Can I keep control and still protect my assets?Justine Markovitz and Jay RubinsteinWithers LLP

OverviewThreats to family wealthDivorceForced heirshipRegulatory aspectsPreserving family wealth WillJoint accountsFoundationsCorporate structuresTrust structures

Threats to family wealth - DivorceWhy is this important?In many countries, at least 4 in 10 marriages end in divorceDivorce can be very expensiveOften no concept of separate propertyMore applications to join trusteesAssets available for division maximise

Threats to family wealth - Divorce Recent case law the English Courts new approachWhite v White (2000) yardstick of equality. Reasonable requirements held to be discriminatory to homemakers (usually women)Cowan v Cowan (2001) departure from 50% justified on the basis of husbands exceptional contribution. Wife received 38%Lambert v Lambert (2002) wife awarded 50%. Marriage of 23 yearsMiller v Miller (2006) short marriage, no children. Wife awarded 5m upheld by House of Lords Charman v Charman (2008) family trust established by husband. Trust treated as resource of husband. Wife awarded 48 million.

Threats to family wealth - Forced Heirship Testamentary freedom vs reserved portionsConflict of lawsClawback feature

Threats to family wealth - Regulation?Licensing requirementRequired level of third party involvementIncreasing amounts of disclosure

Keeping wealth in the familyWillJoint accountsFoundationsCorporate structuresPrivate trust company (PTC)Trust structures

WillAdvantagesFull control during lifetimeControl over who benefits Control over who administersButForced heirshipMarital regimesTax

Joint accountsAdvantagesFull control during lifetimeControl over who benefits during life and on deathAvoid probateButForced heirshipMarital regimesTax

FoundationsWhat are they?Where are they?Civil law jurisdictionsEvolving in common law jurisdictionsFounders purposeControlPrivacyTax treatment?

Corporate structuresAdvantagesControl during lifetime Control over who benefits during life and on deathRestrict probateButForced heirshipMarital regimesTaxCorporate restrictions

Trust structuresTax planningTo protect assets from CreditorsDisinherited heirsFinancially unsophisticated heirsEx-spousesMinimise impact of forced heirship rules?

Private Trust Company (PTC)What is a PTC?A company limited by shares created to act as a trustee of a specific trust or trustsAdvantagesLegal personalityCustomisationPrivacyFlexible ownership of shares (e.g. purpose trust)Settlor/beneficiaries as directors

Choice of trustee Private Trust Company merits / issuesTailor structure to family needsCombine input of professional trustee, family members and key advisersControl of information ContinuityLocationFormalities Limitation of liability

Private trust company (PTC)

Family Trust

Trustee(Institution)

What about a US State as an APT orPTC jurisdiction?Must look to individual state lawComplexity of regulations of PTCsRequirements of local activityCostsTrust perpetuities periodStatute of limitations on claimsDirected trusts

JurisdictionPTC RegimeTrust RulesCreditor ProtectionDirected Trust Statutes Delaware PTCs are regulated PTC statutes aimed at commercial rather than private trust companiesMin. capital required is $500,000PTC must employ at least 2 full-time staff who are resident in Delaware, one of whom must have trust expertise4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer. Yes, tested and upheld by Delaware courts. Trustees are relieved from liability for any loss resulting from following the direction of adviser except in the case of willful misconduct and from the duty to monitor the adviser and warn beneficiaries of potentially improperly conduct. South DakotaPTCs are regulatedMin. capital require is $200,000 + a surety bond of $1 millionAt least one of the directors must be a resident of SD and 3/4 of the directors must be US citizens4 years after the transfer is made or, If later, 1 year after the creditor made or reasonably should have discovered the transfer.Yes. Although not yet tested by courts, SD statute relieves the directed trustee from liability and at the same time designates the advisor as a fiduciary for trust law purposes. SD also codified the concept of investment trust advisor and distribution trust advisor. AlaskaPTCs are regulatedPTC statutes aimed at commercial rather than private trust companiesMin. cap. required $400,000 + paid in surplus equal to 20% of paid-in capitalApplicant must provide a statement of assets and liabilities. AK Banking Department may examine or investigate applicantAnnual certification requiredMinimum contact with AK is required4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer. Yes, but not tested by courts yet. The trustee is not relieved from any liability for actions or decisions taken upon the advice of an advisor unless the trust instrument exonerates such liability. The advisor has no fiduciary duty, unless the instrument provides otherwise. New Hampshire PTCs are regulated, but statute is new and untestedMin. capital requirement - $ 500,0004 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer. Yes, not yet tested by courts. The trustee is relieved from liability unless the direction is contrary to terms of trust or trustee knows direction is serious breach of fiduciary duty of advisor. The advisor is considered a fiduciary. Wyoming PTCs are not regulated No license required provided the PTC does not offer its services to the general public and acts as trustee of trusts for a specific familyNo min. capital requirementMinimum contacts with WY is requiredTrustee activities can take place outside of WY4 years after the transfer is made or, if later, 1 year after the creditor made or reasonably should have discovered the transfer. Yes, not yet tested by courts. The statute requires the trustee to follow the direction of an advisor but is silent as to whether the directed trustee is relieved of liability. Advisor is considered a fiduciary.

Conclusion Too much control is dangerousPlanning is essentialIdentify the issues involved and understand family dynamicsIdentify the appropriate solutionIdentify the pitfalls and problemsEstablish the structure Monitor the structure

Getting in touchJustine MarkovitzGeneva Office Managing PartnerWithers LLP63 rue du RhneCH-1204 GenevaSwitzerland

Direct telephone: +41 (0)22 593 7711Fax: +41 (0)22 593 7778Mobile phone: +41 (0)79 590 8665Email: justine.markovitz@withersworldwide.com

Jay RubinsteinPartnerWithers LLP63 rue du RhneCH-1204 GenevaSwitzerland

Direct telephone: +41 (0)22 593 7704Fax: +41 (0)22 593 7778Mobile phone: +41 (0)79 210 3928Email: jay.rubinstein@withersworldwide.com

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