Isle of Man Trust Basics: The Three Certainties

Trusts provide a legal arrangement for the separation of legal and equitable title to defined assets. However, in order for a Trust to be valid it must be properly constituted.

Among other constitutional requirements, the three certainties must be present at inception. The doctrine of the three certainties is a fundamental principle in Trust Law and ensures that the Trust exists under law, can be executed and is enforceable. Simply put, a Trust cannot exist without the three certainties.

In this short article, we take a look at the doctrine of the three certainties, why they are important and what can happen when the Trust is not properly constituted:

  1. Certainty of Intention
  2. Certainty of Subject Matter
  3. Certainty of Objects
  4. The Issues with Uncertainty
  5. How Dixcart can Help

1. Certainty of Intention

Certainty of intention requires clear evidence that the settlor intended to create a Trust i.e. to impose or assume the duty which is characteristic of a Trust e.g. the duty to hold property for or apply it for the benefit of a Beneficiary.

The Courts take an objective approach to determining certainty of intention. The Settlor must manifest an unequivocal intention to impose enforceable duties on the Trustees through their conduct and words (spoken or written).

In the context of an Express Trust the Court will determine intention by identifying the meaning of words used in the provisions of the Trust Instrument (e.g. a Trust Deed or Will). The Instrument will also set out the nature of the relationships and transaction, including any substantive rights and duties created by it. The segregation of Trust Property also indicates intention e.g. creation of bank accounts for specific purpose or earmarking assets for certain Beneficiaries. In this sense, intention is determined in accordance with the maxim ‘substance over form’, meaning that if it possesses the characteristics of a Trust, it is a Trust, despite any labels etc. attributed to the arrangement.

Certainty of intention is the foundation of the whole Trust arrangement, and even where there is a dispute over some issue pertaining to the subject matter or objects it is common for Court to examine whether there was the prerequisite intention to create a Trust at all. After all, a Trust imposes a duty; it is improbable that an individual intended to impose a duty if it is so vague that the Trustees tasked with fulfilling it cannot ascertain what is required of them.

Without a clear intention, a purported Trust may fail and be considered a mere gift or a non-binding moral obligation. For instance, where the assets are gifted into Trust, but the Settlor retains control over the Trust Property it may fail for still be considered to form part of the Settlor’s Estate and therefore be distributed in accordance with their Will or intestacy rules.

In the case of an Express Trust, the existence of an instrument such as a Trust Deed is evidence of the intention to create a Trust. Where a Professional Trustee is engaged, the drafting should provide the Settlor with certainty.

2. Certainty of Subject Matter

The certainty of subject matter comprises of two distinct elements:

  1. Trust Property: It must be possible to identify the Trust Property.
  2. Beneficial Entitlement: It must be possible to ascertain the Beneficiary’s interest in that Trust Property.

Trusts are characterised by two principal features, a duty and a right to property.

The duty to hold the Trust Property for Beneficiaries or apply it for their benefit is meaningless where the Trust Property to which the duty relates cannot be identified. Likewise, the Beneficiaries cannot assert their equitable interest in the Trust Property where it cannot be identified.

Generally such issues flow from the description of the Trust Property, particularly where they form part of a larger mass. For instance, where a Settlor declares a Trust over 5 out of 10 of their diamonds, if the specific diamonds are not identified or earmarked, the Trustees will be unable to identify which of the 10 diamonds they hold on Trust and the Beneficiaries cannot identify which they hold rights to. In this example, the diamonds may hold different values (e.g. cut, clarity, weight etc.), they are not identical. This Trust may fail for lack of certainty of subject matter.  

If the Trust Property or the Beneficiaries’ interests are uncertain, the Trust may fail. Uncertainty in subject matter can result in the purported Trust property reverting to the Settlor’s Estate and therefore would be distributed in accordance with their Will or intestacy rules.

In the instance of an Express Trust, generally the Trust Property is transferred to the Trustees when the Trust is formally constituted, and all interests delineated within a well drafted Trust Deed. This ensures that the Trustees know what assets they are managing and to whom they owe fiduciary duties.

3. Certainty of Objects

Certainty of objects ensures that the Beneficiaries of a Trust are clearly identified, or the Trust must provide a clear mechanism for their identification. Usually, the objects of a Trust will be persons, although in the instance of an Isle of Man Purpose Trust the objects are the permitted purposes of the Trust. The objects of a Trust need to be certain so that the Trust can be regulated and enforced by the Courts where required.

The legal test for certainty of objects differs depending on the nature of the Trust in question. For instance, a greater degree of certainty is required for identifying the objects of a Fixed Trust when compared to a Discretionary Trust, as the objects are certain.

The less stringent test for determining objects that is applied to Discretionary Trusts only requires conceptual certainty, requiring the classes of objects to be clearly defined, but does not have to be a certain list – in such circumstances a claimant would likely have to prove that they are within a defined class of Beneficiary. This different standard flows from the fact that the Trustees’ fiduciary power allows them to determine which objects benefit under the Trust. The objects under a Discretionary Trust have no equitable interest until the Trustee’s discretion is exercised in their favour. The same standard is applied where a power of appointment is given under the arrangement, as the Trustees’ exercise of that power is discretionary.

Certainty of objects ensures that Trustees can execute their duties effectively and that the Trust can be enforced by or on behalf of the Beneficiaries. Without clearly identified Beneficiaries it may also present operational difficulties e.g. improper payments may be more likely because the Trustee does not realise that they are making a payment to the wrong person or because the true objects are not able to prove that they have standing to enforce the Trust and prevent the wrongful payment. Ultimately, without clearly defined objects the Trust could be deemed void for uncertainty.

4. The Issues with Uncertainty

When any of the three certainties is not present, the Trust may be deemed void, potentially causing a number of issues, which can include:

  • Failure of the Trust: Simply, the Trust may not come into existence, meaning that no legal Trust relationship is created. Therefore, the property is not transferred to the Trust and the Trustees do not hold legal title or gain the authority or responsibility to manage it.
  • Reversion of Property: If the Trust is not properly constituted, the property that was intended to be transferred to the Trust may revert to the Settlor’s Estate e.g. it may pass according to the Settlor’s will or the laws of intestacy.
  • Legal and Tax Consequences: There may be legal and tax implications for both the Settlor and the intended Beneficiaries e.g. unintended tax liabilities or the need for Probate.
  • Beneficiaries’ Rights: The intended Beneficiaries may not have any enforceable rights to the property or benefits under the Trust, as the Trust itself does not legally exist.

The appointment of a Professional Trustee provides assurance that the three certainties are present when the Trust is constituted and that all other formalities are met.

5. How Dixcart can Help

Dixcart has extensive experience with all offshore entities and can assist with the setup and ongoing administration of your private client planning and corporate structuring. This includes all forms of Trusts and any underlying Special Purpose Vehicles or corporate entities.

Over the past 50 years, we have developed strong working relationships with some of the world’s leading advisers. If you have not yet engaged a professional adviser, we can facilitate an introduction as appropriate.

PLEASE NOTE: This information is provided as guidance as of June 2024 and should not be considered advice. Where you are considering the establishment of any entity you should always seek professional advice before acting.

Get in Touch

If you would like to discuss Professional Trustee services, or how Dixcart Isle of Man can assist with your Estate or Succession Planning, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Exploring Malta’s Family Office Solutions: A Strategic Guide for Multigenerational Wealth Management

Family offices are useful instruments for wealthy families seeking flexibility and privacy with their own investments. Their use has gained importance over the years, especially with families entering the third or fourth generation. Particularly, Maltese family offices offer unmatched benefits, providing strategic advantages in terms of legal frameworks, tax efficiency, and a supportive environment for investment diversification.

The evolution of family offices

Families are increasingly more complex now, than they were years ago. Decisions concerning the needs of families must take into consideration many factors, such as location, culture, traditions and expectations, that weren’t considerations years ago. In addition, families are now more eager to manage their wealth directly and sometimes this may pose some additional questions, also from a regulatory perspective.

The evolution of families and the involvement of more family members,  has significantly increased the features that a jurisdiction needs to have to be selected to establish family offices. One needs to keep in mind that, while the tax component maintains its importance, it might not be the primary driver in selecting a jurisdiction. Other features include, political stability, constant economic growth, quality of life, climate, health and education systems, language, and connectivity, among others.

Malta has historically been a desirable jurisdiction for the setting up of family offices, because of these reasons that made, and still make, the country particularly attractive.

Legal framework that provides flexibility and clarity to families

Because of the country’s history, the Maltese legal system is based on civil law (Roman law) but also has a strong component of common law, typical of the Anglo-Saxon legal tradition. This allows a great degree of flexibility that spans from traditional structures based on civil law, such as foundations, to more innovative concepts such as trusts. Malta is, in fact, the only European jurisdiction in which both foundations and trusts can be established.

The flexibility in structuring opportunities is accompanied by clarity and certainty in terms of tax legislation, another element which is sought after by families willing to protect their wealth in an efficient, yet lawful manner. Laws are also available in English, one of the official languages of Malta, which allows a direct understanding of the regulation by families. This clarity is complemented by an extensive network of Double Taxation Agreements that Malta has in place with over 80 countries.

Innovative systems to address the needs of third and fourth generations

The increase in popularity of family office structures clearly represents an opportunity for a country like Malta, and this has been acknowledged by both the local industry and by the government. Family offices were included among the opportunity areas in the strategy for financial services launched in March 2023.

While the mass of wealth owned maintains its importance and needs to be taken into consideration, each family has its own views in terms of wealth distribution, application, and succession. The different, and unique problems that a family office now faces in its third or fourth generation require new, innovative systems that help families address them in the best possible way. Malta is gearing up to create all the conditions that usually drive decisions by family offices to establish operations in a jurisdiction and enhance them based on how family offices have evolved in recent years.

Malta is heading towards a regulation that provides a robust, yet understanding framework that acknowledges the presence of such structures, offers some protective features (especially for the most vulnerable), and enables the regulator to intervene when needed, without, at the same time, imposing many layers of supervision.

How Can Dixcart Malta Assist?

The Dixcart office in Malta can assist families with the efficient establishment and management of a trust, a private foundation, and other structures to meet the agreed objects. Dixcart Malta can provide trust & foundation services through its wholly owned group company Elise Trustees Limited, licensed to act as a trustee by the Malta Financial Services Authority.

By teaming up with the client, the Dixcart team can define values, structures and processes to reach a shared objective in both a transparent and efficient manner.

Additional Information

For further information about Maltese foundations and the benefits that they offer, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.

Switzerland

The Role of a Swiss Trustee: Exploring How and Why They are Beneficial

Trusts have been around since the 12th century, starting in England and spreading to many legal systems worldwide, including those based on Common Law and Civil Law. Switzerland, too, has embraced trusts as an essential tool in managing wealth and protecting assets.

Dixcart and Trust Services in Switzerland

In Switzerland, where the Swiss Financial Market Supervisory Authority (FINMA) has elevated the standards for local professional trustees and made their activities subject to licensing, the Dixcart office in has secured authorisation from FINMA to act as a Professional Trustee. Dixcart Switzerland is also a member of the Swiss Association of Trust Companies (SATC) as well as affiliated with “Organisme de Surveillance des Intermédiaires Financiers (OSIF)”.

Switzerland and the Use of Trusts

Switzerland does not have a specific Trust Law, but trusts are recognised with the ratification of The Hague Convention on the Law Applicable to Trusts (1985) introduced on 1 July 2007.

Whilst there is no domestic law governing trusts in Switzerland, trusts formed under the laws of other jurisdictions are recognised and can be administered in Switzerland by Swiss trustees.

The Settlor – the individual who transfers assets into the trust for the benefit of the Beneficiaries – can choose the law of any specified trust jurisdiction to govern the trust. For example, a trust governed by the laws of Guernsey can be established and administered by a Swiss Trustee, who is responsible for holding and managing the trust’s assets to serve the interests of the Beneficiaries.

Why Use a Trust?

A trust is an extremely flexible instrument and is particularly valuable for estate planning, wealth management and asset protection.

Fundamentally, the concept of a trust is straightforward: the Settlor transfers assets into the legal custody of another party – the Trustee – who then holds these assets for the benefit of a third party, the Beneficiary. The trust is not a separate legal entity, but rather a legal obligation agreed between the Settlor and the Trustee.

Trustees are bound by a fiduciary duty to both the Settlor and the Beneficiaries, as well as to the trust itself. This duty compels them to act in the best interests of all parties involved. Depending on the jurisdiction laws governing the trust, it can either have a fixed life span or be indefinite. Trusts are intrinsically very flexible.

Why use a Swiss Trustee?

There are numerous reasons why appointing a Swiss Trustee can be advantageous:

  • Stability: Swiss economic, political, and legal stability provides a solid base for the provision of local administration services.
  • Banking Expertise: Switzerland continues to lead the private banking system worldwide, making it a premier choice for international private banking centre. It is a jurisdiction with an outstanding reputation and offers a high quality of knowledgeable professionals specialised in asset management, tax planning and private banking.
  • Discretion: Switzerland is renowned for its discreet professional support in managing the affairs of private individuals. This makes it a wise choice for those seeking privacy and confidentiality.
  • Strategic Location: Switzerland is located in the centre of Europe where many affluent individuals are based. Swiss Trustees are ideally positioned to offer frequent and high-quality support, benefitting from proximity to both their clients and a network of top bankers and wealth managers.  This close relationship facilitates regular, face-to-face interactions, ensuring tailored and responsive services.

Taxation of Trusts in Switzerland

The Hague Convention (Article 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently, Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries.

In terms of Swiss Law:

  • A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
  • Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.

Summary

Trusts based on English, Guernsey, Isle of Man, Maltese Law managed by Swiss Trustees can offer several tax efficiencies as well as advantages in terms of wealth preservation and confidentiality.

Dixcart Switzerland is well-prepared to establish and manage such trust structures. If you would like more information on this subject, please speak to Christine Breitler at the Dixcart office in Geneva: christine.breitler@dixcart.com.

Isle of Man

Isle of Man Private Foundations Overview

The Private Foundation represents a unique incorporated vehicle that is becoming increasingly popular for estate planning, asset protection, and a wide and varied array of activities. This article provides an overview of the Isle of Man Private Foundation.

1. The Basics of Foundations

The primary legislation regarding Isle of Man Foundations is the Isle of Man Foundations Act 2011. This Act sets out the legal framework, features and requirements of Foundations registered in the Isle of Man.

Foundations are defined by two constitutional documents known as the Foundation Instrument and Foundation Rules. 

The Foundation Instrument sets out basic information such as the Foundation name, objects, Council Members and Registered Agent details. It is similar to Company’s memorandum, giving the Registrar the headline information. This document is publicly available.

The Foundation Rules provide an operational manual and rulebook that is specific to the individual objectives, functions and purpose of the Foundation. Similar to a Company’s Articles, it details how the Foundation should be governed, including procedural considerations like the removal of Council Members, how Classes of Beneficiaries can be extended etc. The Rules are not supplied to the Registrar and unlike the Foundation Instrument are not publicly available, but a copy must be retained by the Registered Agent.  

Whilst Foundations are incorporated entities, they possess a unique blend of characteristics shared with both Trusts and Companies.

Like a Trust:
  • An Isle of Man Private Foundation is established with a clear intention to manage and administer the dedicated assets for a specific purpose e.g. charitable, commercial, or for the family’s benefit.
  • Though an Isle of Man Foundation does not require assets on establishment, typically personal assets are transferred from the Founder to the Foundation, similar to a Settlor transferring assets to their appointed Trustees.
  • The Foundation has no shareholders or Guarantors but has Beneficiaries or Classes of Beneficiaries listed within the Foundation Rules, a constitutional document that is similar to a Trust Deed.
  • Like Trustees of a Trust, the Foundation is managed by appointed Council Members that owe Fiduciary Duties to manage the assets in the best interests of the Foundation’s objects.
  • Income or capital are distributed according to the Foundation Rules and in line with its specific purpose.
  • Similar to Isle of Man Trusts, Isle of Man Foundations offer a good level of confidentiality regarding the internal affairs, Founder, Beneficiaries, and asset arrangements.
Like a Private Limited Company:
  • The Foundation receives a Certificate of Incorporation upon establishment, meaning that there is more legal certainty with regards to its existence when compared to a Trust.
  • A Foundation is incorporated with separate legal personality. This separation grants them the ability to own property, enter contracts, and incur liabilities independently.
  • A Founder’s liability is limited to the assets they dedicate to the Foundation.
  • Like the Board of Directors in the context of a Company and its Articles of Association, the Council Members carry out the governance of the Foundation and its management in accordance with the Foundation Rules and applicable laws.
  • Like a Company, the Isle of Man Foundation must file Annual Returns. The current filing fee is £380 per Annual return.
  • Any relevant changes to statutory information, such as a change of Registered Address or Registered Agent must be filed with the Registrar.

Given its features, the Isle of Man Private Foundation delivers a versatile modern legal structure which can be used to meet a very wide array of objectives.

2. Benefits and Uses

Foundations are commonly utilised by persons from those jurisdictions whose legal tradition stems from Civil Law. Examples of which include France, Germany, the Netherlands, Turkey, Brazil, Mexico and even blended systems like USA or Japan.

The Isle of Man Private Foundation is a great choice for clients who live in jurisdictions that allow the establishment of offshore vehicles, or those clients who are moving to a jurisdiction that provides an opportunity to structure their affairs in a beneficial manner such as those that provide exemptions for overseas income and gains for a set period e.g. under the UK’s newly announced Residence-based system, the Spanish Digital Nomad Visa, Israel’s Aliyah incentive scheme, Malta’s Non Dom regime etc.

Isle of Man Private Foundations are regularly used for reasons such as:

  • Asset Protection
  • Estate Planning
  • Succession Planning
  • Tax Efficiency (Potential benefits, depending on the Tax Residency of Founders and Beneficiaries)
  • Philanthropy and Charitable Endeavours (Those seeking to register as a Charity must meet all legislative and regulatory requirements)

3. Isle of Man the Natural Home for Foundations

The Isle of Man is a leading jurisdiction for offshore structuring with a well-established heritage in the provision of fiduciary services. The Island is a self-governing Crown Dependency with its own government, laws and tax regime. Broadly the Island offers clients and their advisers features including:

  • A beneficial tax regime with headline rates such as 0% Corporate Tax, 0% Capital Gains Tax, 0% Inheritance Tax, no Withholding Tax.
  • A Common Law system that delivers dynamic, yet enduring legislation and case law developed with Financial Services in mind.
  • A globally respected and compliant OECD whitelisted jurisdiction, with a well-regulated Trust & Corporate Services sector – all providers must be licensed commensurate with their service offering and are regulated by the Isle of Man Financial Services Authority.
  • Well regarded by banks around the world, with all major UK banks represented on Island – including Barclays, RBSI, HSBC and NatWest.

If you wish to find out more about Isle of Man Foundations, you can follow the links below:

  1. Isle of Man Foundations for Offshore Planning – An Introduction (1 of 3)
  2. Establishing and Administering an Isle of Man Foundation (2 of 3)
  3. When to use an Isle of Man Foundation (3 of 3)
  4. Using Foundations for International Wealth Planning (video)

Get in touch

Dixcart’s Isle of Man office is a Trust & Corporate Services Provider that is licensed and regulated by the Isle of Man Financial Services Authority. We have been delivering the highest standards of support to clients, their families and advisers since 1989.

If you or your client are considering the establishment of an offshore Foundation, please feel free to get in touch with David Walsh: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Why are Family Offices Relocating to the Isle of Man?

From the House of Rothschild in the 18th century to present day, every Family Office has been and remains as unique as the Ultra-High-Net-Worth (UHNW) family it represents. This fact often necessitates a structure comprised of a network of private wealth and investment planning vehicles in multiple jurisdictions around the world, with a central office to co-ordinate operations and safeguard the family’s interests.

The massive growth in private wealth over recent decades has resulted in the establishment of a significant number of Family Offices globally. It is reported that 4 in 10 Family Offices have been created since 2010, with the current total quoted as circa 20,000 in 2023.

But ‘Where is the best place to establish a Family Office?’. Choosing where the central Family Office is located can be a complex task but will primarily depend on the needs and long-term objectives of the family.

In this short article, we highlight some of the reasons why Family Offices are being attracted to the Isle of Man and how Dixcart can support this trend.

Tax Environment

Where the Family Office is established will determine the applicable tax laws and regulations. Therefore, the choice of jurisdiction will not only affect the running costs of the Family Office itself, but also impacts its ability to protect and grow wealth.

Though there may be applicable taxes where the assets or investments are located, certain income and gains can be managed efficiently where the Family Office is located in an appropriate jurisdiction. This can affect performance and return on investments.

The Isle of Man operates an attractive tax regime, offering headline rates such as:

  • Corporate Tax @ 0% for most activity
  • Income derived from Isle of Man land/property is taxed @ 20%
  • No withholding tax on most dividend and interest payments
  • Highest Rate of Personal Income Tax @ 22%
  • Elective Income Tax Cap Available @ £200,000 of Contribution
  • 0% Capital Gains Tax
  • 0% Inheritance Tax

Access to Talent

Whether it is the central or a branch office, the Family Office’s activities rely on high calibre professionals from an increasingly diverse background. It is important to select a territory with access to a pool of highly qualified and experienced professionals, and the flexibility to bring specialist personnel in from outside the jurisdiction if necessary.

The chosen staff need more than just the technical know-how, they also need to be persons with a depth of experience and integrity, whom can be relied upon to promote the best interests of the family at all times.

The Isle of Man has a diverse economy with a long heritage in financial services, with over 10,000+ professionals working across a wide range of sectors. The population is made up of a large number of leading Legal, Accounting, Fiduciary, Tax and Compliance professionals, among others. In recent years the island has also become globally renowned for its E-gaming industry and has attracted large numbers of IT and programming professionals.

The Island offers a great deal of flexibility regarding immigration and work permits, so that Family Offices and other businesses that make the Island their home can have the freedom to flourish.

Infrastructure & Services

Just as ‘no man is an island’, no Family Office operates in a silo. Wherever the Family Office is located, there should be robust infrastructure and significant professional services available to support the wealth management activities carried out – from banking to IT services and everything in between.

The Isle of Man offers Family Office’s and businesses a range of attractive features, including:

Infrastructure

  • The Isle of Man is at the forefront of connectivity, with a national project to have 99% Island-wide fibre broadband coverage by August 2024.
  • Regular travel links to 16 destinations, including London, Dublin, Manchester, Bristol, Edinburgh, Belfast and more.
  • A wide range of well-funded public services available on Island, including healthcare and public transport.

Professional Services

  • All major UK banks have a presence on the Island, including Barclays, RBSI, HSBC, NatWest, Santander etc.
  • All big 4 accounting firms have a presence on the Island and a wide range of independent Tax Advisers on hand.
  • A large number of legal services providers, offering Isle of Man Advocates that are often dual Isle of Man / UK qualified.
  • Over 70 licensed and regulated Trust & Corporate Service Providers.
  • A selection of local telecoms providers, IT services and data centres
  • Investment Managers, Pension Administrators, Insurance companies and more.

Legal & Regulatory Regime

The Family Office must comply with the local laws and regulation where it is located. This will dictate aspects like the available structuring options, impact privacy and impose requirements such as reporting or licensing etc.

A robust regulatory environment is often regarded as a burden but can actually be an advantage for the effective operation of a Family Office. For instance, being linked with a globally compliant country will make transactions, banking and day-to-day administration more straightforward and reliable. Conversely, a less well-regulated jurisdiction can create operational difficulties.

The Isle of Man is an OECD whitelisted jurisdiction, placing it in a select group of leading nations for technical compliance in anti-money laundering measures.

At this time, the Island has no specific regulatory requirements relating to Family Offices per se and as such there is a high degree of freedom afforded in terms of its operation. Further, Isle of Man legal entities enjoy a high degree of privacy, and as such the family’s matters can remain confidential. In addition, Isle of Man law permits a wide variety of legal structures which can support all of the Family Office’s planning needs, including many variants of Trusts, Companies, Foundations and Partnerships.

The Island is a self-governing Crown Dependency that offers a modern Common Law regime that is distinct from that of the UK. The Island is politically stable and agnostic in its policymaking, meaning that it maintains a consistent blend of enduring business-friendly Legislation and reliable Case Law. Therefore the Isle of Man provides a natural home for almost any Family Office or business.

Culture and Quality of Life

Whilst there is a high degree of subjectivity in this area, that does not detract from the importance of the Family Office’s surrounding environment. This will impact the staff and potentially the family members who either live or spend time in the chosen jurisdiction.

The Isle of Man is an outward looking and progressive society with a multicultural population of approximately 85k and a rich and unique cultural heritage. Indeed, the 572 km2 Island can boast of being the world’s only ‘Entire Nation’ UNESCO Biosphere, owing to its culture, natural environment and approach to conservation.

Safety and quality of life are at the centre of the Isle of Man proposition. In 2022, the Chief Constables Annual Report revealed that the Island continued to be the safest place to live in the British Isles and in a HSBC 2019 report the Island was cited as the best place to live in the British Isles, and 12th best in the world.

When compared with other desirable offshore jurisdictions, like the Channel Islands or Malta, the Isle of Man offers much more open space and diversity of landscape, with windswept uplands, lush managed woodlands and sandy beaches.

You also could not discuss the Isle of Man’s culture without noting the world-famous TT Races. The races take place on a approx. 37-mile circuit over public roads. The fastest average speed of over the course is 135.452mph and reaches top speeds of over 200mph. It is a time when the whole island comes to life and is a must see for motorsports fans – to give some perspective on the scale of the event, more than 43,000 visitors came for the TT Races in 2023.

Dixcart’s Family Office Services

The Dixcart Group has itself been privately owned by the same family for over 50 years and is proudly independent. The Group has 8 offices in 7 leading jurisdictions, each of which can provide a core suite of Fiduciary services, and each having areas it particularly excels in.

Dixcart’s Isle of Man office has been delivering bespoke services to Family Offices and HNWIs since 1989 and specialises in actioning Private Client planning and Corporate Structuring for clients and their advisers.

Our mix of private ownership, high proportion of senior professionals and quality over quantity approach to business makes Dixcart ideal for those looking to establish a Family Office in the Isle of Man for long-term success.

Get in Touch

Whether you are seeking to establish a new Family Office, a branch, or are looking at relocating, please always feel free to get in touch with David Walsh at Dixcart to discuss how we can assist: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Using an Isle of Man SPV for Financing International Investment

We have now had an extended period in which world markets have been shaken by international events. For example, the value of the British Pound (£GBP) has been depressed (albeit showing signs of recovery due to Bond market performance) owing to a blend of home grown and global economic forces (Brexit, pandemic, war, inflation et al). But in this fiscal adversity lies a potentially lucrative opportunity.

It may be an opportune time for those based in the world’s more buoyant economies to look to international investment, monopolising on weakened currencies, undervalued markets, and any differences in interest rates etc. But for many with the resources to undertake such activity, such as Family Offices, Private Equity Funds or even HNWIs with significant assets, the question of how best to leverage this advantage can be complex and unwieldly, even resulting in decision-making paralysis – worse, this inertia could even lead to missing the boat altogether.

At Dixcart, we work with a wide range of professionals to deliver solutions for such clients. In this article we consider how you and your advisers could utilise an Isle of Man Special Purpose Vehicle (SPV) to unlock your next international investment opportunity:

  1. Why is the Isle of Man a Good Choice for Your Special Purpose Vehicle?
  2. Which Isle of Man Entities are Available to Act as Special Purpose Vehicles?
  3. Leveraging Against Your Existing Portfolio
  4. What Loan Facilities are Available to an Isle of Man Special Purpose Vehicle?
  5. How Could an Offshore SPV be Used for International Investment?
  6. How Can Dixcart Assist with Your Next International Investment?

1. Why is the Isle of Man a Good Choice for Your Special Purpose Vehicle?

Typically, an offshore SPV will be utilised to ringfence assets and liabilities in relation to a given activity or objective, thus mitigating risk. For example, to purchase an equity position in a company, to conduct mergers and acquisitions, provide angel investment to a start-up, securitisation of debt, raising additional capital, purchasing luxury assets etc. Structuring your investment vehicle in this way can have the broad effect of:

  • Protection against insolvency via ringfencing the assets and liabilities of the Beneficial Owner and SPV.
  • There may be no audit requirements where the SPV is below the earnings threshold.
  • Providing commercial privacy, dependent on the local regime e.g. there is no requirement for accounts to be made publicly available in the Isle of Man.
  • Can shield the SPV from legal action taken against the Beneficial Owners and vice versa.
  • Providing legal and tax certainty dependent on the jurisdiction of establishment.
  • And more…

Further to this, several features make the Isle of Man an attractive prospect for incorporating your SPV when undertaking international investment:

Tax Regime

The Isle of Man has a favourable tax regime for corporate entities, which makes it an attractive location for incorporating SPVs geared towards investment. Famously the island benefits from the following headline rates:

  • 0% Corporate Tax
  • 0% Capital Gains Tax
  • 0% tax on most Dividends and Interest payments

Further, the Isle of Man falls under the UK’s VAT regime, which can be beneficial in certain circumstances. Isle of Man Entities can register for VAT purposes, and benefit from service providers’ experience in this regime and a more responsive VAT Office generally.

However, it is important to note that there may be tax payable in the local jurisdiction where the activity is taking place depending on the nature of the proposed activity and the local tax rules. This is a complex area, and it is vital to engage an appropriate tax adviser when conducting such planning. Dixcart have a wide range of professional contacts and can make introductions as desired.

Legal Regime

The Isle of Man has modern and flexible corporate laws that allow for the creation of various types of SPV. The legislative environment is also politically agnostic, and therefore stable and reliable. The flexibility offered, allows SPVs to tailor their structures to meet their specific objectives, whilst the enduring nature of the legal regime provides certainty.

Additionally, whilst UK Case Law is persuasive, Manx Law is distinct and will only follow the Precedents of the Courts of England & Wales, in the absence of Manx authority. Further, foreign Court Orders are not directly enforceable without an equivalent Manx Court Order. As the Courts and laws of the Isle of Man are tailored to its requirements, it is particularly well placed to deal with matters relating to Company Law, Trust Law, and Tax etc.   

In addition, lenders can take comfort as registered legal charges are publicly available on the Isle of Man Companies Registry search. For example, this is a requirement for companies formed under the Companies Act 1931. Therefore, details regarding all existing registered charges are available to the lender online, on-demand.

Global Standing

The Isle of Man is OECD ‘Whitelisted’ and therefore regarded as a well-run financial centre. The island has a global reputation for being a well-regulated jurisdiction with a stable political and economic environment. The Isle of Man Financial Services Authority has a proactive approach to regulating financial services, ensuring good governance, which provides investors and lenders with confidence in the enterprise. This can make activities such as debt financing more attractive to lenders, as the Isle of Man is easy to do business with.

Regulated Professional Services

The Isle of Man has a heritage in international planning and offers a well-developed financial services industry, including highly experienced service providers, such as Dixcart, who can assist with the setup and ongoing management of SPVs. Further, the investor and lender can take comfort from the fact that Isle of Man corporate service providers must possess a license and are regulated, unlike their UK counterparts.

Proximity

The Isle of Man is located in the middle of the Irish Sea, between the UK and Ireland, making it easily accessible from both locations. But more importantly, operates in the same time zone as the UK and is just +1 CET for European activities. This proximity makes it a convenient location for individuals and companies looking to set up SPVs for access to markets in similar time zones, such as the UK or other European jurisdictions.


2. Which Isle of Man Entities Are Available to Act As Special Purpose Vehicles?

The Isle of Man offers a wide variety of vehicles to act as SPVs and undertake investment via debt or equity financing. A corporate entity can be incorporated on the island in 48 hours or less for a minimum Registry fee of £100 – quicker times are available for increased Government fees. It is important to note that the incorporation fee does not include the service provider’s onboarding fee.

Appropriate entities include:

Isle of Man Companies Act 2006 Company

The Isle of Man Companies Act 2006 (CA 2006) Company is a modern corporate vehicle that has a great deal of flexibility when compared to a more traditional Companies Act 1931 Company.

There are no thin capitalisation rules on a CA 2006 Co as the company may be incorporated with a single share, which can have a par value of zero. The CA 2006 Co simply requires a Registered Office, Registered Agent and a minimum of one Shareholder and one Director. The Director can be a non-Isle of Man Resident, and Corporate Directors are permitted. No Company Secretary is required.

All charges are deemed to be registerable under the CA 2006 and charges should be registered within 1 month of creation. The CA 2006 provides additional flexibility in this regard, as charges can be registered after this 1-month period. In reality the registration of such a charge will likely be a term of the Loan Agreement and as an SPV, the company is unlikely to have existing charges or trade debts etc.

Limited Partnership with Separate Legal Personality

As stipulated in the Isle of Man Partnership Act 1909, Limited Partnerships require a minimum of two Partners, made up of one or more General Partners (GP) and one or more Limited Partners (LP). A minimum of one Partner must be Isle of Man Resident.

A GP has unlimited liability and is free to engage in the day-to day management of the Limited Partnership i.e. administer the investment(s). The GP can be a Corporate entity. Due to this uncapped liability, the GP is typically an Isle of Man Limited Company.

The LP would be the investor, whose liability is fixed at outset and restricted to the capital or property contributed or outstanding. Conversely, the LP cannot engage in the day-to-day administration of the Partnership, lest they be deemed a GP and therefore be exposed to unlimited liability.

Further, under the Limited Partnership (Legal Personality) Act 2011, the Limited Partnership can be incorporated with separate legal personality, thereby being capable of contracting and being a party to legal action.

The Limited Partnership is a transparent entity for tax purposes and therefore Gains are realised on the Partner’s personal rates of taxation (e.g. income tax, Inheritance Tax etc.).

Protected Cell Company (PCC)

A Protected Cell Company (PCC) operates as an independent legal entity, equipped with the authority to engage in contracts, assume ownership of assets, and be subject to legal action. The structure of a PCC allows for the creation of an unlimited number of separate Cells. Each of these Cells serves as a compartmentalised unit with its own assets and liabilities, which are distinctly isolated from those of the other Cells and the PCC’s non-cellular assets and liabilities.

Alongside the non-cellular ordinary shares of the PCC, cellular shares can also be issued. The holder of these cellular shares is permitted to participate in the activities of the specific Cell they invest in, with rights outlined by the Articles of Association.

Accounting transparency is ensured by requiring a separate set of accounts and a tax return for each Cell. Moreover, each Cell must be clearly identifiable as part of a PCC, and all third parties transacting with a Cell must be aware of its status within a PCC structure.

The PCC model presents a valuable strategy for a Beneficial Owner aiming to delineate different activities and associated risks. For instance, one might isolate borrowing and financed activities conducted in one Cell from the private investment carried out in another. When a corporate investor such as a venture capital fund engages in multi-jurisdictional activities, like investing in startups, the Cells act as tangible barriers, segregating each business’s activities. They could also be tailored to reach maturity at varying dates, providing added flexibility.

Honourable Mentions

There are of course many more legal structures available to act as SPV, including; Limited Liability Companies, Foundations and Isle of Man Purpose Trusts. Each has distinct features that can make it appropriate in the correct context.

Economic Substance Considerations

It is important to note that there are rules around Economic Substance in the Isle of Man and Channel Islands. Incorporated entities in these jurisdictions, that undertake Relevant Sector Activity, will have to meet certain requirements to demonstrate the Core Income Generating Activity (CIGA) of the company occurs within the jurisdiction (Isle of Man or Channel Islands), to be Tax Resident. CIGA includes activity such as the entity being directed and managed in the jurisdiction, possessing an adequate and proportionate number of qualified employees (or working hours taking place) in the jurisdiction, possessing an adequate physical presence etc.

For example, if a corporate entity’s sole function is to acquire and hold equities, and the equities in question are controlling stakes in other companies, it is defined as a Pure Equity Holding Company for the purposes of Economic Substance. If the Pure Equity Holding Company derives income from this activity, it will have to demonstrate CIGA. This is accomplished via the provision of Directors, various management services and Registered Office on the Isle of Man or Channel Islands.

You can find the Isle of Man and Channel Islands guidance note on Economic Substance here.


3. Leveraging Against Your Existing Portfolio

As noted in the introduction, markets are tough at the moment and for those with money tied up in their portfolio, liquidating may not be in their best interests e.g. it may compound any losses. Considering debt financing your next international investment can be a good solution under the correct circumstances, but how do you unlock the value in your existing portfolio without compromising growth?

In today’s world it is commonplace for investors to arrange asset-based financing against less conventional security. For example, loan arrangements such as Lombard lending provide a credit facility secured against the investor’s more liquid personal investments, such as equities, bonds, or funds. The methods of how such facilities operate are discussed briefly in section 4.

Further, having initially started in the USA, specialist lenders have started to emerge across the world who can consider more complex arrangements that take into account Illiquid, sticky, or intangible assets. Such assets often present a challenge to use as collateral for financing as they do not have a readily available market value like liquid assets. As such, lending against these non-traditional asset classes is now made possible via insurances contracts that provide a market value guarantee in the event of default.

Illiquid assets are somewhat more straightforward than sticky and intangible assets. Such arrangements may simply require the creation of a charge over the purchased asset being financed e.g. where an aircraft is being constructed, a charge may be created over the aircraft, thus allowing the lender to take lawful possession in the event of default. It is quite normal for the lender in such instances to also take security over other assets in the borrower’s portfolio, such as the Lombard-style arrangement noted earlier, providing the lender with additional certainty to protect against loss.

It is important to work with a specialist lender or professional adviser when attempting to use such assets as collateral to ensure that you are getting a fair and accurate valuation.


4. What Loan Facilities are Available to my Isle of Man Special Purpose Vehicle?

While the Special Purpose Vehicle (SPV) can raise funds through diverse methods like issuing debentures or debt notes, it has a plethora of other financial strategies at its disposal, including acquiring debt financing through banking institutions or other financial intermediaries. Even though numerous banks operate on the Isle of Man – such as Barclays, RBSI, HSBC, NatWest, and others – the Isle of Man entity is not confined to these financial institutions, and deals can be orchestrated with virtually any global lender, given they meet the necessary compliance standards. A multitude of loan facilities are available in these scenarios, but Carried Interest Facilities, Capital Call Facilities, Margin Loan Facilities, and notably, Net Asset Value (NAV) Facilities are some of the most prevalent.

NAV Facilities, in particular, have witnessed escalating popularity, especially amid the prevailing bearish market conditions, where Beneficial Owners might prefer to avoid liquidating their investments at a probable loss. But what are NAV Facilities?


Net Asset Value (NAV) Facilities

NAV Facilities are a form of secured loan, where the collateral consists of assets from an investment vehicle, like a Private Equity Fund, Hedge Fund, or an investment portfolio. They provide investors the means to borrow against their assets’ value without divesting their holdings. The extent of the loan facility is determined by the ‘Net Asset Value’, which is calculated as the total worth of the packaged assets, after deducting liabilities and debts.

Under these provisions, lenders typically extend a line of credit based on a certain proportion of the Net Asset Value. The loan amount hinges on the lender’s evaluation of the quality and liquidity of the underlying assets, as well as the cash flows and distributions that ascend to investors from those assets.

In most instances, the lender will obtain security over the relevant assets, such as shares in the Master Fund/Feeder Fund or the investment holding vehicle. However, the terms of NAV Facilities can greatly vary, depending on the lender, connected parties, any holding vehicle involved, and the nature of the underlying assets. Additionally, the interest rates could be fixed or variable, and the lender might reserve the right to seize the assets or compel a sale in case of an SPV loan default.

NAV Facilities afford investors easy access to liquidity without compelling them to offload their investments. This, in turn, enables them to leverage new investment prospects promptly, without impacting the compounded growth of their leveraged assets. The loan facility can also cover any ongoing or unforeseen expenses, like redemptions or legal fees, endowing the investment vehicle with an element of stability and resilience.


5. How Could an Offshore SPV be Used for International Investment?

Once the capital has been secured via private funding, loan arrangement etc. there are many ways in which an Isle of Man SPV may be utilised to achieve your financial objectives. Typically these include activities such as packaging assets as securitisation, engaging in structured finance, as an investment vehicle, purchasing a luxury asset etc.

Some of the most common uses we see are:

Investment Vehicle

Whilst an Isle of Man SPV can be used to structure open or closed ended investment vehicles for entities such as hedge funds, private equity funds, or venture capital funds undertaking international investment, simple investment companies are often used for private arrangements. The archetypal investment company will use the Isle of Man SPV to co-ordinate the investment capital from investors in multiple jurisdictions or who are looking to undertake investment activity in a foreign market. For example, the funds may come from Hong Kong, Singapore and any number of equivalent jurisdictions, into the Isle of Man SPV that then purchases the equity in a UK SPV undertaking the build and subsequent leasing or sale of UK Real estate, start-ups or growing businesses, with a view to receiving and accumulating Dividends paid to shareholders for reinvestment.

Purchasing a Luxury Asset

In almost every instance, where a client is seeking to acquire a prestigious asset, such as a yacht or jet, an SPV is the best method of purchase. The exact structuring will be guided by the tax and legal advice but will normally carry many benefits for the Beneficial Owner e.g. limiting liability / exposure, tax planning, potential VAT exemptions or recoverability etc. IOM SPVs are very attractive for those non-EU Tax Resident individuals utilising the craft for personal use, or in some circumstances a blend of personal use and commercial charter.Your Attractive HeadingYour Attractive Heading

You can read more about the various uses and features of Isle of Man Companies here.


6. How Can We Assist with Your Next International Investment?

Dixcart can assist with your international structuring, setting up and administering the offshore structures required by your planning. We work closely with clients and their advisers to ensure that the SPV is managed optimally, to facilitate your objectives.

The Dixcart Group has been delivering high quality offshore services to clients and their advisers for over 50 years, with the Isle of Man office trading since 1989. Over this time, we have developed strong working relationships with some of the world’s leading advisers – therefore, If you have not yet engaged a professional adviser, we can make an introduction as appropriate.

*Please note this information should not be considered financial advice, and we would recommend getting in touch with us via the details provided or discussing with your professional adviser before taking any action.


Get in Touch

If you require further information regarding the use of Offshore SPVs, or Isle of Man structures, please feel free to get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Using Cyprus as a Centre for Managing Family Wealth

Introduction

Families are becoming more and more mobile, and the various attractive residence schemes available around the world have added to the popularity of relocating to different countries. As this trend continues, the management and control of family wealth across jurisdictions becomes even more vital.

Cyprus is a well-established international business centre, with a straightforward and attractive tax regime for foreign investors. Its geographical location, advanced infrastructure, business orientated environment and high level of professional services, are all factors that contribute to the benefit of establishing a Cyprus Family Office that can be used to preserve and grow the Family’s wealth for the next generation.

What is a Family Office?

A family office is generally a private company engaged by a single family or a group of families to manage their financial and legal affairs.

What Services are Offered by a Family Office?

Family office services generally involve the management of the following activities:

  • Accounting and reporting: the family office needs to provide timely and accurate accounting, tax and performance reporting.
  • Advisory services: Efficient structures to suit your family’s needs, whether that be asset protection, tax efficiencies or global mobility.
  • Assistance in avoiding Intergenerational conflict.
  • Direct investments: many families will have made their money through; operating a business, real estate developments, private equity investing or entrepreneurial activities. These skills can be applied to increase the family’s wealth through direct investments in similar enterprises.
  • Education of younger generations about their future responsibilities.
  • Investment management: a primary task is to manage the wealth effectively, on a large scale and over many decades. This is probably the most challenging and critical issue for most families.
  • Management of a family-owned business: a forum for discussing how such a business will be managed and governed.
  • Philanthropy: fulfilling charitable projects for the family.

What Should you be Looking for in a Family Office Provider?

There are a number of important points to take into account when selecting a provider of family office services, including,

  • Professional expertise; in asset management, taxation and succession planning.
  • Additional important factors to consider are:
    • A legal or fiduciary professional who is not tied in to any one bank, investment manager or fund adviser. This helps to ensure impartiality of advice and allows for the selection of appropriate third-party support, free from any conflict of interest.
    • Providers who have multi-jurisdictional coverage, either through their own offices or through a global network or association membership. This helps achieve a well-coordinated organisation of a family’s global affairs.
    • A provider with proven experience in dealing with family office positions or, at minimum, complex, multi-jurisdictional and multi-generational structures.

How Can Dixcart Cyprus Help You?

Dixcart is a family owned and run business, as a result we understand the needs of a family better than most. With over 50 years of experience in the sector, we have a wealth of knowledge in assisting families, and our teams offer in-depth expert knowledge on the local regulatory framework, along with the backing of our international group of offices, to help us find the perfect solution for you.

At Dixcart we believe that every family is different, and so we treat them as such. We are happy to gain an in-depth understanding of your needs in order to propose appropriate structures, and support for your specific requirements.

Cyprus as a jurisdiction doesn’t just offer year-round sun. It also has a wealth of beneficial tax incentives that are perfectly tailored to suit the needs of a family office, such as 0% income tax on dividends, interest and capital gains for both corporates and individuals. There is also no inheritance tax or wealth tax.

If you’re interested in opening a family office, please contact us. We will be happy to answer any questions you have and assist in future proofing your family wealth; advice.cyprus@dixcart.com.

The data contained within this Information Note is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time.


Dixcart Gains Regulated Trustee Status in Switzerland – Understanding the Significance

Announcement

On 26 February 2024, Dixcart Trustee Switzerland (SA), became a regulated Swiss Trustee, as authorised by FINMA.

Subject to a number of standard formalities being put in place, Dixcart Trustee Switzerland (SA), will be featured on the FINMA website as an authorised trustee.

Regulations

Up until 2022, Swiss Trustees were only supervised in relation to compliance with Anti-Money Laundering obligations. Swiss professional Trustees now have to comply with; structural, organisational, business-conduct and audit requirements.

Trustees operating in Switzerland must also now apply for a licence from the Swiss Financial Market Supervisory Authority (FINMA).

Regulatory Obligations

A number of requirements have been put in place for Swiss Trustees:

  • Trustees must have a minimum paid up share capital of CHF 100,000 with the additional obligation to maintain adequate financial security and/or have  professional liability insurance in place.
  • Management by the Trustees must be carried out by a minimum of two ‘qualified directors’ of good reputation.
  • Trustees must put in place appropriate risk management procedures and adequate internal control systems.

Licensing Exemptions

Private trust companies (PTCs) are exempt, from the authorisation process, as well as single family office structures (‘family-ties exemption’). This exemption also applies if the Beneficiary is a charity.

Why Consider the Use of a Swiss Trust and/or a Swiss Trustee?

Taxation of Trusts in Switzerland

The Hague Convention (Article. 19) states that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently, Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.

The tax advantages available in using a trust with a Swiss Trustee, depend on the tax residence of the Settlor and the Beneficiaries.

In terms of Swiss Law:

  • A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
  • Settlors and Beneficiaries are exempt from Swiss taxation, as long as they are not considered to be Swiss residents.

Why Use a Swiss Trustee?

In addition to the potential tax advantages detailed above, there are a number of reasons why use of a Swiss Trustee can be advantageous:

  • A Swiss company can act as Trustee of a trust, formed under the law of another jurisdiction;
  • Trusts are not subject to taxation in Switzerland;
  • The Settlor and Beneficiaries are not subject to taxation in Switzerland, as long as they are not resident in Switzerland.

Confidentiality in Switzerland

Switzerland is well known for its commitment to professional confidentiality and commercial competence.

A breach of confidentiality, whether professional or commercial, would only be permitted by law, in the event of criminal liability.

Trust Services Provided by Dixcart

Dixcart has been providing Swiss Trustee services for almost 25 years, and we are delighted and proud to be one of the first Swiss Trustees to be authorised by FINMA.

A trust based on the Trust Law of, for example; Cyprus, England, Guernsey, Isle of Man, or Malta, and with a Swiss Trustee, can offer a number of tax efficiencies, as well as advantages in terms of wealth preservation and confidentiality.

Dixcart can establish and manage such trust structures.

Additional Information

If you would like more information on this subject please speak to Christine Breitler in the Dixcart office in Geneva: advice.switzerland@dixcart.com or to your usual Dixcart contact.

Offshore Discretionary Trusts: The What, How and Why

Trusts offer a tried and tested fiscal vehicle for those seeking to split the legal title and equitable rights to defined assets for specific purpose. The versatility of Trusts has meant that they have been utilised for over a thousand years in one form or another, continuing to this day; Once of the the most commonly utilised offshore is the Discretionary Trust.

Establishing a Trust in a foreign jurisdiction can offer additional benefits under the correct circumstances. In this short article, we take a look at the what, how and why of offshore Trusts.

What is a Trust?

It is important to understand that a Trust does not have separate legal personality and does not benefit from limited liability. A Trust is simply a Fiduciary arrangement.

A Fiduciary relationship is characterised as one of trust and confidence between two or more parties, where the Fiduciary is obligated to act in the best interest of another party.

The Trust Deed sets out all of the key details of the Trust, including the three main parties:

  • Settlor: The individual or entity that transfers assets into Trust and which make up the Trust Fund.
  • Trustee: The Fiduciary appointed by the Settlor can be an individual or incorporated entity. The Trustee holds the legal title to the Trust assets and administers them in accordance with the Trust Deed.  The role of Trustee can be demanding and incur legal liability, so choosing the right Trustee is vital. You can read more about the choice between Lay Trustees and Professional Trustees here.
  • Beneficiary: Specific Beneficiaries or classes of Beneficiaries must be clearly identified within the Trust Deed. This party holds the equitable rights to Trust assets as defined within the Trust Deed. They are entitled to enforce any rights they have under the Trust against the Trustees.

You can read more in our introduction to Trusts here.

There are pitfalls to avoid when it comes to Trusts, but many of these can be avoided by appointing a good quality Professional Trustee. You can read more about best practices and some of the most common pitfalls here.

Offshore Discretionary Trusts

There are many types of Trusts used in offshore planning, but the Discretionary Trust is by far the most commonly utilised. The Discretionary Trust’s defining features include:

  • The Settlor can only select Beneficiaries or classes of Beneficiaries (e.g. children of the Settlor), that have the potential to benefit from the Trust. Beyond this, they have no control over how, when, or to whom distributions are made.
  • The Settlor can provide a Letter of Wishes throughout their lifetime, which provides the Trustees with additional insight into the Settlor’s intentions. This can be updated regularly. For instance, setting out how they would like the Trust Assets to be distributed. It is important to note that the Letter of Wishes is persuasive but not legally binding.
  • As broad classes of Beneficiary tend to be named, and none have fixed entitlements, Trustees can exercise a wide discretionary power, so that they can consider additional Beneficiaries, such as future generations.
  • The Trustees have complete discretion regarding distributions. This empowers the Trustees to consider Beneficiaries’ personal circumstances e.g. to manage tax liabilities, protect vulnerable Beneficiaries, provide for education or medical treatment etc.
  • It is important to understand that whilst the Trustees have complete control over the Trust assets, the income generated and distributions, their actions must still be compliant with the Trust Deed and in line with their duties e.g. to always act in the best interests of the Beneficiaries.

These qualities make the offshore Discretionary Trust a mainstay for Estate and Succession planning and asset protection, for instance, where HNWI’s and their families are moving to the UK or another Common Law jurisdiction.

You can read more about the types of offshore Trust available here.

Why are Offshore Discretionary Trusts Used?

Discretionary Trusts are used for a huge variety of purposes. Settlements can include any number of asset types settled, including Cash, Property, Shares, Land etc. Often the Discretionary Trust forms part of planning for:

  • Asset Protection
  • Estate Planning
  • Succession Planning
  • Wealth Management
  • Family Affairs e.g. Provision of School Fees or for vulnerable Beneficiaries
  • Corporate Structuring e.g. Employee Benefit Trusts or Pension Vehicles
  • Tax Planning e.g. UK Prearrival Planning
  • Privacy
  • Charitable or Philanthropic Objects

Appointing Dixcart as the Trustee of your Offshore Discretionary Trust

Dixcart Management (IOM) Ltd is licensed and regulated in the Isle of Man, a jurisdiction that is globally renowned for leading Trust and Corporate Services. Further, Dixcart has delivered Isle of Man Professional Trustee services to clients and their advisers since 1989. You can read more about why the Isle of Man is a jurisdiction of choice, here.

Our team includes professionally qualified Trustees, Accountants, Governance and Compliance Specialists and more. Their knowledge combined with great service standards mean that Settlors and their advisers can rest assured that their objectives are our highest priority and can be supported at every stage.

Contact Us

If you are considering establishing an offshore Trust or changing service provider, please get in touch with David Walsh at Dixcart: advice.iom@dixcart.com

Alternatively, you can connect with David on Linkedin.

Dixcart Management (IOM) Limited is Licensed by the Isle of Man Financial Services Authority

Guernsey

Family Offices: Steps, Stages and Structures – Private Trust Companies and the Guernsey Private Foundation

There are a variety of structures and arrangements available to Individuals and their families both for estate and succession planning and to protect their assets from uncertainty and volatility.

Modern families are increasingly mobile and it is common for family members to move to new countries to study, work, establish businesses or settle down. As families become more geographically diverse the complexity of administering family estates and assets along with cross border, succession and estate planning matters, increases.

Steps, Stages and Structures

Many families will have complex affairs yet not be of sufficient size to warrant the establishment of a dedicated single-family office. For these families there are various alternatives through which the family may transition.

Pooled and enhanced fiduciary support

The family may consider transferring the administration of their holding entities to a professional licensed fiduciary with whom the family has an existing relationship or who has been recommended by a trusted advisor.

These structures may take the form of a Discretionary Trust or Foundation. The Trustee or Foundation Council can then be tasked with assisting the transition the family’s affairs into a standalone family office position, utilising their knowledge, experience and existing resources of qualified staff and policies and procedures. At this stage efficiencies are created in the management and administration of the structures under a single provider, the family / advisor relationship is reinforced, and additional cost savings often result.

Private Trust Company (PTC)

For many years the PTC has been the preferred vehicle for administering the assets of wealthy families and many variants have emerged across the various financial centres which specialise in providing them and whose legislation and regulation are particularly suited to private wealth management.

One of the main attractions of the PTC being those decisions, relating to the underlying trusts and assets, are made by directors who are carefully chosen by the family or may even be family members.

There are a number of variants of the PTC, which can be limited by either shares or guarantee or even with separate classes of shares for voting purposes.  Consideration as to the level of control exerted over the PTC needs to be carefully considered as too much control can lead to tax implications. The most common solution to the control issue has been to hold shares in the PTC through a purpose trust (see diagram), which creates additional layers of ownership and administration.

Whilst PTC’s remain a popular specialist solution, Guernsey can also offer a simpler structure through the Private Trust Foundation (PTF).

Private Trust Foundation (PTF)

The PTF removes the need for any ownership layers above the PTC and can simplify the structure and therefore administration and cost (see diagram). The PTF is established under the Foundations (Guernsey) Law 2012 (the “Law”) with the sole purpose of acting as trustee of the trusts for the benefit of an individual or family.

The Law makes it clear that a Guernsey Foundation, upon establishment, has its own legal personality, independent from that of its founder and any foundation officials.

Diagram: The Classic Private Trust Company Structure and Alternative Guernsey Foundation Solution

The Guernsey PTF will be run and managed in a similar way to a PTC with the involvement of a professional licensed fiduciary, but with the significant advantage that, as an orphan vehicle, it does not have any other owners or controllers.

Additionally, family members or other trusted advisors can be appointed to the PTF council, which is responsible for acting as trustee to the underlying family trusts.

Managed Services

The penultimate stage, in the route to establishing a full standalone family office directly employing appropriately experienced staff in the jurisdiction of choice, is managed support from a fiduciary provider.

This support can include dedicated serviced office space such as the Dixcart Business Centre in St Peter Port, Guernsey together with business facilities, fiduciary, accounting and legal support, with a view to the fiduciary provider helping to grow and develop the position into a standalone family office operating independently.

Additional Information

For further information on private wealth structures and their management, please contact John Nelson, Managing Director, Dixcart Trust Corporation Limited, Guernsey: john.nelson@dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.