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| Choosing
an Offshore Trustee |
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| A successful
trust plan requires the right trustee. The quality of services available
in any offshore jurisdiction can be quite varied. Many persons or
organizations offering trustee services have beautiful brochures and impressive
marketing materials. Reliance on a brochure, however, is not due
diligence. Of primary importance are references from offshore professionals
or clients who have actually used the services and can confirm the particular
trust company's reputation. |
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| Choices
to Consider |
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| Trustees generally
fall within the following categories: |
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i) subsidiaries
of major international banks;
ii) subsidiaries
of private banks;
iii) independent
trust corporations; and
iv) trust
corporations managed as subsidiaries of accounting firms or legal firms. |
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| It
is common for the major international accounting firms to steer their clients
to their own subsidiary trust divisions. Other professional advisors
seem to be more open-minded. Whether a major trustee company or a
small company is chosen will usually depend on service, needs and costs. |
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| Many
of the smaller trust companies can provide a level of personalized service
that subsidiaries or branches of larger trust companies do not always supply.
Some believe that a trust company which is in some way associated with
a major onshore financial institution will provide a level of security
which is not available from a small, independent company. These safety
concerns can easily be assuaged by having the trust business arranged on
a split basis between trust administration and investment management.
A trust can, for example, be established in an offshore jurisdiction using
the services of a smaller trustee company with the appointment of an institutional
investment advisor and/or custodian bank. Some clients may also prefer
to have two or more co-trustees located in different offshore centers. |
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| Subsidiaries
of major banks do provide a sense of comfort and financial security.
On the other hand, some clients are concerned about the bureaucratic nature
of institutions and fear that this will translate into the trust management
service being less personal. |
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| A number of
banks, particularly the so-called private banks, provide excellent personal
service. There has also been some complaint that the larger banks
are inflexible in their approach and that they make common transactions
quite costly and time-consuming. |
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| The private
banks are accustomed to providing personal service on a competitive basis.
As such, their subsidiary trust operations tend to be competitive in terms
of both fees and service. The diversification of private banks into
the provision of trustee services is a natural extension of their usual
marketing. This additional facility gives them the opportunity to
attract private money for investment management which is their strength.
Generally, where a private bank subsidiary is chosen as the trustee company,
the trust assets will be managed by the banks' own investment divisions. |
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| Independent
trustee companies are widely available and their performance varies accordingly.
They can be expected to be more aggressive and competitive for new business
and may be far more suitable for limited trust operations, especially where
price is a consideration. Many of the independent trust management
companies are offshoots of the larger companies. They have been established
by personnel who have training and expertise, but want to provide more
flexible and personal service to clients without compromising their duties
and responsibilities. |
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| It is common
for the accounting practices and legal firms in the tax havens and financial
centers to have a subsidiary trust management company. This is not
considered a conflict of interest in the offshore jurisdictions.
These operations are generally quite responsive to client needs, and because
of the nature of their relationship with the client, they provide a level
of stability which clients find desirable. |
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| As the professional
firms may already be providing a significant level of other services to
the client, their trust management on a day-to-day basis may be viewed
primarily as a bookkeeping operation. |
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| Private
trust companies versus professional trustees |
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| Some of the
offshore trust jurisdictions regulate the activities of professional trustees
while others do not. There does not seem to be any consensus as to
which situation is better. For those being regulated, there is a
licensing process which is usually similar to that used to oversee banking.
The nature of the activities undertaken by professional trustees, however,
makes them difficult to supervise. Most of the duties performed by
trustees are private and do not involve matters which can be demonstrated
on the financial statements of the trustee itself. |
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| There
is some suggestion that comfort can be had from an audit of the activities
of a professional trustee company. Audits, however, do not generally
cover issues of fraud and so are deficient in this respect. In addition,
the cost associated with a detailed due diligence and fraud audit, when
added to the costs of administering a trust, would be undesirable and rejected
by most clients. |
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| At
present, there is no universal insurance or bonding of trustee operations
and there is no indication that this will become mandatory in the offshore
industry. Remarkably, the present worldwide system of self-regulation
appears to be working and the frequency of improvident actions or scandals
is decreasing. |
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| Private
trust companies |
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| The reputation
of an offshore professional trustee company or professional trustee individual
is not usually known to the potential grantors or beneficiaries.
As such, there is a natural reluctance on the part of the grantors to part
with their assets to, in effect, strangers. One solution for this
dilemma has been the use of the private trustee company (PTC). The
PTC is a corporation that acts as the trustee over a specific trust or
a consolidated group of related trusts. This can be structured using
professional advisors who might be involved as nominee officers and directors
rather than individual trustees. The grantor or other family members
may be empowered to act in an advisory capacity and may assist or influence
various decisions made by the directors of the PTC. |
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| The PTC structure
may be enhanced by the use of a purpose trust incorporated to own the shares
of the PTC. A purpose trust will provide a grantor or his family
members with the ability to control the affairs of the trust and yet maintain
the legal and equitable integrity of the trust structure. An additional
benefit is that a significant degree of privacy can be maintained while
the trust engages in various transactions. |
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| Liability
concerns |
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| As all professional
trustees are concerned about their own liability, there is a natural inclination
on their part to restrict the areas in which they will operate or invest
trust assets. Often this may be contrary to the desires of the grantor
or the beneficiaries who will want to own assets or make investments which
the professional trustee, looking at its own liability, does not deem appropriate.
For example, most offshore professional trustees do not want to own directly
or have an interest in real property located in the United States. |
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| There are
also concerns about personal liability under environmental laws that make
it impossible to determine exposure to liability. Using a PTC may
solve that problem. These same problems may arise when certain types
of structuring are necessary for tax purposes or when there is concern
as to the implementation of particular investment philosophies. |
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| A trustee
is not a guarantor and liability concerns must be carefully reviewed. |
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| Conclusion |
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| Financial
and estate planning today is on a global scale like never before.
The movement of money and people across borders creates a need for global
planning structures to mitigate taxation, limit exchange control, maintain
continuity of investments and businesses, protect assets, and act as an
estate-planning vehicle to avoid multi-jurisdictional probate proceeds.
The trust is the most widely accepted planning arrangement to meet these
and other offshore planning objectives. Choosing the right trustee
is one of the keys to having a successful trust plan. |
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