what if you have done something within the law and on good advice – Governments will try to rewrite what you have done to make you taxable – and in particular if you are the settlor or beneficiary of a trust offshore.

If a trust is not set up properly then they will try and argue that it is a sophisticated form of tax evasion!

As a result of CRS (the OECD initiative Common Reporting Standard) Governments will know precisely who has what and where, trusts will come under scrutiny and investigation. There is nothing inherently wrong with setting up a trust and taking money out of the country, but it will not stop Governments investigating once they have detailed information and try to have it set aside and tax the settlor as if it had not existed.

If you’ve done everything bona fide and with the best interests of your family in mind you shouldn’t need to worry, and it is arguable that it is an invasion of your privacy.

Take Lord Ashcroft, for example. There are talks that Lord Ashcroft will have to pay millions more in tax because the leak suggests that Lord Ashcroft may be exerting too much power over his appointed trustees. The suggestion is that he does not ‘trust’ his trustees by his interference and the question which HMRC will ask is, was it ever intended that a trust should be created or is it a devise to avoid tax?

Tax authorities are not normally privy to such private correspondence, but they believe they are entitled to investigate any trust where there is a ‘Protector’ on the basis that they have reason to believe the Settlor did not trust his trustees to give them unlimited ownership.

If HMRC is successful in proving that Lord Ashcroft’s trust is a sham the tax authority will issue a demand as if the trust never existed. I’ve seen investigations go on for up to 10 years, seen the removal of passports by tax authorities and costs run into hundreds of thousands of pounds. For those who think that they have nothing to fear from an investigation may I remind them that an investigation for tax is worse than an investigation for murder, because tax authorities have greater powers than the police.

Furthermore, there is a real fear relating to a handful of Governments which employ unscrupulous officials that the detailed financial information being collected and exchanged will get into the hands of crooks, criminals or thieves – which could threaten the safety of the  wealthy international family.

Is the media missing the perspective of entrepreneurs when it comes to tax avoidance?

We want entrepreneurs in this country and they are entitled to keep their money in whichever country they chose, if not then the government should put exchange controls back in place.

Is it morally wrong to avoid taxes?

There have been numerous cases on tax avoidance such as with the Duke of Westminster and the Ayrshire Pullman Motor Services cases in which judges have made it clear that there is no moral obligation to put the most amount of money into the government’s coffers.

This general rule however has been watered down in 2013 by the General Anti Abuse Rules (GAAR) which allows the Government to reinterpret what it thinks is aggressive tax avoidance. 

Although not used very often, it signals an increasingly uneven playing field as Governments across the world become more aggressive in raising tax revenue. Raising taxes is not about ‘paying a fair share’ it is about Governments making legislation sufficiently specific to collect revenue and if it fails, then tax cannot nor should it be collected.

In future, I suspect, we will see many more people face ever more intrusive tax investigations alongside ever greater tax claims. If trusts are to survive, offshore trustees need to make sure that their trusts are out of the line of fire by removing all persons of significant influence. No matter how meticulous the settlor and trustees have been in showing that the trustees have an absolute, unfettered right to make decisions, no-one, in their right mind would want an investigation, which is why we advocate that changes should be made to trusts to make them less vulnerable to attack.

You can buy Caroline's book 'When you are Super-Rich, who can you trust' here.

To get an independent trust review or discuss all matters relating to privacy, control and protection of your assets please contact us direct.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

My time on Air

Last week I was invited to the BBC in Regent Street to take part in the ‘Weekend Program’. I arrived, was screened and checked and then taken to the second floor, where we were squeezed into a tiny broadcasting studio amongst a sea of researchers and journalists all working on current affairs and news.

Before we went ‘live’ and while we were waiting for a computer glitch to be fixed, the few of us in the room had a general discussion ‘Are people not bored with stories on offshore financial centres and leaks – haven’t they heard it all before? Everyone knows the rich evade taxes, do they need to hear it again?’

The discussion went on ‘Surely it is not fair that the rich can squirrel their surpluses offshore leaving those with no surplus to foot the bill for health, education and the safety of our nation?’

When on air, I drew Julian to what the law says on the question of tax avoidance and quoted Lord Clyde in the Ayrshire Pullman Motor Services:

‘No man in the country is under the smallest obligation moral or otherwise so as to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in its stores’,

The argument his Lordship makes, with which I concur, is that Governments are powerful – if they do not like something they can change the law to compel a person to change and pay more tax.  I went on to say that people are free to move their money where they chose; exchange controls were lifted in 1979, Governments cannot legislate over other countries.

Gordon Brown when in power was messianic about blocking any form of tax planning. Under his stewardship the anti-avoidance legislation mushroomed. The UK now has more anti avoidance legislation than anywhere else in the world, bar India.

In response to the ‘Paradise Papers’ leak Gordon’s response was ‘trillions are still being siphoned off to dodge tax in the most shadowy places in the global economy.’  He challenged people to put a stop to it by appealing to the G20.

It is easy to see why people like Gordon Brown get so hot under the collar. Governments believe there is a whopping $7,600 billions of wealth in offshore financial centres. Africa, for example, it is surmised has 22% of financial wealth offshore and Russia 50%.

Most of this financial wealth is in trust. Governments are of the view that trusts are ‘sophisticated tax avoidance arrangements’ and they are committed through the OECD to stamp them out. What is alarming however, is that they now have the information they need to investigate, the methodology and the strategy as to whom, why and when to attack.

The automatic exchange of information (CRS) gives Governments the identity and contact details of the settlor, the trustees, how much wealth is settled what transactions are made, and the name and contact details of the Protector.

The importance of the Protector in this mix, is critical. This is the proof tax authorities across the globe need to claim that the settlor did not have the necessary intention to create a trust. They will first go to the trustees to collect and collate information on the set up of the trust and then will issue the settlor with a claim.

If following the claim the tax authority is successful the settlor will be taxed as if there was no trust and the trustee will be compelled to return all fees and pay all its own legal costs without access to the trust fund under a trust indemnity. If this puts the fiduciary out of business – Governments will shed no tears.

However, not everyone is convinced by my concerns; ‘Surely the UK Government would not wish its Dependencies or Crown territories to go out of business?’ said someone in our discussion last week. From my first-hand experience of dealing with the Treasury and HMRC –  Governments care little for third parties so if business happens to suffer for these industries, then tough luck.

Of course, there are steps which can be taken now to ensure that a specific trust will be less likely to be investigated – but if you or your trustees are not convinced about the intentions and power of HMRC to attack trusts offshore and do not fear the dire consequences for anyone caught up in it – trustees will continue to do nothing – which they may live to regret!

To get an independent trust review or discuss all matters relating to privacy, control and protection of your assets please contact us direct.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423

Poor rich guys!

As regular readers of my Note will know, the ultra-high net worth community is little understood and is one of the few minority groups where prejudice flourishes. Just open any newspaper and observe countless scurrilous stories about the rich and powerful. But the stories are no longer today’s news and tomorrow’s chip paper. There is a sinister side to what is written.

All news is now collated and added to your profile on websites such as Wealth Check, owned by Reuters. If a financial institution needs to check you out to satisfy its anti-money laundering obligations, it will study your profile to see if it wants you as a client. With too many scurrilous stories - whether true or not, you will be unable to open a bank account – anywhere in the world, instruct a lawyer to assist or an accountant to do your returns. It is now more important than ever to keep your name out of the press, social media websites or any other form of publication.

Lord Howard Flight in the forward to my ‘Super Rich’ book says ‘I never thought I would feel sorry for the Super-Rich. Caroline Garnham has exposed ‘the other side of the coin’ in identifying the issues they face. This is a book which every self-made successful individual should read and digest – preferably before they cash in their fortunes.’

My other book ‘Uncovering Secrets’ is my challenge to the industry to review their existing ways of doing business. The private client industry, since 2008, has been fined $504 billion, not enough to put them out of business, but enough to stop them doing anything Governments don’t like – good or bad!

The private client industry simply cannot continue to absorb these fines, on top of the increasing costs of compliance. It urgently needs to rethink what and how it is doing business. The old model is broken. Each chapter in the book challenges the adviser to understand their clients, give them what they want, build trust and win new business.

But the book goes further than old fashioned ‘know your client’ strategies. It deals with the psychology of getting your message across and what is effective in winning business. But it also drills down to some specifics in the industry such as the stark fact that each adviser spends from one-third to one half of their time – on non-client matters which, at best is poor at delivering a return on investment and at worst, increases costs.

The book looks at ways of minimising time wastage and maximising returns on investment. For example, every adviser spends a considerable amount of time ‘networking’ and yet most advisers confess that they follow up only once or twice and do nothing further with the business cards so assiduously collected, other than to put them in a drawer. BConnect Club recognises these concerns and gives the industry what it needs to stay connected.

BConnect Club is an innovative, investment platform and information resource used as a tool by UHNW individuals, family offices and for the industries which serve them.

This hard to reach community wants to explore new ways to invest, manage their money and indulge themselves. It is joint venture between Bespoke Connections and Garnham Family Office Services. The aim is to provide a platform of investments, luxury products and relevant information which they may not otherwise find.

BConnect Club is the only online platform where industries which serve this community, can promote their products, investments and expertise direct to their target audience, while at the same time connect with their colleagues and network.

Digital technology is so often used to improve the ‘user experience’ but in a way which distances the client from their adviser. My challenge is to free up the time of advisers so they can spend more time with the clients. Digital technology is then used to stay in contact with colleagues and contacts.

Contact :          svetlana@garnhamfos.com

                        020 3740 7423