SEARCH

The complex wealth and succession planning needs of our UHNW clients require innovative and bespoke solutions. At the core of many of these solutions is often the concept of a trust. For centuries, families have used trusts to maintain their assets and provide security and peace of mind for future generations. While trusts come in many shapes and sizes, every trust requires a trustee and the selection of the right trustee is vital. A competent trustee possesses a variety of skills and expertise to be capable of successfully stewarding a settlor’s material legacy. What is a PTC? There are certain types of assets that settlors wish to place into trusts which are highly specialised in nature or which they, their associates, or their family may still play an important role in managing and operating. While there are particular options available to allow settlors and their families to stay involved, or retain certain powers over the administration of their trusts, one of the more popular tools to achieve this is a Private Trust Company or “PTC”. A PTC, where the magnitude of the trust assets justifies it, can be established to exclusively serve as trustee of a settlor’s trust or indeed their family’s trusts. The idea of a PTC is not new and many jurisdictions have their own versions where the basic concept is quite similar. PTCs, to the extent allowable under the relevant laws and regulations of a given jurisdiction, are usually structured as a company or other corporate entity, which is then often owned by a purpose trust created for the sole purpose of acting as shareholder and prescribing the appointment of the PTC’s board of directors. This helps to ensure longevity and a certain degree of control over the PTC as long as it is required. Some jurisdictions such as the Cayman Islands offer innovative new vehicles like Foundation Companies which can make these aspects of the PTC’s ownership and corporate structuring more customisable and simpler to achieve. The appointment of the PTC’s board of directors can be influenced by the settlor, their wishes, or their family; and it is the PTC’s board of directors that is responsible for all decisions and administration of its trust or trusts in the PTC’s capacity as trustee. The Cayman Islands has been a leading jurisdiction for the creation of PTCs by wealthy families for many years. The Islands have allowed, and continue to allow, such companies to be licensed under its Banks and Trust Companies Law as restricted licensed trust companies. In 2008, a registered PTC vehicle was introduced; one that is exempt from the licensing procedure in particular circumstances. This PTC has to be registered with the Cayman Islands Monetary Authority (“CIMA”). Each type of trust company has its own unique features and benefits. Benefits and Challenges of PTCs There are many potential advantages to PTCs, especially in cases where the management of the trust fund requires special technical expertise, or where a trust’s philanthropic or other purposes would benefit from the direct involvement of those already running such programmes. PTCs can complement existing family office structures, and where appropriate, they may allow for the inclusion of future generations of family members to be involved in trust-related decisions. This often helps to facilitate efficient decision-making and it can provide the opportunity to meaningfully include certain family members and benefit from their skills and perspectives. Although PTCs are very useful in the right circumstances, care should be taken to ensure that they are used for the right reasons and that those appointed as board members to a PTC are suitably qualified to take on the responsibilities of the role. The associated trade-offs should also be properly understood: A higher degree of inclusion of a family in the management of a trust, where decision-makers potentially stand to benefit, can challenge their objectivity and create or exacerbate conflicts. It is common for family interests to diverge as they grow with new generations and the family dynamics change over time. Discussions and decisions involving wealth can easily amplify even the slightest strains in family relationships. The thought of one’s family having a high degree of control over a PTC board can be appealing to many settlors until they come to realise how it can potentially go wrong. There are ways to address these challenges that preserve the desire for inclusion while minimising the potential for conflict. Indeed, many jurisdictions require PTCs to have licensed professional trustee representation on their boards, although to varying degrees. Not only does having a professional and independent trustee on a PTC board bring the necessary technical skills and experience required to fulfill its role, and meet legal and regulatory obligations, it also adds a valuable element of objectivity. Whether it is a family PTC with one’s own advisors, an independent professional provider of trustee services, or a combination of both, the importance of this choice of trustee cannot be overemphasised. Independence and objectivity are vital characteristics of a good trustee, especially where the trustee holds discretionary powers and at times when difficult decisions need to be made. Careful consideration is needed when weighing the pros and cons of creating a PTC and evaluating its usefulness as family dynamics shift with future generations. Author: Ed Ford, CA, TEP Edward.Ford@rawlinson-hunter.com.ky Senior Trust Manager Rawlinson & Hunter

As professional trustees, we pride ourselves on being able to make difficult decisions in an efficient manner to best serve our beneficiaries. Notwithstanding this effective use of judgement, there are certain times that a competent trustee should consider if it is appropriate to seek the Court’s advice and direction. Section 48 of the Cayman Islands Trusts Law provides trustees with the right to access the Cayman Islands’ judiciary, in addition to the protection of being able to rely on a statutory indemnity provided the trustee has applied in good faith. These type of applications to the Court are known as Cooper applications following the English case of Public Trustee v. Cooper. A brief summary of the case In Public Trustee v. Cooper [2001] W.T.L.R. 901 (Ch D) (“the Coopers Case”), the trustee of an Employee Benefit Trust held 73% of the shares in a holding company, which owned a brewery for the benefit of past and present employees of the brewery. The trustee received an offer to buy the underlying business. The current brewery employees were concerned that they would lose their jobs as a result of a sale and suggested they may take legal action against the trustee if it sold its shares. The other shareholders wished to sell their shares to a larger brewery. The trustee received professional advice. It was determined that the capital benefit to the beneficiaries would exceed the value of the distributions that they could reasonably expect if the business remained within the Trust. In addition, the potential purchaser had provided reassurances that it would not reduce the workforce. The trustee, after much deliberation, concluded that a sale was the appropriate course of action. For such a major decision, the Trustee applied to the Court to seek its blessing for the proposed action i.e. before the shares were actually sold – The blessing was granted. The judge that heard the Coopers case relied on an earlier judgment in an unreported 1995 case, which held that trustees may seek direction from a Court in four categories. Cooper Applications The four categories upon which the trustee may seek the Court’s blessing are; · Category 1 The trustee seeks the Court’s confirmation as to whether some proposed action is within the trustees' powers. · Category 2 The trustee seeks the opinion of the Court on whether the trustees’ proposed course of action is a proper exercise of the trustees’ powers in circumstances where there is no real doubt as to the nature of the trustees’ powers but the decision is of particular significance (“particularly momentous”). This will provide protection for the trustee from any claims that may arise by beneficiaries in the future for taking those decisions. · Category 3 The trustee seeks surrender of its discretion. The Court will only accept this application for a good reason – for example where the trustee is deadlocked (so much so that the matter cannot be resolved by removing one trustee rather than another) or disabled due to conflict of interest. · Category 4 The trustee seeks the Court’s retrospective blessing where the trustee has already taken action and that action is attacked as being either outside their powers or an improper exercise of their powers i.e. breach of trust. Preparation for the Court A trustee should be well prepared and they must provide all relevant facts to the Court in support their application. The level of information to be provided to the Court will of course vary depending on the particular case under review. In certain circumstances, the Court may even send the trustee away to produce more evidence if necessary. For example, in a Category 2 (“a momentous decision”) the Court will seek to determine if; the trustee has the power to enter into the proposed action the trustee has genuinely formed the view that the proposed transaction is in the interests of the Trust and its beneficiaries a reasonable trustee could properly have arrived at this decision the trustee has any conflict of interest, and if so, does this conflict prevent the Court from approving the trustee’s decision In formulating its decision, the Court will act as a reasonable trustee could be expected to act having regard to all the available material circumstances. It is important to remember that the Court has no greater powers than the trustee has under the trust instrument and/or under the applicable law. Confidentiality The hearing of trust matters are often very sensitive and should be dealt with in a discreet manner. This can of course be quite the challenge when litigation and the Courts are involved. It is very reassuring to know that a trustee, when making its Cooper’s application to the Cayman Court, may also apply for certain confidentiality orders. If granted, the Court hearing may be held in a private setting rather than public, ensuring that privacy of clients’ affairs are maintained. Conclusion A trustee should carefully consider whether their particular circumstances warrant an application to the court for its approval. A trustee must always exercise its discretion independently, taking into account all relevant factors, in order to reach a fair conclusion.It is paramount that a trustee demonstrates a high level of record keeping, the significance of which is especially brought to light when it comes to making informed decisions. Furthermore, a trustee should ensure that comprehensive minutes are prepared setting out the deliberations, as well as all the pertinent factors taken into account in the decision-making process, together with a full suite of supporting documentation. The better prepared the trustee is, the easier the Court may find it to grant its blessing in favour of the momentous decision. Author: Lauretta Bennett, TEP Lauretta.Bennett@rawlinson-hunter.com.ky Senior Trust Manager R&H Trust & Corporate

Amanda Bako of Rawlinson & Hunter explains why the appointment of a professional executor can be the safe choice by relinquishing the burden and maximising the efficiency of estate administration. With a rising number of contested wills and disputes between executors, it is increasingly crucial to ensure that appropriate, qualified executor(s) are appointed. More individuals are selecting a professional executor rather than leaving a loved one or close friend with what can very quickly become a burden which they are not equipped to manage. Where an estate consists solely of a private residence and cash, it may be preferable to choose a family member or friend to act as executor. However there are a number of circumstances where selecting a professional executor would be beneficial. COMPLEXITY Assets With high net worth, assets held by individuals can be varied and sophisticated, ranging from financial investments, commercial and residential real estate, and private company shares to business assets. A suitably qualified and experienced professional will be able to manage multiple asset classes and organise the effective disposal of these assets to provide maximum value to the estate. Many professional executors will have a global team of specialised individuals who are able to tackle the complexities of various asset classes in an efficient manner. Cross-border Not only can assets be located in different jurisdictions, many families will also have members located across the globe. These factors can make the administration of an estate extremely onerous, lengthy and stressful. This can require engaging legal and tax advisors in several jurisdictions and a professional executor will have the time capacity and relevant connections to assist. Testamentary Trusts Where there are minor children or vulnerable family members involved, it is common for a will to create a testamentary trust to provide for their ongoing needs. In these situations, it is helpful to choose a trust company who can act as both the executor and trustee for greatest efficiency. CONFLICT Unfortunately, many estates result in family conflict either due to the terms of the will or oftentimes because of the choice of executor, for example, where a parent chooses one child over their siblings. At what is already an emotional time, it is of benefit to have an impartial, independent executor who is able to diffuse any tension or disputes that may arise. LIABILITY An executor has a duty of care when administering an estate and to its beneficiaries. Dealing with a complex or high value estate could lead to mistakes that cause loss to the estate. Executors can be held personally liable for any claims. Choosing a professional executor removes potential personal liability and financial burden. COSTS There is a perception that appointing a professional executor can be expensive. However, when considering a complex estate, it is likely that an inexperienced executor may need to spend additional time consulting with legal and professional advisors, which could result in significant costs being incurred, but also may not maximise asset realisations for the benefit of the estate. Author: Amanda Bako, FCCA, TEP is a Partner with Rawlinson & Hunter in the Cayman Islands. Rawlinson-hunter.com

Trapped assets, in particular those with limited value, are on the rise and as volatilitycontinues to grip the stock marketsand the worldin general, we are seeing more and more open-ended and closed-ended funds who wish to proceed with dissolution but remain in limbo, with no end in sight. Not only does a prolonged wind-down result in unnecessary time spent by management but can also result in excessive service provider costs, to the detrimentof investors. We have found that when paired with a solvent voluntary liquidation, the establishment of a liquidating trust for the assignment of trapped assets can be an effective solution for any fund wishing to seek long-term asset realisation. The objective of a liquidating trust is to expedite the wind-down process and to create efficiencies, allowing investors to receive proceeds in an orderly manner and removes the potential of liability claimed against the funds and/or its directors. This pairing is not only beneficial to the fund but, where relevant, can also provide cost savings with existing management, its principals and directors as the trustee can engage with existing management, its principals, and directors in a consulting role so that asset background and understanding is not lost during the process. Alternatively, existingmanagement can also choose to remove themselves entirely from the process should they wish not to assume any significant role overall. Why a liquidating trust? A liquidating trust can be established for the benefit of any asset type, save there being no restrictions or contingent litigation, and can be established specific to the requirements of the settlor. Asset types that we have assisted to structure into a liquidating trust recently include a potential class action claim which has yet to be consummated, shareholding in an African mining company, a portfolio of small to mid-cap publically listed equities, litigation stubs and illiquid investment portfolios with limited secondary market opportunities. The form of liquidating trust can vary in both structure (standalone or umbrella) and type (discretionary, revocable, irrevocable trusts, etc.) although usually, a discretionary STAR trust is bestsuited to situations of prolonged wind-down due to the flexibility of the objects i.e. the trust can be set up for a purpose or for persons or indeed a mix of both. Investorsmay be named as discretionary beneficiaries and would not have entitlement to the assets,other than on a realisable event. This means that investors not only benefit from future assetrealisations, which could have been disclaimed or written-off priorto commencing voluntary liquidation, but also from thecost efficiencies in pairing the establishment of a liquidating trust with a solvent voluntary liquidation. A regulated trust company, would act as trustee and have absolute discretion over the management and administration of the STAR trust. Although, where relevant, the trustee may also seekthe assistance of liquidation professionals to manage the assets realisation, be it asset auctions or sales in the secondarymarket, as well as those principals or directors who wish to remain engagedas a consultant. Furthermore, a STAR trust requires the appointment of an enforcer who will ensure that the trustee fulfils theirfiduciary obligations in accordance with the trust instrument. This role may be delegated to a third party and further provides comfort to investors that the liquidating trust is being administered for their benefit. R&H Restructuring, are experienced in delivering successful wind-downs and offer a wide range of flexible services to open-ended and close- ended funds in the Cayman Islands that are wanting Author: Daniel McGrath Manager Rawlinson & Hunter LLP, Cayman Islands Daniel.McGrath@rawlinson-hunter.com.ky