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The Benefits of an Employee Ownership Trust (EOT)

We are frequently asked by our clients about the often-difficult topic of exit and succession planning.

This gives rise to several practical issues, especially where a trade sale is not likely, or the existing management team are perhaps not in a position to be able to raise sufficient funds to affect a traditional “Management Buy Out”.

One Solution that is often overlooked is an Employee Ownership Trust (EOT)

An EOT can be used to acquire between 51% and 100% of a trading company’s shares which are then held on trust for the benefit of all the company’s employees, on the same terms.

Unlike traditional employee share schemes, which give rise to direct employee ownership, the EOT allows for indirect employee ownership overseen by selected employee Trustees.

EOT’s have been shown to promote better business performance, greater commitment, and productivity from employees with increased staff loyalty, lower staff turnover and absenteeism. They also allow staff members to benefit from being involved in the management and future direction of the business.

Benefits to the Shareholder

  • The sale by the existing business owner of over 51% of his/her shares in the company to a qualifying EOT, would be Capital Gains Tax (CGT) and Inheritance Tax (IHT) free.  This can prove to be a valuable relief given that the Business Asset Disposal relief limit for the reduced 10% rate of CGT is only £1 million;
  • A market is created for the shares that might not otherwise exist;
  • Unlike in a liquidation situation (which is often the only choice for small business owners to realise the value of the business), the company can continue to operate, and the shareholders and employees can still be part of that business;
  • Typically, the sale of shares in a company to an EOT is funded by a mixture of existing cash, from within the company, and external loan instruments;
  • It avoids the need for often complex and expensive negotiations when selling to a third party.

Benefits to the Company and Employees

  • A trading company owned by an EOT is able to pay cash bonuses of up to £3,600 per annum to all employees (on a ‘same terms’ basis);
  • These bonuses will be tax-free but will be subject to National Insurance Contributions (NIC’s);
  • The company gets corporation tax relief on these tax-free bonuses;
  • There are benefits in terms of increased staff motivation and job retention, as set out above.

Summary and Additional Information

An EOT can provide a tax-beneficial way for shareholders to realise value and to involve employees in the company that they work for, although the structuring and funding of an EOT requires careful consideration.

If you would like to find out more about how an EOT may benefit you and your business, please contact us: advice.uk@dixcart.com.

Wealth Planning for Ultra High Net Worth Individuals Using Family Investment Corporate Structures

The popularity of Family Investment Companies (FICs) has increased over recent years, and they are viewed as a corporate alternative to the more common discretionary trust.

What is a Family Investment Company?

FICs are companies limited by shares (an “Ltd” or “Limited”) and often established by parents and/or grandparents (“Founders”), to benefit themselves and their family, as shareholders. An FIC owns assets such as property, which generate income and capital gains, which can be distributed to the family shareholders over time.

Assets generally come from the Founders themselves, either through a loan or a direct transfer into the FIC. Each shareholder owns a different class of shares (often referred to as “alphabet shares”), gifted to them by the Founders.

Generally, the Founders’ shares will have the usual rights to vote and receive dividends but not capital, whereas the gifted shares will only have the rights to receive dividends and capital, but not to vote.

This ensures that the Founders have the sole right to make decisions, regarding the FIC, at both shareholder and board level, including decisions relating to dividend payments.

Benefits of a Family Investment Company

A number of benefits are available through the use of an FIC. It is, however, important to speak with a tax specialist, such as Dixcart, who can help advise on the tax merits of an FIC, taking into account each potential Founder’s circumstances and objectives.

The benefits offered through the use of an FIC, include:

  1. FICs can be used to move assets from individuals’ personal estates into a corporate vehicle, which can then be used, to control those assets by those individuals (Founders), being the only shareholders with the power to vote and to decide the composition of the board. This allows them to provide a controlled source of income for both themselves and their family over a period of time.
  2. Limited companies offer the advantage of flexibility. This is ideal in situations where family structures, objectives and other considerations, are changing regularly. Examples of such flexibility, include: shares being transferred, new shares being issued with different rights, and changes to the composition of the board of directors.  All of which can be decided by the Founders.
  3. There are a number potential tax advantages when using FICs, including Inheritance Tax, but these will vary depending on; the size of the investments/loans, the assets held by the FIC and the personal circumstances of the Founders.
  4. If the Founders loan funds to the FIC, the loan can be repaid over time from the FIC’s post tax profits, in addition to any profit paid out by way of dividends. This can provide the Founders with an ongoing source of income.
  5. Alternatively, if the capital value of the loan is no longer needed, the Founders could gift the value of the loan to other family members. This would move the value of that loan out of their taxable estate, for Inheritance Tax purposes, subject to them surviving the date of the ‘gift’ by seven years.

Opportunities Provided Through the Use of a Non-UK Resident FIC by International Families

International families making direct investments into UK companies, as individuals, are liable to UK Inheritance Tax on those UK situs assets. It is also advisable to have a UK will to deal with those assets on their death.

Making those investments through a non-UK resident FIC can remove the liability to UK inheritance tax as well as the need to have a UK will.

An Example Using a Guernsey Company

The example below details the potential benefits provided through the use of a Guernsey company.

The company will pay tax at a rate of 0% on any profit that it generates, due to the fact that this is the corporate tax rate in Guernsey (with limited exceptions and subject to any specific provisions in the counties where investments are held).

Provided that the company is correctly managed and controlled from Guernsey and the register of members is kept, as required, ‘offshore’ it is possible to retain ‘excluded property’ status for IHT (apart from in relation to UK residential property and certain other assets).

The shares in the company are not a UK situs asset. If the company is a private Guernsey company, it does not need to file accounts. There is a beneficial ownership register for companies in Guernsey, this is private and not searchable by the public.

Additional Information

To find out how an FIC might be of benefit to you, and for assistance in establishing an IFC appropriate to meet your needs, please contact the Dixcart office in the UK: advice.uk@dixcart.com

The Dixcart office in the UK can also provide advice as to whether a non-UK resident FIC might be applicable in your particular family circumstances.

Nevis: Trusted Asset Protection from a Firm Foundation

Introduction

When it comes to protecting assets and securing wealth, individuals and businesses often seek legal structures that offer robust asset protection. Nevis, known for its strong offshore financial services, provides two popular options for asset protection: Nevis trusts and Nevis Multiform Foundations.

These entities offer a range of benefits, including confidentiality, legal protection, and flexibility, making them an attractive choice for individuals and businesses looking to safeguard their assets. In this article, we will explore the key advantages of Nevis Trusts and Nevis Multiform Foundations.

Asset Protection

One of the primary reasons individuals opt for Nevis Trusts and Nevis Multiform Foundations is the significant level of asset protection they provide. These entities are designed to shield assets from potential threats such as lawsuits and creditors.

By transferring assets into these structures, individuals can safeguard their wealth, ensuring it remains out of reach from potential claimants and should anyone wish to attack the structure they must first place a bond of $100,000 for a Trust and $50,000 for a Foundation with the Nevis government before any action is considered.

Confidentiality and Privacy

Nevis is renowned for its commitment to privacy and confidentiality. The island’s legal framework ensures that personal and financial information pertaining to Nevis Trusts and Nevis Multiform Foundations remains strictly confidential. The trust laws in Nevis do not require the registration or public disclosure of trust deeds, beneficiaries, or settlors. This level of privacy helps protect the identities of those involved.

Flexibility and Control

Nevis Trusts and Nevis Multiform Foundations offer considerable flexibility and some control over assets. These structures allow individuals to shape the terms of the trust or foundation, including the distribution of assets and the appointment of trustees or foundation council members.

This flexibility ensures that the creator of the trust or foundation can maintain some elements of control while simultaneously protecting assets.

Nevis law permits the appointment of protectors, who can oversee the trustees or a supervisory board to oversee the Foundation council members, ensuring the assets are managed according to the creator’s wishes.

Estate Planning

Nevis Trusts and Nevis Multiform Foundations are valuable tools for estate planning. By transferring assets into these structures, individuals can dictate how their wealth is managed and distributed after their passing. This allows for a seamless transfer of assets to beneficiaries while minimising estate taxes and avoiding probate. Additionally, the assets held within these structures are protected from any claims arising from the deceased’s personal liabilities.

International Recognition

Nevis is a reputable offshore jurisdiction that offers international recognition and legal protection. Nevis Trusts and Nevis Multiform Foundations are established under the Nevis International Exempt Trust Ordinance and the Nevis Multiform Foundations Ordinance, respectively. These statutes provide a robust legal framework, ensuring the validity and enforceability of these structures globally. Many countries recognise and respect the legal protections offered by Nevis Trusts and Nevis Multiform Foundations, further enhancing their credibility.

Conclusion

When it comes to asset protection, Nevis Trusts and Nevis Multiform Foundations offer a compelling solution for individuals and businesses seeking to safeguard their wealth. With benefits such as asset protection, confidentiality, flexibility, and international recognition, these structures provide a secure environment for managing and preserving assets. However, it is essential to consult with experienced professionals and understand the legal and tax implications before establishing such structures to ensure compliance with relevant regulations and laws.

Additional Information

Please contact Dixcart if you require any additional information on this topic: advice@dixcart.com.

Whilst this note is intended to provide information regarding Nevis asset protection structures, it is not intended to form any sort of legal or tax advice. We strongly recommend that any individual considering setting up a wealth planning structure seek independent legal and tax advice before doing so.

Nevis Multiform Foundations – Key Characteristics and Practical Uses

Nevis Multiform Foundation Characteristics

Foundations are often regarded simply as the civil law version of the common law Trust. However, there are a number of distinct characteristics of a Nevis Multiform Foundation which make it stand out as a unique and advantageous wealth planning tool quite separate from a Trust and even that of a Foundation, formed elsewhere in the world. We shall explore these more fully throughout this note.

Legal Personality – the most notable difference between a Foundation and a Trust is that a Foundation possesses a separate legal personality and has the capacity to sue and be sued. A Nevis Multiform Foundation has the capacity, rights, powers, and privileges of an individual person.

Ownership and Purpose – A Foundation is a self-owned entity which does not have shareholders or equity holders, instead it is formed for any purpose which may be charitable, non-charitable, commercial or non-commercial which the management board will carry out on behalf of the Foundation.

Control – A concern some individuals face when considering settling an offshore Trust, is surrendering complete control in relation to the ownership, investment, and distribution of their assets. Conversely, the Founder of a Foundation (otherwise known as a Subscriber) can maintain an element of control, by becoming a member of the management board and assist in setting the purpose and investment strategy of the Foundation. Alternatively, they can form a supervisory board to oversee the management of the Foundation and fulfilment of the Foundation’s purposes by the Management Board.

Flexibility of Form – the most innovative and beneficial characteristic of setting up a Foundation in Nevis is that it can choose to take a number of different forms including; a trust foundation, company foundation, partnership foundation or a traditional foundation.

Its malleable nature means that it can also swap between forms over its life. This flexibility allows a Founder a broad scope in which to establish their structure and tailor it to suit their needs as they evolve over time.

Creditor Action – As with the protection provided againsta creditor pursuing any frivolous action against trust property held in a Nevis International Exempt Trust, there is similar protection afforded to a Nevis Multiform Foundation.

Before bringing any action or proceeding against any Nevis Multiform Foundation, a Creditor must first deposit a bond to the amount of: USD50,000, with the Minister of Finance.

Foreign Judgements – a judgement made in another jurisdiction is not recognised or enforceable in Nevis.

Validity – no multiform foundation, governed by the laws of Nevis, and no subscription of property to a multiform foundation which is valid under the laws of Nevis, shall be void, voidable or liable to be set aside or defective in any manner, by reference to the law of a foreign jurisdiction

Parties

A typical Nevis Foundation consists of the following parties:

Practical Uses

Family Business Succession Planning

By placing the ownership of a Family Business under a Multiform Foundation, continuity can be afforded to the business and the purpose can be clearly defined. Family members and descendants can also be members of the management board and therefore actively involved with the direction and management of the underlying enterprise.

Educational Foundation

There comes a point where junior members of a family must leave the security and protection of their family for the first time and enter the wider world for education or career purposes. This may mean that they are moving to a larger city or different country but are not yet ready to have full financial independence. A multiform foundation is a good solution in this situation by providing financial assistance to such a member of the family without giving them complete access to a lump sum.

Charitable Foundation

A Multiform Foundation can be established with a specific or multiple charitable purposes. Such purposes could include the relief of poverty, the advancement of education, the advancement of religion, the protection of the environment, the advancement of human rights or any other purpose which is beneficial to the community.

Corporate Stability

Defining the specific purpose for an overlying multiform foundation can ensure that the long term strategic plans of the underlying assets / company are followed and maintained in a consistent manner.

Overcome Forced Heirship

Should the Founder be resident in a country where forced heirship provisions are in force, he/she may wish to establish a Multiform Foundation in Nevis where there are no forced heirship rules and the assets would be distributed in line with the purpose of the Foundation.

Tax Planning

As part of a tax planning strategy, many individuals may utilise a corporate vehicle in a jurisdiction which they do not reside. However, in the jurisdiction of their tax residence they may well be required to report their ownership and interests in this company under controlled foreign corporation reporting requirements.

Instead of holding shares directly, an individual might establish a Multiform Foundation  affording anonymity and privacy for the subscriber.

Additional Information

Please contact Dixcart if you require any additional information on this topic: advice@dixcart.com.

Whilst this note is intended to provide information regarding Nevis Multiform Foundation structures and examples of how these can be used, it is not intended to form any sort of legal or tax advice. We strongly recommend that any individual considering setting up a wealth planning structure seek independent legal and tax advice before doing so.

Estate and Succession Planning: Guernsey Trusts and Foundations

Introduction

The Dixcart Group has remained privately owned by the Dixcart Family Office since it’s foundation over fifty years ago in 1972. Excelling in the implementation of advice and provision of support and services for both straightforward and highly complex international Estate and Succession Planning since its foundation, the Group is intimately experienced in the complex nature of Family Office matters and therefore uniquely placed to act.

Guernsey Trusts and Foundations

Estate and Succession planning is a key concern for high-net-worth individuals and families looking to ensure the smooth transfer of wealth to future generations. The use of trusts and foundations is a popular strategy for high-net-worth individuals seeking to manage and protect their wealth for future generations. Guernsey, a British Crown Dependency located in the English Channel, is a leading jurisdiction for the establishment and administration of trusts and foundations.

Not only is the use of trusts and foundations a popular strategy they are also powerful tools for succession planning in Guernsey, offering a range of benefits for wealth preservation and management.

Trusts

A trust is a legal arrangement in which a person (known as the Settlor) transfers assets to a trustee, who holds and manages those assets for the benefit of one or more beneficiaries. In Guernsey, trusts are governed by the Trusts (Guernsey) Law 2007, which provides a flexible and modern legal framework for the establishment and management of trusts.

Trusts are a popular choice for estate and succession planning in Guernsey. By creating a trust, a Settlor can transfer assets to a trustee who will hold and manage them for the benefit of one or more beneficiaries. The trustee is legally bound to manage the trust assets in accordance with the terms of the trust deed, ensuring that the Settlor’s wishes are carried out.

Benefits Offered through the Use of a Trust

Trusts offer a range of benefits for estate and succession planning, including:

  • Continuity: Trusts can be designed to have perpetual existence, ensuring continuity of wealth management across generations.
  • Asset protection: Trust assets are held by the trustee on behalf of the beneficiaries, providing protection against creditor claims and legal challenges.
  • Confidentiality: Guernsey trusts offer a high degree of privacy and confidentiality, with no public register of trusts or disclosure of beneficiary information.
  • Tax efficiency: Guernsey has a favourable tax regime for trusts, with no capital gains tax, inheritance tax, or estate duty.

Foundations

Foundations are another popular choice for estate and succession planning in Guernsey and are governed by The Foundations (Guernsey) Law, 2012. A foundation is a legal entity which while similar to a trust in many respects, has some key differences.

Unlike a trust where assets are held in the name of the Trustee a foundation is a legal entity in its own right. Assets are held in the name of the foundation which is managed by a council of members or directors. The foundation’s constitution sets out the rules governing the management and distribution of its assets.

Benefits Offered Through the use of a Foundations

Guernsey foundations offer a range of advantages for estate planning, including:

  • Legal personality: Foundations have their own legal personality and are more easily understood in civil law jurisdictions where the common law concept of a trust is not always compatible with local legislation.
  • Continuity: Foundations can be designed to have perpetual existence, ensuring continuity of wealth management across generations.
  • Asset protection: Foundation assets are held by the foundation on behalf of its beneficiaries, providing protection against creditor claims and legal challenges.
  • Tax efficiency: Like trusts, Guernsey foundations offer favourable tax treatment, with no capital gains tax, inheritance tax, or estate duty.
  • Flexibility: The Foundation Charter can be tailored to each individual Founder’s requirements and circumstances.

Conclusion

Trusts and foundations are powerful and adaptable tools for estate and succession planning. With a favourable legal and tax environment, Guernsey is a leading jurisdiction for the establishment and administration of these structures. High net worth individuals and families can work with experienced professionals at Dixcart, to design and implement a tailored estate and succession plan that meets their unique needs and objectives, ensuring the smooth transfer of wealth to future generations.

Further Information

For further information or if you have questions regarding succession planning advice, services and support please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com

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

Dixcart Fund Administrators (Guernsey) Limited: Protection of Investors Licence granted by the Guernsey Financial Services Commission

Why Use Isle of Man Professional Trustees?

We have had an extended period of global uncertainty including highlights such as a pandemic, economic disruption, massive inflation and the threat of a new cold war. In such volatile times, how do you plan for future generations? Whilst there will always be market disruption, when it comes to estate and succession planning, you can take heart from the steadfast reliability of licensed and properly regulated Professional Trustees.

In this short article we will discuss some of the key reasons you should be considering a Professional Trustee for your Trust structuring:

  1. What is a Professional Trustee?
  2. Why is a Lay Trustee sometimes the wrong choice?
  3. What do I need to consider when choosing a Professional Trustee?
  4. How can Dixcart help with my Trust planning?

1. What is a Professional Trustee?

You cannot have a Trust without Trustees, but what is a Trustee and what is the difference between a Lay Trustee and a Professional Trustee?

A Trustee is appointed by the Settlor / Donor of a Trust and is the party that holds legal title to the property and assets that form the Trust Fund. The Trustee must administer the Trust Fund in line with the Trust Deed, their various duties and in the interests of the Beneficiaries. You can read more about the various parties to a Trust and more, here.

Lay Trustees are non-expert Natural Persons, typically family or friends, who are appointed as Trustee by the instigator of the Trust. They will act as Trustee for the lifetime of the Trust, or until incapacitated, death or replacement.

A Professional Trustee can be either a Body Corporate or Natural Persons but is typically a corporate entity such as a Private Limited Company. Professional Trustees are normally qualified experts who will undertake their duties for a fee. The Professional Trustee contracts with the Settlor / Donor to provide services for whole lifetime of the Trust or until they are replaced. 

Trusts do not have separate legal personality and therefore ALL Trustees are jointly and severely liable for their actions under a Trust. Additionally, both Lay Trustees and Professional Trustees owe a blend of Common Law and Statutory duties to the Beneficiaries. These duties include responsibilities such as to exercise reasonable care and skill, to fully understand their obligations under the Trust, to avoid conflicts of interest, to act within their powers under the Trust Instrument and to act with impartiality.

Further, as the Trust does not possess separate legal personality and all liabilities linked to the Trust Fund fall onto the Trustees, Trustees can incur tax liabilities within their respective jurisdiction, including having to meet any reporting requirements etc.

Importantly, the nominated party must be willing to act as Trustee, but as you can see, being appointed as a Trustee is a serious undertaking that can be complex and carries a great deal of responsibility.

2. Why is a Lay Trustee sometimes the wrong choice?

All animals are equal, but some are more equal than others…’

Orwell’s famous line from Animal Farm seemed to be an appropriate way to open this section – but what do I mean by this?

Whilst the Courts will hold Lay Trustees to account for their actions under the Trust Deed and in line with the Trustee and Fiduciary duties owed, Professional Trustees will be held to a higher standard of care.

For instance, in determining professional negligence, the Court would consider the Professional Trustee’s state of mind / knowledge in line with that of a reasonably competent Professional Trustee, replete with all the knowledge and expertise that a Professional Trustee could be expected to have – including any specialist knowledge that they held themselves out to possess.

Further, whilst UK Professional Trustees are generally not regulated, Isle of Man Professional Trustees must possess a Class 5 License and are regulated by the Isle of Man Financial Services Authority under the Financial Services Act 2008.

The effect of this is threefold:

  1. Family and/or friends who are appointed as Trustee will be personally liable for their actions, including any potential losses or misinformed actions; and
  2. If Professional Trustees are engaged, they will be held to a higher standard of care regarding fulfilling their duties under the Trust; and
  3. All Isle of Man Professional Trustees must maintain a license and are regulated. This provides further protection and quality assurance that the client and their beneficiaries can take comfort from.

When a Lay Trustee is appointed, the Settlor / Donor will not necessarily benefit from any additional protections, and they will not be held to a Professional Standard. There are many more reasons that can help determine whether a Professional Trustee is right for you in the circumstances.

Cons of Appointing a Professional Trustee

Appointing a Professional Trustee is not without its considerations. The main drawback of appointing a Professional Trustee is of course the implicit fees. The size of the Trust Fund will determine whether Professional Trustee services are viable or not.

Where the Trust Fund is below a minimum size, Professional Trustee fees can disproportionately diminish the assets. For example, a Settlement of £100k that incurs Professional Trustee fees of £10k per annum must achieve over 10% growth per year to meet its Professional Trustee costs alone – there can of course be third party fees also (e.g. investment managers, Custodians, Property Managers etc.) – this is of course not viable. Comparatively, a Settlement of £1m with the same £10k Professional Trustee fee will only need to achieve over 1% growth per annum, a much more achievable hurdle.

Therefore, Professional Trustees are typically engaged where the Trust Fund will be valued in the millions+. In such circumstances, the costs of the Professional Trustee and any third parties can be met whilst still experiencing healthy growth via the income, gains and interest accrued.

In such instances, the client is also transferring control of their Settled assets to people they may not have an existing relationship with. However, this concern can be allayed by some of the questions we consider in section 3.    

Cons of Appointing a Lay Trustee

Conversely, the main benefits of appointing a Lay Trustee are that the Settlor / Donor will have a prior relationship with them i.e. they will be a known person. The other key benefit is that they will normally act as Trustee for free.

However, there are many important features that make a Lay Trustee a less attractive solution where the Trust Fund and planning allows for a Professional Trustee to be engaged. This includes considerations such as:

Continuity

Unfortunately, unlike Professional Trustees who act via a corporate entity, Lay Trustees can die or lose capacity. This can cause issues for the efficient and effective administration of the Trust and incur costs to remedy. Successor Trustees can be named in the Deed, but the same issues remain, plus there is reliance on proper record keeping and a good handover – as they will not necessarily be stored in a central location, unlike Professional Trustees’ offices.

Lay Trustees’ circumstances are also subject to change. For example they may emigrate for work etc. Where this is the case, apart from the issue of remoteness, as noted previously, it can cause unintended liabilities. The Trustee can pull the Trust into that new jurisdiction’s tax regime, and this may in turn have tax consequences.

A Professional Trustee delivers permanence and certainty with regard to the treatment during their tenure. Further as the company can continue in perpetuity, this feature allows the service provider to have an in depth understanding of the arrangement, the Settlor / Donor and where appropriate the Beneficiaries throughout the whole term of the Trust, which assists in the effective management of the Trust.

Neutrality

As Lay Trustees are persons known to the Settlor / Donor such as family or friends, they very often have ‘skin in the game’ so to speak i.e. they often have an interest – whether directly or indirectly. As previously noted, this is one of the legal duties owed by Trustees.

Where there is an issue with impartiality, conflicts of interest etc. this can compromise the arrangement, be the root of legal action and may even see deviations from the objectives of the Settlor / Donor. Further, Lay Trustees can often fall out, making administration of the Trust harder still.

A Professional Trustee is independent of inter-family relationships and always ensures an unbiased approach to carrying out their duties under the Trust – always actioned in the Beneficiaries best interest and in line with the wishes of the Settlor / Donor.

Burden

Acting as Trustee can be a time consuming, complex and sometimes unwieldly undertaking. This can result in the role being overwhelming and potentially stressful for Lay Trustees, particularly where the Trust Fund comprises significant assets.

Whether carrying out the day-to-day administration, keeping accounts or dealing with third party experts, your Trustees will be taking on an onerous responsibility. Keep in mind that Lay Trustees will often be juggling this role alongside their work and home lives.

Appointing a Professional Trustee, such as Dixcart, outsources this burden to consummate professionals who have dedicated themselves to delivering quality service, keeping your loved ones free of the aches and pains of Trusteeship.

Knowledge & Expertise

Understandably, the majority of Lay Trustees simply do not possess the required knowledge and expertise to optimally administer a Trust. In today’s world, the environment is subject to regular updates, for instance in reporting requirements e.g. FATCA and CRS, registration requirements e.g. the Register of Overseas Entities and changes in the tax, legal or regulatory treatment etc.

Often qualified professionals, such as Dixcart, will have an in-depth knowledge of all pertinent areas and maintain an awareness of best practices.

Indeed, specialist knowledge may be needed and therefore a Professional Trustee may be required. For example, it is not uncommon for businesses or groups of companies to seek to implement specialist Trusts, such as Employee Benefit Trusts or Employee Ownership Trusts. In such instances good governance is essential and therefore Professional Trustees can be very beneficial.

The knowledge and expertise of your Professional Trustee can even aid the Trust Fund to meet its targets over time, providing value and cost savings beyond simple administration.

In conclusion, given the correct circumstances, the appointment of an Professional Trustee, such as Dixcart, can mitigate otherwise unwarranted liabilities and provide peace of mind for all parties involved.

3. What do I need to consider when choosing a Professional Trustee?

If you and/or your adviser believes a Professional Trustee is a suitable solution, you may be wondering how to best identify a good Professional Trustee. There are many factors to consider, but below are a few questions that indicate a good quality Trust and Corporate Service Provider:

Is the Trust and Corporate Service Provider Well Established?

The client will want to consider those firms that have a heritage in the industry and who have operated continuously without issue. This displays the service provider’s commitment to operating sustainably and in a compliant manner. A service provider with extensive experience in trust and corporate services will have a deeper understanding of the complexities involved in managing entities. Their experience can help you navigate potential pitfalls and challenges, which can be value-adding. Therefore, the term of trading is an indicator of permanence and reliability.

The Dixcart Group have now been trading for over 50 years and remains privately owned by the same family. Further, Dixcart Isle of Man has been in operation since 1989, which represents a deep and varied knowledge of Trust and Corporate administration. This means that we do not have the same commercial pressures that private equity service providers experience, we only ever undertake compliant structuring and therefore have a quality rather than volume focus.

Does the Trust and Corporate Service Provider have Professionally Qualified and Experienced Staff?

A reliable Trust and Corporate Service Provider should have a team of professionals with relevant qualifications and expertise, such as Accountants, Lawyers, STEP qualified Trustees, Chartered Secretaries etc. They will generally be members of recognised industry bodies and associations.

When dealing with your Trust and Corporate Service Provider you should feel confident that the staff you interact with are well informed, can provide the answers you need and are ideally professionally qualified.

Further, it is also important to have direct contact with senior team members and Directors. When you want something actioned – it needs to be treated as a priority. This is a good indicator of service standards.

At Dixcart your day-to-day matters will be dealt with by professionally qualified senior employees. Additionally, our Directors are aware of every entity that we onboard and fully engage in the services delivered.

Does the Trust and Corporate service provider have a Transparent Fee Structure?

Most admin and compliance carried out by Trust and Corporate Service Providers is typically delivered on a ‘time-spent’ basis, meaning that a pro-rated hourly rate applies. The level of fees due will be in line with the levels of activity required to run the entity. Further the hourly rate that applies to any task will depend on the complexity of the task and expertise required.

When considering your Trust and Corporate Service Provider, you need to ensure that the fees are transparent and that you will never be billed without understanding what it is you are paying for. There also needs to be flexibility built-in, so that regular reviews are undertaken, and the relationship can remain fair for all parties involved.

We will always be open and honest with clients and advisers when it comes to fees, always giving prior warning and attaining client sign-off before actioning anything. At Dixcart we believe that trust is a fundamental building block in developing our relationship with clients and their advisers.

Will you Have a Dedicated Point of Contact?

A good Trust and Corporate Service Provider ensures continuity of service, which in turn minimises potential disruption. Therefore, it is very important that you are able to build long term relationships of trust and understanding with dedicated team members. A low turnover of staff and infrequent changes in you contacts indicate the kind of reliability and stability you will want for any long term planning such as a Trust.

Dixcart’s Isle of Man office has a very low churn rate of employees, with many of our team members being with us for 5+ years and a number serving for circa 20 years.

4. How Can Dixcart Help with My Trust Planning?

Dixcart have extensive experience in 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 Trust and any underlying Special Purpose Vehicles or corporate entities.

Over the last 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 make an introduction as appropriate.

Get in Touch

Click here to view a video presentation that provides a simple overview of the key principles of offshore trust planning and who they may be appropriate for in today’s world.

If you would like to discuss Professional Trustee services, or Estate and 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

Guernsey

Dixcart Security Trustee Services and Corporate Lending Arrangements

Introduction

As a reminder, a Security Trustee is a person or entity who holds security on behalf of lenders. They are appointed to safeguard and manage the assets that are put up as collateral for a loan. Security Trustees play an important role in providing comfort to lenders and ensuring that they are protected in case of a borrower default.

Dixcart Trust Corporation Limited operate a number of corporate security trustee arrangements, primarily for property development and acquisition lending, particularly loan note and alternative debt arrangements.

Role of Security Trustees

The primary role of a Security Trustee is to act as an independent third-party that holds security on behalf of lenders. This means that the Security Trustee is responsible for managing the security, ensuring that it is properly maintained and protected, and that any proceeds from the security are distributed to the lenders in accordance with the terms of the security agreement.

Security Trustees are typically appointed in situations where there are multiple lenders involved in a transaction or where the security being provided is complex or difficult to manage. In these situations, a Security Trustee can provide a single point of contact for all lenders and can help to simplify the process of managing the security.

Responsibilities of Security Trustees

The responsibilities of a Security Trustee can vary depending on the specific terms of the security agreement. However, some common responsibilities include:

1. Holding and managing the security: The Security Trustee is responsible for holding and managing the security on behalf of the lenders. This includes maintaining the security, ensuring that it is properly insured, and taking any necessary steps to protect the security.

2. Distribution of proceeds: In the event that the security is realized, the Security Trustee is responsible for distributing the proceeds to the lenders in accordance with the terms of the security agreement.

3. Monitoring the borrower: The Security Trustee may be responsible for monitoring the borrower and ensuring that they are complying with the terms of the security agreement. This can include monitoring financial performance, compliance with covenants, and ensuring that the borrower is properly maintaining the security.

4. Taking enforcement action: Should the borrower default on the loan, the Security Trustee may be responsible for taking enforcement action to realize the security on behalf of the lenders. This can include taking legal action, selling the security, or taking any other necessary steps to protect the interests of the lenders.

Conclusion

In conclusion, Security Trustees play a vital role in providing security to lenders and ensuring that their interests are protected. They are responsible for holding and managing security on behalf of lenders and distributing any proceeds in accordance with the terms of the security agreement.

Additional Information

For additional information regarding security trustee services, please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com

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

Digital Finance of Today and What to Expect in the Near Future

Malta – Innovation and Technology

Malta is currently implementing a strategy to help ensure that Malta is considered as one of the top jurisdictions in the EU for innovation and technology. It is therefore important to be aware of what exactly the Digital Finance Market is made up of currently and where it is heading.

Malta is a prime locality for a Micro test-bed and there are currently several schemes that have been introduced to attract innovation and technology-based start-up companies.

The EU and the Digital Finance Sector

As early as September 2020, the European Commission adopted a digital finance package, including a digital finance strategy and legislative proposals on crypto-assets and digital operational resilience, to generate a competitive EU financial sector that gives consumers access to innovative financial products, while ensuring consumer protection and financial stability. The aim of having rules which are more digital-friendly and safe for consumers, is to leverage synergies between high innovative start-ups and established firms in the financial sector while addressing any associated risks.

Position of Regulators

The financial services sector has seen a rapid acceleration in the trend towards digitisation, and as a result, many regulators are navigating how to best ensure the regulatory framework manages the risks of these innovations, without impeding their potential to significantly enhance the financial system.

Market interest around crypto-assets, and the underlying distributed ledger technology (DLT), continues to grow. The potential benefits of these innovations is to increase payment efficiency as well as reducing cost and expanding financial inclusion. In doing so there also a list of associated concerns that many regulators have highlighted and they are stepping up warnings to consumers and investors.

In a shift away from traditional business models, big tech players are beginning to offer a variety of platform-based financial services. Artificial intelligence and machine learning techniques are being incorporated into firms’ processes and are increasingly being used in tools designed for use by customers. Regulators are also taking note of ethical concerns where AI models insufficiently consider data cleaning, transformation and anonymisation.

A Unified Approach

As firms lean on outsourcing to minimise costs and deliver innovative products, there is growing scrutiny on cyber resilience and third-party outsourcing, and various conferences are being held in order to merge regulators and innovators into one stream with a shared focus. Currently there a number of sandbox projects which encourage innovative start-ups to participate in creating transparency between product offering and regulation.

The fundamental building blocks underpinning all of the emerging technologies and digitisation, are infrastructure and data. Firms need to ensure that they have the expertise to store and analyse their databases and have in place adequate governance and controls. They need to protect confidential customer and market data, while delivering services more efficiently across borders. This raises legal challenges, which regulators continue to debate.

Digital Finance Strategy

The Digital Finance Strategy sets out a general European position on the digital transformation of financing in the coming years, while regulating its risks. While digital technologies are key for modernising the European economy across sectors, users of financial services must be protected against risks stemming from increased reliance on digital finance.

The Digital Finance Strategy sets out four main priorities that promote digital transformation:

  1. Tackles fragmentation in the Digital Single Market for financial services, thereby enabling European consumers to access cross-border services and help European financial firms’ scale up their digital operations.
  2. Ensures that the EU regulatory framework facilitates digital innovation in the interest of consumers and market efficiency.
  3. Creates a European financial data space to promote data-driven innovation, building on the European data strategy, including enhanced access to data and data sharing within the financial sector.
  4. Addresses new challenges and risks associated with digital transformation.

Banks should be aware that such a strategy will bring about expectations regarding the implementation of new technologies to deliver financial services, enhanced data sharing that leads to expected better offerings by firms and enhancements of skills to navigate in this new financial eco-system.

Particular initiatives which form part of the Digital Finance Strategy include:

  • Enabling EU-wide interoperable use of digital identities
  • Facilitating the scaling up of digital financial services across the Single Market
  • Promoting cooperation and the use of cloud computing infrastructures
  • Promoting the uptake of artificial intelligence tools
  • Promoting innovative IT tools to facilitate reporting and supervision

Digital Operational Resilience (DORA)

Part of the Digital Finance Package issued by the European Commission, the legislative proposal on digital operational resilience (DORA proposal), augments existing Information and Communications Technology (ICT) risk requirements, enabling an IT landscape which is expected to be safe and fit for the future. The proposal tackles various elements and includes; ICT risk management requirements, ICT-related incident reporting, digital operational resilience testing, ICT third-party risk and information sharing.

The proposal aims to address; fragmentation regarding the obligations of financial entities in the area of ICT risk, inconsistencies in incident reporting requirements within and across financial services sectors as well as the threat of information sharing, limited and uncoordinated digital operational resilience testing, and the increasing relevance of ICT third party risk.

Financial entities are expected to maintain resilient ICT systems and tools that minimise ICT risk with effective business continuity policies in place.  Institutions are also required to have processes to monitor, classify and report major ICT-related incidents, with the ability to periodically test the system’s operational resilience.  ICT third party risk is given greater emphasis, with critical ICT third-party service providers subject to a Union Oversight Framework.

In the context of the proposal, banks are expected to undertake a holistic exercise, assessing their ICT framework and plan for the expected changes. The Authority emphasises that banks should continuously monitor all sources of ICT risk whilst having adequate protection and prevention measures in place. Finally, banks should build the necessary expertise and have adequate resources to be compliant with requirements emanating from such proposals.

Retail Payments Strategy

The Digital Finance Package also includes a dedicated Retail Payments Strategy.  This strategy encompasses a new medium-to-long term policy framework that aims to enhance the development of retail payments within the evolving digital world. The four pillars of this strategy are;

  1. increasing digital and instant payment solutions with pan-European reach;
  2. innovative and competitive retail payment markets;
  3. efficient and interoperable retail payment systems and other support infrastructures; and
  4. efficient international payments, including remittances.

This strategy aims to broaden the acceptance network for digital payments, with the Commission also supporting the work towards the issuing of a digital euro.  In addition, the Commission wants to ensure that the surrounding legal framework regarding payments, covers all of the important players, with a high degree of consumer protection in place. 

How Can Dixcart Malta Help?

Dixcart Malta has a wealth of experience across financial services, and can provide a legal and regulatory compliance insight and help to implement transformational, technology and organisational change. 

When launching new innovative products and services, the experience of Dixcart Malta can help clients adapt to changing regulatory requirements and recognise and manage emerging risks.

We also identify and assist our clients in accessing various Malta government schemes, including grants and soft loans. 

Additional Information

For further information about Digital Finance and the approach taken in Malta, please contact Jonathan Vassallo, at the Dixcart office in Malta: advice.malta@dixcart.com.

Alternatively, please speak to your usual Dixcart contact.

Establishing a Trust in Malta and Why it can be so Beneficial

Background: Malta Trusts

With the Great Wealth Transfer currently taking place, a Trust is a vital tool when it comes to succession and estate planning. A Trust is defined as a binding obligation between a settlor and trustee or trustees. There is an agreement that stipulates the transfer of the legal ownership of  property by the settlor to the trustees, for purposes of management and for the benefit of the nominated beneficiaries.

There are two types of Trust which are commonly utilised in Malta, depending on the specific needs of the individuals and desired purpose of the Trust:

  • Fixed Interest Trust – the trustee has no control over the interest to be given to the beneficiaries. The Trust therefore defines the interest.
  • Discretionary Trust – the more common type of Trust, where the trustee defines the interest issued to the beneficiaries.

Why are Trusts the Best Structure for Asset Preservation and Succession Planning?

There are several reasons as to why Trusts are effective structures for asset protection and succession planning, including:

  • To preserve and generate family wealth in a tax efficient manner, avoiding the division of the assets into smaller and less effective shares in each generation.
  • The assets of the trust are segregated from the personal assets of the settlor hence, there is a further layer of protection against insolvency or bankruptcy.
  • The settlor’s creditors have no recourse against the property settled into the Trust.

When considering Maltese Trusts:

Malta is one, of a minority of  jurisdictions, where the legal system provides for both Trusts and Foundations.  A Trust can remain active for a period of up to 125 years from the establishment date, a duration which is documented in the Trust Instrument.

  • Maltese Trusts can either be tax neutral, or be taxed as companies – income taxed at 35% and the beneficiaries will receive 6/7 refund on active income and 5/7 refund on passive income, as long as they are not resident in Malta.
  • Lower Set Up Fees to establish a Trust in Malta. Significantly lower administration and set up costs are needed, compared to several other countries. Costs such as; audit fees, legal fees, and trust management fees are much lower in Malta, while the professional services provided, using a firm such as Dixcart, are of a high standard.

Key Parties to a Trust

The comprehensive definition of a Trust recognises three elements, which are; the trustee, beneficiary, and the settlor. The trustee and beneficiary are defined as the key components of a Trust in Malta, while the settlor is the third party that establishes the property in a Trust.

The Settlor – The person who makes the Trust, and provides the trust property or the individual that makes a disposition from the Trust.

The Trustee – Legal or natural person, holding the property or to whom the property is bestowed within the terms of the trust.

The Beneficiary – The person, or persons, entitled to benefit under the Trust.

The Protector – Can be an additional party introduced by the settlor as one who holds a trustworthy position, such as a family associate, lawyer, or member. Their roles and powers may include, but not be limited to, acting as an investment advisor, having the ability to remove trustees at any time, and to appoint additional or new trustees to the trust.

Different Types of Trust in Malta

Malta Trust Law provides for the different types of Trust, that can be found in most traditional trust jurisdictions, including the following:

  • Charitable Trusts
  • Spendthrift Trusts
  • Discretionary Trusts
  • Fixed Interest Trusts
  • Unit Trusts
  • Accumulation and Maintenance Trusts

Taxation of a Trust

The taxation of income attributable to a Trust and all matters relating to taxation on the settlement, distribution and reversion of property settled in a Trust, are regulated by the Income Tax Act (Chapter 123 Laws of Malta).

It is possible to elect for Trusts to be transparent for tax purposes, in the sense that income attributable to a trust is not charged to tax in the hands of the trustee, if it is distributed to a beneficiary. In addition, when all of the beneficiaries of a trust are not resident in Malta and when  the income attributable to a Trust does not arise in Malta, there is no tax impact under Maltese tax law. Beneficiaries are charged to tax on income distributed by the trustees, in the jurisdiction where they are resident.

Dixcart as Trustees

Dixcart has provided trustee and related trust services in; Cyprus, Guernsey, the Isle of Man, Malta, Nevis, and Switzerland for over 35 years and has extensive experience in the formation and administration of trusts.

Dixcart Malta can provide trust services through its wholly owned group company Elise Trustees Limited, which is licensed to act as a trustee by the Malta Financial Services Authority.

Additional Information

For additional information regarding Trusts in Malta and the advantages that they offer, speak to Jonathan Vassallo in the Malta office: advice.malta@dixcart.com

Trusts in Switzerland: What’s New and What You Should Be Aware Of

Background

Switzerland has a long established reputation for professional expertise when managing the affairs of wealthy private individuals. For many years Swiss Trustees have provided efficient tailored services for trusts, which are a flexible instrument, particularly useful for estate planning and asset protection.

The supervisory and legal landscape for trusts is changing in Switzerland, as reflected in the fact that the Federal Council implemented new Trustee regulations in 2020, and proposed the introduction of a Trust law into the Swiss Code of Obligations.

These two new regimes will reinforce the competitiveness of Switzerland as a financial centre, and boost the Swiss Trust industry’s quality, integrity and accountability, while creating a uniform competitive landscape for Trustees.

What are the Regulations About?

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

Trustees operating in Switzerland must now; register with a Supervisory Organisation, comply with statutory requirements and apply for a licence from the Swiss Financial Market Supervisory Authority (FINMA), before December 31st 2022.

Licensing Exemptions

Private trust companies (PTCs) are exempt, as well as single family office structures (“family-ties exemption”). This exemption also applies if the beneficiary is a charity.

Regulatory Obligations

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

Where Are We Today?

As of December 2022, the majority of Swiss Professional Trustees still need to obtain a licence from FINMA. 22 professional trustee authorisations have to date, been granted. To put this in context currently 330 Trustees have submitted applications.

A New Swiss Law on Trusts

Currently, there is no Swiss law relating to trusts.

However, foreign trusts have been legally recognised since July 2007, with the implementation of “the Hague Trust Convention of 1 July 1985 on the Law Applicable to Trusts and their Recognition”.

Since then, Swiss Trustees have administered trusts governed according to foreign laws. This implies that the Trustee needs to have good knowledge of the foreign law in order to comply with its fiduciary duties. It also means that Swiss administration and the Courts have to apply a foreign law, within the internal Swiss system.

Swiss trust law would:

  • Offer new applications and business opportunities in wealth structuring and, close the current gap in the legal system, with the use of a Swiss, rather than a foreign instrument.
  • It would also provide greater certainty to Swiss based Trustees, who currently may well need to have knowledge of a number of different foreign trust laws.

A preliminary draft bill and an explanatory report on the introduction of a Swiss Trust Law, were published in January 2022 and sent out for consultation. The preliminary draft bill introduces explicit provisions on the taxation of trusts.

The debate in the Chambers of Parliament will commence in the spring session of 2023 at the earliest. Therefore, the bill is not expected to come into force before 2024.

The Dixcart office in Switzerland will keep you fully updated regarding the progress and status of Swiss trust law, during 2023.

Dixcart Trustees (Switzerland) SA

Dixcart Trustees (Switzerland) SA has been providing trustee services for over fifteen years. We are a member of the Swiss Association of Trust Companies (SATC), and are registered with the ”Organisme de Surveillance des Instituts Financiers” (OSIF).

We are fully confident that Dixcart Trustees (Switzerland) SA meets the regulatory obligations required by the Swiss Federal Act on Financial Institutions, that came into effect at the start of 2020.  Our application has been submitted to FINMA and is within the licence process.

Additional Information

If you would like additional information regarding trusts and Switzerland, please contact Christine Breitler at the Dixcart office in Switzerland:   advice.switzerland@dixcart.com.