There is no question that private clients can derive a range of valuable benefits from careful and thoughtful planning of a robust private wealth structure such as a trust, foundation, family limited partnership, corporate structure or some combination of these.

Date: May 3, 2011          Author: Marcus Leese

Keywords: Trust, Offshore, Regulation, Tax

There is no question that private clients can derive a range of valuable benefits from careful and thoughtful planning of a robust private wealth structure such as a trust, foundation, family limited partnership, corporate structure or some combination of these.

These benefits can include protection of assets from creditors or estranged spouses or other family members; achieving a more orderly, controlled and structured transfer of assets (including business assets) to younger generations of family members; ensuring continued ownership of family businesses without fragmentation between multiple owners; reduction, deferral and/or management of tax costs; and better organisation and control of assets.

But where should one establish a private wealth structure? One could establish a trust in Hong Kong, the British Virgin Islands, Guernsey, Nauru or any number of other places. But in each case the legal, practical and commercial results are likely to be very different. What jurisdiction is best? 

There is no single answer to these questions. The "best" jurisdiction for any particular client will depend on the client’s particular circumstances and precisely what that client requires from their private wealth structure.

While the relative importance of different factors will differ for each client, set out below are what in our experience are the range factors which well-advised clients should consider when selecting a jurisdiction in which to establish a private wealth structure.

• Tax neutrality - The jurisdiction should not impose any direct or indirect taxes (whether on income, capital gains, assets, transactions, consumption or otherwise) on the private wealth structure or on its investments and not impose withholding taxes on distributions which may be made from the private wealth structure to its beneficiaries.
• Legal regime - The jurisdiction should have a modern and adaptable legal system including availability of a wide range of private wealth structuring vehicles (including trusts, unit trusts, companies, cell or portfolio companies, limited partnerships, foundations, etc), legislation which is clear, practical and facilitates timely solutions, and courts which are respected and provide reasoned and predictable judgments without undue delay. In some cases, very specific aspects of the legal regime may also be of great importance to particular clients. By way of example, if a client is particularly concerned regarding members of his family discovering the terms of the trust he is planning to establish, then the specific laws which a jurisdiction has relating to the rights of beneficiaries to trust documentation will be of great importance. 
• Regulatory regime - The jurisdiction should have a risk-based regulatory regime which provides a pragmatic structure for regulating service providers (such as trustees, investment advisers, company administrators, etc) operating in that jurisdiction which is appropriate and proportionate to the type of activity in question. In addition, it is important that the jurisdiction has a regulator with suitably qualified and experienced staff who appreciate the practical realities of private wealth structures, their uses and the clients who use them. The regulatory regime is important because it provides clients with the comfort, security and confidence that the service providers that they will engage to establish and operate their private wealth structures are subject to regulatory review and oversight and will be subject to regulatory sanction should they fail to meet their legal obligations. The regulator is also important as, in the event that a service provider fails to meet their legal obligations, it provides a forum to which a private client can address complaints without involving the time and cost of launching an action in the courts.  
• Service providers - The jurisdiction must have a suitable pool of able and experienced service providers to assist in the establishment and ongoing operation of private wealth structures. Such service providers include not only trustees and corporate administrators, but also non-executive directors, custodians, accountants and auditors, lawyers and tax advisers.

In addition to experience and expertise, service providers in a jurisdiction must offer other qualities as well. First, there must be a sufficient number of service providers so as to offer a suitably competitive market and provide private clients and their advisers genuine choice. Secondly, quality of service is very important - the work of service providers is often time critical and exacting in detail and they must be able to provide consistently high standards. Thirdly, as noted above, the service providers should themselves be subject to regulation in the relevant jurisdiction so as to provide private clients and their advisers with additional security and confidence.

• Infrastructure - While often overlooked, this is actually a vitally important practical issue in the successful ongoing operation of a private wealth structure. Accordingly, it is a very important factor in selecting a jurisdiction for a private wealth structure. First, there is true infrastructure. Does the jurisdiction have first rate telecommunication links? Does it have full broadband connectivity? Are there full business continuity and disaster recovery facilities so as to avoid or minimise business interruption in the event of some natural disaster? These may seem like matters of little importance, but in fact they often prove to be of great significance when it comes to dealing with the ongoing operation of a private wealth structure on a day to day basis.  
• Secondly, there is the attitude and approach of governmental and other officials in the jurisdiction and the place of the financial services industry in the jurisdiction. Is the financial services industry central to the economy of the jurisdiction and do the government and other officials appreciate this and work co-operatively and positively with the financial services industry to ensure its development and success? Do the government and officials work closely with the financial services industry to ensure that legislation and regulation continues to develop in order to help (and not hinder) the financial services industry?
• Value - This is not simply a matter of cost. Many jurisdictions are able to offer (or claim) a low cost service. But they are seldom able to offer high quality services for that price. While cost is important for virtually all private clients (no matter how wealthy), the issue is not about simply finding the jurisdiction which offers services at the lowest cost. Rather, true value is a matter of balancing the cost of services against the quality of the services. In our experience, the important issue is for private clients and their advisers to be satisfied that they are receiving a suitably high standard of service from the service providers in the jurisdiction for the particular level of cost incurred. 

In our experience, leading jurisdictions for the establishment and operation of private wealth structures are the Cayman Islands, the British Virgin Islands, Guernsey and Jersey. While there are various differences between them, all these jurisdictions exhibit the features summarised above. There are many other jurisdictions (both onshore and offshore) which offer private wealth structures of some type, but few are able to offer all of the features which private clients and their advisers are likely to seek.