Category: Private Client

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.

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.

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, 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

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 31^st 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.

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What is a Guernsey Property Unit Trust (“GPUT”)?

A Guernsey Property Unit Trust (“GPUT”) is a form of Guernsey trust commonly used when structuring UK real estate acquisitions.

The assets of a GPUT are held in the name of the trustee on behalf of the unitholders (beneficiaries) who will hold units in the GPUT corresponding to their interest in the underlying asset. The legal ownership of the asset therefore rests with the trustee whilst the unitholders have the beneficial interest in the trusts’ assets.

The trustee will typically appoint a Property Manager to manage the real estate held.

Uses and Benefits of a GPUT

Up until 2006 a GPUT could benefit from an exemption to UK Stamp Duty Tax (“SDLT”). Whilst that exemption no longer exists, a GPUT is still an attractive investment vehicle with the following benefits:

• No Stamp Duty payable on transfer of units in a GPUT (where the GPUT qualifies as a ‘collective investment scheme’)
• No liability to income tax or capital gains tax for the Trustee in Guernsey
• The GPUT may be transparent for UK income tax when correctly structured as a “Baker” trust
• No requirement to be audited (where not regulated or listed)
• Flexibility in relation to unitholder’s rights, such as different classes of units to allow certain unitholders to receive varying returns on their units
• A GPUT may (subject to tax advice) offer unitholders a greater degree of influence over the trustee, by allowing them to appoint directors to the board and/or include limitations to trustee powers under the terms of the trust instrument.

Rights of Unitholders

The rights of the unitholders will be largely governed by the terms of the trust instrument which will contain commercial terms that govern the GPUT, such as voting thresholds, rights on such matters as redemption, transfers and removal of a trustee. 

The trustee is independent of the unitholders, however, unitholders are able to maintain a degree of control over the trustee by including limitations on the powers of the trustee under the terms of the trust instrument.

GPUT Trustee

It is typically recommended that a special purpose vehicle (SPV) is established to act as the trustee to a new GPUT which then allows for limited liability status for the trustee.  Although the provision of trustee services is a regulated activity in Guernsey, an exemption from this requirement is available where the following criteria are met:

• The SPV trustee is administered by a Guernsey regulated fiduciary service provider, and
• The SPV trustee’s sole purpose and only activity is to act as the trustee to the NEW GPUT

A GPUT must have at least one trustee, however in practice a GPUT will often have two SPV trustees if the GPUT structure is to hold UK real estate in order to address overriding interests in English law.

A SPV trustee can be owned by a foundation or a charitable or non-charitable purpose trust.

Regulation of a GPUT in Guernsey

The requirement of a GPUT to be regulated will be dependent on the number of proposed unitholders and the sophistication of those individuals.

Where a GPUT is regulated under the Protection of Investors (Bailiwick of Guernsey) Law, 2020 (the “POI Law”), it will qualify as a “collective investment scheme”, being any arrangement relating to property (of any description):

• where the purpose is for investors to participate in, or receive profits or income arising from, the acquisition and disposal of the property, and
• in which investors do not exert management or control over the property to which the arrangement refers, and
• under which:
  • The contributions of the investors and the profits and/or income out of which payments are to be made are pooled, or
  • The property is managed as a whole, by or on behalf of, the person responsible for its management

Dixcart Team

Any persons wishing to establish a Guernsey Property Unit Trust (GPUT) will require both legal and tax advice to ensure that the GPUT is structured to meet their needs as well as a licensed Guernsey administrator to provide trustee services.

Dixcart in Guernsey hold both a full Fiduciary Licence and a Protection of Investors Licence issued by the Guernsey Financial Services Commission

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

There are many factors to take into consideration when reviewing the best location for a Family Office. These factors naturally differ depending on the particular situation. Dixcart are well-positioned to offer advice and insight into determining which jurisdiction is best suited to meet specific family needs. 

Portugal Family Office

Portugal is particularly well suited, being an EU member country, offering a beneficial mix of corporate and personal income tax advantages, which are touched on briefly below.  

General Reasons 

• Portugal is a very safe country that is well established within the EU and under relevant EU Laws.
• Portugal has a well-qualified and skilled labour force, with relatively low labour costs, within the EU. 

Tax Reasons 

• Zero tax is payable on inherited wealth and on gifts and donations, in Portugal.
• Portugal does not levy wealth tax, only income is taxed. This therefore reduces the potential tax burden on accumulated wealth, namely on assets with capitalised capital gains.
• Gratuitous transfers of property, in life or upon death, between spouses, descendants and ascendants is covered by an exemption from Stamp Tax (10% tax rate), regardless of the amount and/or the type of taxpayer. This exemption applies to; shares, bonds, cash and immovable property (although the latter is subject to a 0.8% tax rate when transfers are made ‘in life’).
• Portuguese companies, incorporated within the EU approved Madeira International Business Centre (IBC), benefit from a 5% corporate tax rate on international income. 

A Good Double Tax Treaty Network 

• The extensive Portuguese Double Tax Treaty network allows for withholding tax reductions from foreign-sourced dividends, interest and royalties, as well as enabling the NHR exemptions to operate more efficiently. 

Read here for information on our Practical Tax Guide to Inheritance and Gifts Received in Portugal

An Attractive Participation Exemption Tax Regime 

• A general participation exemption regime allows for withholding tax exemptions on dividends between related companies, with low thresholds facilitating ‘free’ equity flow between family-owned multinational structures. 

Trust Structures and the Portuguese Tax System 

Portugal, being a civil law jurisdiction, does not have a domestic legal trust regime. Trust structures held within a Family Office, subsequently established in Portugal, may require careful review and/or restructuring. 

Matters such as the location and nature of the trust, position of the settlor, trustee and beneficiary, revocability of the trust, and powers of the settlor regarding the nomination of trustees and the liquidation of the trust, must all be thoroughly analysed. 

Dixcart Portugal, being part of a group with a strong presence in a number of jurisdictions, can offer extensive experience and knowledge regarding ‘trust’ jurisdictions, having offices in a number of them. We are therefore uniquely positioned to advise foreigners moving to Portugal regarding the implementation of trust structures. 

Summary and Additional Information

Portugal offers a number of potential advantages for the location of a Family Office, in particular if the owners of the wealth take advantage of the Portuguese Golden Visa, move to Portugal, and benefit from the NHR regime. 

We strongly recommend that professional advice should be taken. 

Dixcart are well placed to offer such professional advice, with experienced accountants and lawyers based at the Dixcart office in Portugal and other professionals, across the Group, with extensive expertise in the area of Trusts.

Please speak to your usual contact in Portugal: advice.portugal@dixcart.com.

Background: Isle of Man Trusts and Foundations

The Isle of Man is a jurisdiction well known for the establishment and management of both Isle of Man Trusts and Foundations. We have recently drafted a series of three comprehensive Articles in relation to Offshore Trusts. Similarly you can find three Articles, featured on our website, on the topic of Isle of Man Foundations.  

This Article is more of a discussion piece, with the case study demonstrating how Trusts and Foundations can be used in combination, to achieve specific objectives. It also explores forthcoming changes to Isle of Man Trust Law.

Are Trusts and Foundations the Best Structures for Asset Preservation and Succession Planning?  

Recent changes in the global landscape, both in terms of taxation, but also public opinion, mean that HNW families need to look at a range of solutions to achieve their aims.

Where individual circumstances allow, Trusts and Foundations, however, continue to play an important role in HNW family estate planning. The public generally still have the perception that tax mitigation is the sole purpose of establishing a Trust or Foundation structure, when in fact they have a much wider purpose, especially in relation to succession planning.    

The characteristics offered by Trusts and Foundations include:

• The ability for families to set out how they would like assets to be held and distributed in the long-term.
• Oversight in relation to family assets, with appropriate ‘checks and balances’ regarding trustees or foundation board members, who take on the responsibility to look after things in a way that meets the needs of the specific family.
• A structure that ensures that the intentions of a deceased or disabled wealth owner regarding how assets should be administered and distributed, are fully taken into account.

What Should Multi-jurisdictional Families Consider When Setting up a Trust or Foundation?

Each client must consider their individual circumstances, followed closely by what they are looking to achieve.

Once these two points have been identified, the next step should always be to seek tax advice specific to the circumstances.

Case Study

The Dixcart office in the Isle of Man, recently assisted a client who was looking to put in place asset protection and succession planning for their family business. 

The principal was a UK resident non-dom, whilst the wider family were based in various Civil Law jurisdictions.

On first examination, given the connection to Civil Law jurisdictions, a Foundation seemed likely to be the best fit, however, given the UK’s treatment of Foundations as a corporate vehicle, at least at the time, this could have been disadvantageous to the principal, who would have received greater certainty via a Trust structure. 

Conversely there was a concern that as the majority of the family were located in Civil Law jurisdictions, their local tax authorities may not recognise a Trust structure. 

• Ultimately, and of course subject to specialist advice at the time, we put in place a Trust/Foundation Hybrid structure which provided protection to the family as a whole. An Isle of Man foundation was created, with the sole purpose of acting as Trustee of an Isle of Man trust.

As such, from a Common Law perspective, the structure was recognised as a trust structure, however should the structure be challenged within a Civil Law jurisdiction, the courts would recognise the legal status of the Foundation, thus preserving its asset protection characteristics.

Is Anything About to Change in the Isle of Man Relating to Trusts?

The last major review of Trust Legislation in the Isle of Man was the Trustee Act 2001, so a revisit was definitely overdue.

The Trusts and Trustees Bill 2022 received its first reading in Tynwald, the Isle of Man Parliament, in June 2022.  The draft bill aims to further modernize the Islands Trust Legislation and proposes several amendments to the current legislation.   

Two of the amendments which are of particular interest are:

1. Duty to Disclose Trust Information

Trust ‘information’ is defined as information or documentation relating to a Trust, including the Trust accounts.  The Bill sets out provisions that the Trust Instrument may confer and/or indeed restrict who has the right to receive Trust Information.

It also proposes to confer the right to certain parties, specifically the beneficiaries and Protector(s) of a non-charitable Trust and Protectors, to request information. 

2. Power to Declare Exercise of a Power Voidable

This provision allows the court to set aside the exercise of a power by a trustee(s), where the Trustees exercised their powers validly, but failed to take into account relevant considerations, and if they had done so, would not have carried out the action that had been taken.

Additional Information

If you require further information regarding trusts and foundations and how we can assist, please feel free to get in touch with Paul Harvey at the Dixcart office in the Isle of Man.

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

Trust structures are generally associated with estate and succession planning for private client engagements, because of the advantages and safeguards that a well-structured trust can provide. Trusts, however, can also play an important role within corporate transactions. Consider initial public offering (IPO) planning and Trusts, for the major shareholders (founders) of a company, that are looking to take their company public.

Use of a Trust as Part of Corporate Processes

Careful pre-IPO Trust planning can provide the founders with a number of benefits in respect of their shareholding in the company to be listed (‘List Co’), and may also be used to create employee incentive schemes to reward, motivate and retain employees during and after the IPO process.

Chart of Parties Involved in an IPO Trust Structure:

Founders, the Family and an IPO Trust

Whether the founders are considering a company listing to generate capital or alternatively as an exit strategy, family circumstances are often overlooked, and these can play a pivotal role in the success of a listing.

Before the List Co is listed, it is often the case that the company founder owns a substantial holding of the shares in the List Co through a holding company (Hold Co). By creating a pre-IPO Trust, the founder can transfer all of his/her shares in the Hold Co to the Trustee, and the Trustee then indirectly holds shares in the List Co though the Hold Co, for the benefit of the beneficiaries of the Trust.

Purpose and Benefits

A pre-IPO Trust provides a wide range of benefits, including:

– continuing security without the distraction of hostile bidders, activist shareholders or adverse media;

– risk impact protection (potential mitigation from adverse events such as divorce, incapacity or death);

– concentrated shareholding remains under the control of the Trustee, in the event of the death of the founder. This is compared to the potential dilution of holdings to several family members though the administration of the estate after death;

– family wealth and succession planning;

– potential mitigation of probate costs and issues;

– privacy, irrespective of the number of family members or changes from one generation of beneficiaries to the next;

– potential tax mitigation depending on the jurisdiction of the Trust, the situs of the assets held and the residence and domicile of the beneficiaries.

Employee Benefit IPO Trusts (EBT)

Another important aspect of trust arrangements in IPO planning is the establishment of a trust for the benefit of employees. Although employee benefit or incentive structures can be designed in a variety of ways, many of them are provided through discretionary trusts.

Where the company establishing the structure and settling the assets into the Trust is the settlor, the beneficiaries of the trust may comprise current and future employees of the settlor company.

The rationale for establishing an EBT as part of the IPO process is to hold shares in the newly listed entity and for those shares to subsequently be used to provide efficient incentives for staff.

Purpose and Benefits in relation to Staff

The benefits of establishing an EBT include:

– hold founding IPO stake for the benefit of the management;

– short, medium and long term buy-in and incentivisation of key staff;

– opportunity to offer stakeholder incentivisation to a wide staff base;

– potential protection from the demands of creditors, in the event of a liquidation.

Governing Law of the IPO Trust

When choosing the governing law for the trust, consideration should be given to a jurisdiction which is politically stable and has a well-established legal system, sophisticated and modern trust legislation and offers a low tax regime.

The jurisdiction of Guernsey fulfils these criteria and would be a sound choice for the establishment of pre-IPO Trusts. 

Choice of Trustee

The trustee has responsibility for administering the Trust and determining the amount and timing of distributions, in accordance with the terms of the Trust Deed. Selecting a capable and experienced Trustee is therefore critical.

Why Choose Dixcart in Guernsey as Trustee?

Dixcart Trust Corporation Limited (“Dixcart”), has over 45 years of expertise and experience in the provision of professional trustee and corporate management services.

Dixcart can provide both listing support services and outsourced professional company secretarial services for listed companies and are in a position to assist with supporting both the wider pre and post-IPO processes.

The Dixcart Group remains privately owned and fully independent. Clients benefit from long-term continuity and stability of relationships, and high standards of professional care.

Further Information

For further information on this subject please contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com, or your usual Dixcart contact.

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

Background

While there has been significant attention paid to the role of public finance, until recently there has been less attention on the critical part, private finance can and must play, if the goals of the Paris Agreement; to limit global warming to below 2 degrees Celsius (preferably 1.5) degrees, and for developed economies to invest $100bn annually – are to be met.

The transition to net zero requires a fundamental rewiring of our global energy system. It will drive disruptive innovation across almost every sector and every region globally.

What Role is Guernsey Playing?

There is a significant opportunity for global private finance to partner with the Guernsey finance industry to drive a proactive sustainability agenda, and to establish Guernsey as the leading global centre for financing the transition to net zero.

This includes traditional sectors such as: trusts and corporates, insurance and investment management, as well as the development of new specialist expertise and support services, for example around ESG, data and fintech.

Key differentiators that enable Guernsey to capture this opportunity are:

• A strong track-record for innovation
• An engaged, supportive regulator
• Fast, easy access to global markets
• A strong, stable, trusted home for private capital
• A trusted home of specialist solutions
• A strong pool of experienced advisors

Dixcart Services

Trust & Company: Dixcart remains one of the leading privately owned, fully independent, client relationship and service level driven trust andcorporate services groups in the Crown Dependencies and further afield. Dixcart has a clear goal to develop opportunities to become the leading trusted provider for private clients (particularly Family Offices) and corporate clients, who are sustainably investing within the industry.

The Guernsey Way Forward

Guernsey has committed to a 2050 net zero target, and an interim policy commitment to reduce emissions by 57% of 1990 levels, by 2030. Together with the States of Guernsey, Guernsey Finance has set a clear ambition for Guernsey to play a leading role in driving the transition towards a greener, more sustainable future globally.

Via Guernsey Green Finance, Guernsey has already proven itself to be at the forefront of innovation in the green and sustainable finance sector.

A number of key examples include:

TISE Sustainable – Headquartered in Guernsey, The International Stock Exchange (TISE) hosts one of Europe’s most comprehensive sustainable market segments and is aligned to the UN’s Sustainable Stock Exchange initiative

Guidance and Frameworks – developing industry-first frameworks and guidance including an ESG framework for insurers and the green private equity principles

Collaboration & Engagement – Sustainable Finance Week, took place on the 20^th to 23^rd of September 2022 and brought together global leaders and experts in this field, to act as a catalytic force for innovation and collaboration.

Guernsey also actively participates in a number of key international initiatives and networks including; the UN Financial Centres for Sustainability (FC4S) Network, UK Green Finance, and Network for Greening the Financial System (NGFS).

Conclusion

While the challenges are great the solutions exist in Guernsey. For further information regarding Dixcart services and support, and to discuss your requirements and opportunities contact the Dixcart office in Guernsey: advice.guernsey@dixcart.com

Background

Switzerland is a very attractive jurisdiction for the establishment and management of Family Offices, from virtually all continents and countries across the world. South America, in particular is a part of the world that particularly appreciates the gravitas of Switzerland as a location for a Family Office, the stability of this international centre and the highest level of confidentiality that is guaranteed. 

Reasons Why Switzerland is a Favoured Location

1. Political, Financial, Social and Economic Stability

The economy of Switzerland is one of the world’s most advanced economies. The service sector plays a significant economic role, particularly the financial services sector. The Swiss economy ranks first in the world in the 2019 Global Innovation Index, and fifth in the 2019 Global Competitiveness Report.

The stable political and economic environment of Switzerland makes it an appealing jurisdiction from an asset protection perspective, with the added benefit of attractive tax regimes for both companies and individuals. These factors, combined with the country’s high regard for personal privacy and confidentiality, are of appeal to Family Offices from all over the world.

2. Banking Advantages

Switzerland is the premier financial destination for international investment and private asset protection. It also offers one of the strongest and most commercial banking centres in the world.

It has a long history of expertise in dealing with international currencies and open capital markets. Many banks have dedicated desks for particular jurisdictions, providing specific services to clients.

The main benefits of having a Swiss bank account are the low level of financial risk and high level of privacy

There are a wide variety of large domestic and overseas banks, experienced in operating accounts for different industries; trading, commodities, and commercial, as well as for private individuals.

Switzerland is well-known for its private banks, an exclusive niche for high net worth individuals, which provide sophisticated personal financial services and products to an exclusive clientele.

3. Trusts and Private Trust Companies as Asset Protection Vehicles 

Widely used in Anglo-Saxon countries, a trust is flexible and, in the right circumstances, can be an effective asset protection vehicle. It provides anonymity for families, and confidentiality regarding the assets and/or companies held within it. Trusts can be a useful aid in terms of succession planning and can assist with long term inheritance matters.  

A Private Trust Company (PTC) is a corporate entity authorised to act as trustee. The client and their family can actively participate in the management of the assets and decision-making processes, as well as sitting on the board of the PTC. 

Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.

In Switzerland the Settlor (the individual who settles 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 Guernsey trust can be established with a Swiss Trustee.

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

Use of a Swiss Company as Trustee

• 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

Dixcart and Swiss Trustee Services

The Dixcart office in Switzerland has been providing Swiss Trustee services for over twenty two years and is a member of the Swiss Association of Trust Companies (SATC) and registered with the Association Romande des Intermediaires Financiers (ARIF).

In terms of compliance obligations, currently, Swiss Trustees are supervised to ensure that thy meet Swiss Anti-Money Laundering obligations.

However, as from January 2023, the Financial Institutions Act of January 2020, requires that Swiss professional Trustees must be licensed by FINMA (Swiss Financial Market Supervisory Authority) to conduct their business. Swiss Professional Trustees must now comply with; structural, organizational, business conduct and audit requirements. Dixcart meet the necessary obligations and our application has been put in place. 

Private Trust Companies and single family offices are exempt. The exemption also applies if the Beneficiary is a charity.

The Dixcart Swiss office, and the other offices that are part of the Dixcart Fiduciary Group, recognise that the application of compliance procedures, to meet the highest standards, provides our Family Office clients with the most effective and sustainable service.

Additional Information 

If you would like additional information regarding the use of Switzerland for asset protection, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively, please speak to your usual Dixcart contact.