This is the second of two articles on Private Trust Companies (“PTC”) and Foundations. This article considers the use of a Foundation and PTC in a family wealth structure.
Part One can be found here.
If a PTC is to be established and a foundation has been chosen to be “top of the tree”, then the wealth structure will typically look something like this:
- The Administrator is a licensed and regulated trust and corporate service provider (“TCSP”)
- TCSP provides administration support to the Foundation, the PTC and the Trust(s)
- TCSP provides directors to the PTC and these are normally the majority of those acting on the PTC
- Client is the Founder of the Foundation and Enforcer
- Client is a director of the PTC with or without other family members or professional nominated persons
- Client is the Settlor of one or more trusts and nominates a protector(s)
What are the perceived benefits of having a PTC?
Some of the arguments for having a PTC are that:
- It provides flexibility in dealing with a family’s affairs
- It can hold both business and personal assets and have them segregated under the control of a single trustee
- It is not owned by the Settlor, yet the settlor and/or the settlor’s family and/or the settlor’s nominees can be directors and have a greater degree of influence over any trustee decision making process
- The PTC is a limited company and its shareholders/members are not liable for its debts, although it still has a fiduciary duty to the beneficiaries of any trusts that it administers
- Like a trust, it can enhance any wealth protection and succession planning but is outside the settlor’s estate and so avoids probate and laws regarding inheritances
- There is continuity of trustees in that one is dealing with the same trustee throughout and not subject to the vagaries of trustees, if individuals for instance who are ill, retiring or dying or, if a corporate, subject to changes of personnel, ownership or closure
- It reduces the time and cost of changing a trustee and going through the somewhat tortuous at times process of agreeing the terms of any deed of retirement, appointment and indemnity with any associated legal fees
- It can reduce the argument and potential tax implications that the trust(s) are managed and controlled by the settlor in the jurisdiction(s) in which they are tax resident
Why a foundation owning a PTC and not a Purpose Trust?
As highlighted in Part 1, there are potential issues where a purpose trust is used to hold the shares in a PTC for the benefit of members of a family. It is for this reason that a foundation would be my preferred choice, not least as:
- Like a purpose trust, no particular beneficiary has a potential equitable interest in the foundation’s assets. A foundation is a legal person (in the Isle of Man) in its own right and owns any assets that it holds
- A foundation can benefit particular persons, unlike a purpose trust
- As it is a separate legal person it can sue, be sued and give security. With a purpose trust, it is the trustees of the purpose trust who are liable for its debts and the claims of any others
- The beneficiaries of a foundation can be changed (generally speaking) without giving rise to a tax issue as they have no direct or indirect interest in its assets
Family offices and PTCs
Some, but not all family offices, administer family trusts and those that do generally have their own internal administration personnel to manage a trust’s affairs and the assets within them. These are supported by external professionals, e.g. accountants and lawyers (one or more of which may be a trustee of any trust) or regulated trust and corporate service providers to address statutory and compliance needs.
A PTC “is not the be all and end all” to those who have wealth and wish to protect it for future generations. However, they are something to be considered when one looks at setting up a family structure part of which involves one or more family trusts.
If you would like to know more about the points highlighted in this article, please contact
UHY Crossleys LLC
Telephone: +44 1624 822816
A member of UHY International, a network of independent accounting and consulting firms.
Article by Nigel Rotheroe
I am a qualified accountant working in public practice and a director of a number of licensed trust and corporate service provider companies. I am actively involved in wealth management and preservation structures for clients in the Isle of Man, where I live and further afield and this often entails working with clients and/or professional firms overseas. My work varies day to day and ranges from giving bespoke tax and structure advice, undertaking special projects, and addressing the multitude of issues that trust and corporate administration work brings. Life is never dull!