Family office – structuring masters

Joe Truelove, Director of Carey Group, and Kerrie Le Tissier, Senior Associate at Bedell Cristin Guernsey Partnership, play out a conversation between a fictional client and his lawyer as the client seeks to understand the various options typically available to ultra-highnet-worth individuals for managing their wealth. The scenario It is the day of his daughter’s wedding and Joe has arranged a quick meeting with his lawyer Kerrie to discuss his family’s affairs – the wedding has brought to Joe’s mind a number of issues which he wants resolved. Joe: Kerrie, I need some advice. I’ve worked hard all my life, I’ve created a world-leading business, I’m getting old, my third wife is very young, I have many children in a variety of jurisdictions living around the world, I may even be a grandfather soon. I’m worried about the future – how can I provide for everyone? What will happen to it all when I die? It’s all getting too much, I can’t sleep at night! What do I do? Kerrie: You really need to think about preserving your wealth and succession planning. It sounds as though what you may need is a trust. You hand over your money to a trustee and they look after it for you, both during your lifetime and after your death. In fact, you could put any of your assets into trust – shares in your companies, your real estate, artwork, wine collection… Joe: What? Are you crazy? I want to keep my assets, not give them to someone else. Who can I trust? Kerrie: Find yourself a reputable and experienced trust company, in a stable and well-regulated jurisdiction. Trustees in Guernsey are regulated and they’ve been doing this for more than 50 years. Joe: But what if I don’t like what they do with my money? Kerrie: They usually have at least some discretion but they can’t just do what they like with the trust assets. They are fiduciaries, which means that they don’t act in their own interests but instead they must act in the interests of the beneficiaries, who would be your family. There are serious consequences if they fail to do this – they could face claims for breach of trust and there could be regulatory implications, which they would obviously want to avoid. That said, there are some things, such as providing letters of guidance, appointing a protector and reserving powers, you could do to get even more comfort. Joe: Okay, a trust could work, I’m still concerned about handing over control but I’ll think about it. Are there any alternatives? Kerrie: To retain even more control, you could form a private trust company. This is where you form a company solely to act as trustee of your trust. You could be on the board of the trustee, or own the trust company and influence its direction. Joe: But I don’t know much about trust law so why would I set one up? JURISDICTION: GUERNSEY 46 47 Kerrie: You would appoint people with experience of trust management as co-directors. It’s a popular and tried and tested structure for people in your position. However, as another alternative, we have foundations in Guernsey which tend to appeal to people from civil jurisdictions who are not comfortable with handing over control. Joe: So I control the foundation? Kerrie: To an extent. Think of a foundation as a bit like a cross between a trust and a company: like a trust it is usually used for holding assets for someone’s benefit (here, your family) and like a company it’s a separate legal entity. There is a council which manages the foundation, which is like the board of directors of a company or the Trustee of the trust. You could be a member of the foundation’s council if you wanted to retain some influence over it. Joe: Okay, so there’s a bit less trust involved – I have trust issues. Kerrie: I understand that but with either a trust or a foundation, properly set up with your needs and requirements taken into account, you would have a structure which would assist you with protecting your assets and planning the succession in the business. Neither would attract additional tax and both could give you some level of control, while also involving experienced professionals in the management and administration of your wealth. Joe: Okay that sounds good, but am I missing something? I’ve been hearing a lot about PCCs – what are they? Why can’t I have one of them? Kerrie: PCC is an abbreviation for a Protected Cell Company. It is a concept which was first created in Guernsey but has now been adopted by many jurisdictions where it is sometimes referred to as a segregated portfolio company. Basically a PCC is a single legal entity which incorporates multiple cells each of which is a separate pool of assets and liabilities. Joe: So I could put my different businesses in different cells, give one cell to each of my family members and limit the liabilities of each cell so that if one of them loses money it is ring-fenced from the rest of the family wealth? Kerrie: Yes that’s right. You could also put different assets or asset classes into different cells and/or use different cells to hold assets for different branches of your family, in each case segregated from the others. There are many possibilities. Joe Truelove and Kerrie Le Tissier role-play the wealth structuring options for UHNW clients. Joe Truelove is a Chartered Accountant and Director of Carey Group, and Kerrie Le Tissier, is an Advocate and Senior Associate at Bedell Cristin Guernsey Partnership Author Author We have an infrastructure which is second to none with respect to the provision of trustee, fiduciary, corporate and fund administration services 48 49 Family Office Adviser case study A look at the Guernsey firm’s strategic workings Saffery Champness Guernsey works in partnership with a number of family offices by providing resource, administration, management and strategic and operational expertise in Guernsey with family offices based elsewhere, typically London. For example, we work with a substantial Middle Eastern client with a dedicated family office located in London, with custody and banking arrangements primarily in Guernsey and Switzerland. Saffery Champness works in partnership with the family office, which deals with the entire affairs of the principal, to provide strategic input and administrative support. All the client’s global investment assets are managed by Saffery Champness and held within a trust structure – comprising commercial and residential property, hotels, hedge funds, private equity, fixed interest investments and various businesses. The client and its advisers chose Guernsey due to the jurisdiction’s proximity to the UK, its established legal precedents, robust court system in dealing with Guernsey and foreign law trusts, infrastructure and experienced staff. The long-term working relationship with Saffery Champness director Lisa Vizia and her team also played a key role in remaining in Guernsey. Low staff turnover, longevity and expertise of staff have contributed to Saffery Champness’ reputation with family offices. Many of the local law firms have qualified lawyers from other jurisdictions who provide in-depth knowledge and expertise in multi-jurisdictional matters. Also, other international firms with local offices assist in the audit of the structure. The family office in London focuses on the delivery of the personal needs of the client and his family and predominantly on the investment strategy, asset allocation, as well as research. Saffery Champness’ role is to ensure that everything runs smoothly and is proactively managed utilising the team’s expertise, as well as providing an administration, reporting and accounting resource for the family office. The client’s structure has 55 entities in 15 jurisdictions for which Saffery Champness provides directors who actively manage and administer the underlying assets. Saffery Champness has used Guernsey companies within the structure to own various assets in the UK and elsewhere, and the firm also act as director to and administers various non-Guernsey entities. Guernsey’s investment funds sector is particularly relevant. A private unit trust was utilised to own UK commercial property and fund structuring has been used for hedge fund and private equity investments. “We are a trustee so we are one of the parties around the table. It’s not just about processing. We add value by offering strategic input to the overall position of the client. We are thought-led and proactive,” Miss Vizia said. Lisa Vizia is in London regularly so she can be at the family office or meeting with advisers and physically have a seat around the table. The family office representatives visit Guernsey where all the management decisions are made. The key benefit the relationship of these visits is the opportunity to see the service provider in situ and meet the wider team together with local legal advisers and auditors. Joe: Where can I access all of these different options? What happens if I need a combination of different structures? Kerrie: All of these structures are available in Guernsey. Guernsey’s trust, foundation and corporate laws are robust yet flexible, so I am sure we can find a solution to all your concerns about preserving your wealth and providing for your family. We have an infrastructure which is second to none with respect to the provision of trustee, fiduciary, corporate and fund administration services in addition to our banking, legal, taxation and accounting expertise within the island. You would just need to run any proposals past your tax advisers first to make sure there are not any adverse tax consequences. Joe: Thanks Kerrie, this all sounds great. My only concern now is how I manage and administer my various structures – it sounds like it could get complicated. I’d really like someone to do all that for me so I can focus on my businesses and spending time with my family. Kerrie: Given the complexity of your requirements and the size of your wealth, you should consider setting up a family office to manage your assets and coordinate the administration of your structures. Again, you would want to set this up in a jurisdiction where there is expertise in wealth management and readily available professional support. Guernsey would be a suitable place and having both your family office and structures set up there would make sense. It is able to offer the expertise and support you need, you can fly there directly from London or Geneva so you can visit your family office as necessary; it is politically stable and is a tax neutral jurisdiction for non-residents. GUERSNEY CASE STUDY: SAFFERY CHAMPNESS We are a trustee so we are one of the parties around the table. It’s not just about processing. We add value by offering strategic input to the overall position of the client JURISDICTION: GUERNSEY The offshore trustee - Saffery Champness Lisa Vizia heads up Saffery’s dedicated Family Office Team in Guernsey, which manages offshore structures for ultra-high net worth families, with a particular focus on the Middle East. She is also responsible for business development for the firm’s fiduciary business Author