For global UHNW connected families with U.K. connections like non-domiciled U.K. families and/or foreign families with family members or assets in the U.K., the use of a trust for both non-tax succession and tax planning remains very common (the Channel Islands remain the most popular jurisdictions for this group of UHNWs). For U.K. domiciled UHNW families however, choosing to set up a trust in the U.K. removes a number of headaches attributed to non-tax estate planning, succession and asset preservation as U.K. residents that set up a foreign or a non-U.K. trust can have negative tax implications on the family. If a U.K.-based UHNW family wants to forgo a trust, there are additional vehicles they can leverage, including family investment company (FIC) or family limited partnership (FLP). A FIC is an alternative succession vehicle for U.K. residents and allows the family to retain control of assets but transfer their value to heirs. A FLP is similar to an FIC but has added benefits including less fees when compared to trusts, and non-U.K. residents can use a FLP as a tax neutral vehicle. Both FLPs and FICs are popular private wealth structures in the U.K.
Similarly in the United States, trusts are the main framework of asset preservation, albeit with a couple of U.S. states having recently introduced foundations. However, each of the 50 states in the U.S. is considered as a separate trust jurisdiction with its own varying laws. While a standard code has been suggested to unify trust law, only half the states have signed up so far. This adds significant both choice and complexity for families when choosing to set up a trust in the U.S., as there are a number of tax considerations on a state and federal level to keep in mind. The U.S. has also proved to be an attractive trust jurisdiction for non-U.S. families with U.S. connections or simply as a sort of "midshore" jurisdiction (benefits of onshore and offshore attributes) of choice to locate their trusts.
Switzerland is another good example of the evolution of some trust jurisdictions into a more midshore offering. Trusteeship with Swiss-based trustees has been around for a long time (using trust law of other countries) but has had a sort renaissance of late with increased demand for such midshore offerings by clients globally. This interest has in part been reinvigorated by new licencing of trustees in Switzerland as well as trust law to be introduced in the next couple of years.
In Asia, Hong Kong and Singapore both have strong trust offerings, but don’t offer foundations. Hong Kong has a well-established trust industry, which makes up a core part of its financial services sector. The trust industry in Hong Kong has been further bolstered by a new licensing regime for trust and company service providers, which sets out a number of statutory due diligence and record-keeping requirements, making setting up a trust in HK more attractive for UHNW families. Singapore is one of the premier wealth management and trust hubs globally, and is an international financial centre for the wider Asian region. Singapore has recently modernised its trust law as part of a wider effort to promote wealth management in the country.
Finally, the last year and a half has shone a spotlight on just how unpredictable life can be and has kickstarted the generational wealth transfer for the UHNW Individuals. The world is changing rapidly and any ability to strategically plan for the future has been severely compromised but organising set plans can help UHNW families take back control of their wealth. To maximise their efforts, it boils down to choosing the right structure, in the right place and with the right trusted partner/provider to protect and preserve their wealth, which is where trust and foundations play a key role.
Steve Sokić is group head of private wealth at IQ-EQ.