PLANNING THE FUTURE

Updated: Aug 20, 2021

Jessica Hackett | Rhone Trust & Fiduciary Services S.A.

The first half of the year 2020 has caused the world to think differently about a number of things. We have seen COVID-19 not only transform the way we live, interact with friends, family and coworkers, but also how we plan for our future.

Wealth has always been a multifaceted subject, becoming even more convoluted in the past decades, on one side due to modern family dynamics and globalization, and on the other side, due to sophisticated legislation applied worldwide. Now, the COVID-19 pandemic has added an extra layer of complexity and concern. Numerous high-net-worth families have realized that we do not always have lots of time to plan and that the sooner we think about the future the better. Basic and often emotional aspects such as whether the next generation will have a secure future, whether the family business is safe, whether wealth will last into the next generation and beyond, whether we are doing enough about philanthropy… are all being closely considered.

Using a Trust for Wealth Planning

Managing wealth requires choosing the right legal structure. There are different ways of owning assets that can make it easier to manage wealth and achieve the required objectives of high-net-worth families, and a trust can be the perfect tool.

A trust is a private arrangement that comes into existence when a person; the settlor, transfers property to another; the trustee. The trustee is required to deal with that property for the benefit of certain persons; the beneficiaries.

A trust is a private arrangement that comes into existence when a person; the settlor, transfers property to another; the trustee. The trustee is required to deal with that property for the benefit of certain persons; the beneficiaries.

A trust is not itself a legal entity and there is currently no requirement to register it in a public registry. As a result, the trust assets are legally owned by the trustee. The trustee holds the trust assets as a separate fund, the trust fund, in accordance with the terms of the trust. Such terms of the trust are normally set out in a deed; the trust deed. Typically, the settlor will also write a letter of wishes to the trustee, providing guidance as to how they wish the trustee to use their powers over the trust assets. The letter of wishes is not legally binding and is confidential to the trustee.

The management and administration of the trust is carried out by the trustee according to the terms of the trust deed. After the creation of the trust, the settlor’s only powers in respect of the trust are those set out in the trust deed. The settlor must take care not to reserve too many powers as this could render the trust ineffective for the settlor’s personal tax and legal objectives.

Frequently, the deed will provide for a protector who can supervise the trustee and exercise certain controls over the trust. The protector may be a close family member or advisor. The settlor can act as the protector during his/her lifetime, subject to review of the settlor’s personal tax and legal objectives.

Role of the Trustee and Fiduciary Duties related to a Trust

The trustee and any power holder (such as a protector) are subject to fiduciary duties. This means that they must act in the best interest of the beneficiaries. Failure to do so means the beneficiaries or, possibly, the protector, can apply to court to request enforcement.

The beneficiaries of the trust are defined in the trust deed. They can be legal persons, individuals or charities and may include the settlor. The trust deed can be drafted to allow for beneficiaries to be added or removed throughout the life of the trust.

As a trust is a private arrangement between the trustee and the settlor, trustees are subject to a general duty to keep the affairs of the trust confidential (the extent of this duty depends on the laws of the jurisdiction concerned). Many trust jurisdictions entitle the beneficiaries to information in relation to their interest. For example, a beneficiary with a reasonable expectation of benefiting from a trust may ask to see the trust deed and trust accounts.

A trust can hold assets for the following purposes:

Consolidating and preserving family wealth
Business succession
Protection of minors and the incapacitated
Protection of assets on marriage
Tax planning
Philanthropy
Planning for cross border succession issues

A standard structure of a trust could be as follows:

In setting up a trust structure you should select an experienced and highly skilled team to deal with all aspects of the management and administration.

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