It doesn’t matter if you’re seeking help in planning your legacy or carrying out the wishes of your loved ones, by joining a Private Trust Company, you can get to effortlessly navigate the complexities associated with legacy planning and wealth management.
In fact, according to a Statista report, the private wealth management sector is rapidly growing due to the upsurging growth of affluence worldwide. Almost ten out of twenty millionaires in the UK join Private Trust Companies1 every two months.
A similar trend has been observed in Europe, thus going to show the importance of Private Trust Companies. That said, though, one might ask, what are Private Companies, and why should you join one, especially in these financially crippling times?
Here are some of the reasons why….
What’s A Private Trust Company?
A private trust company (PTC) is a means or vehicle that affluent families employ for the planning and instituting of a Trust.2 A PTC is formed to act as a corporate trustee to a Trust or several Trusts, dependent that the trusts are ‘linked’.
High net worth families use these Private Trust Companies for several reasons. PTCs help in safeguarding the confidentiality, and they also offer a comprehensive framework under which you can be included in the decision-making process (via being on the board of the PTC). You can eventually avoid any impediments of succession when used together with a STAR Trust.3
PTCs also provide these families with the chance to maintain a level of control. They can govern how the Trust is formed. They also give them the benefit of a trustee having a working knowledge of assets and how they are successfully managed within the family business.
Moreover, the speed at which Private Trust Companies can be formed and the relatively low-budget operations they offer, these cutting edge companies have become extremely attractive to the high net worth families and their advisors.
Private Trust Companies have been in existence for several decades now. Initially, they were mostly a critical part of employee benefit trust planning, but they have grown to be popular, especially when it comes to private wealth planning. According to some research companies, individual wealth planning has augmented exponentially over the last 15 years or so.
In the Cayman Islands, PTCs were first formed in 2008 through the Trust Companies Regulations, 2008 (the Regulations). The Regulations brought into light a new type of Trust Company, which didn’t need a Restricted Trust License to be sustained with the Cayman Islands Monetary Authority. The move considerably reduced the expense, compliance burden, and delay involved in establishing a Trust Company under the old law. Most settlers in the Cayman Islands Trusts today prefer the Private Trust Companies as their trustee of choice.
What makes PTCs a valuable option is that they can be set up in as little as one or two days in most cases. It is significantly faster than instituting a Trust Company with a Restricted Trust License, where the process can take more than a few weeks to complete.
The Eligibility Requirements of Private Trust Companies
There are specific eligibility requirements for PTCs. These regulations advocate several conditions which the PTCs are required to meet to be exempt from the need to hold a Restricted Trust License. They include:
• The PTC should be incorporated in the Cayman Islands (mostly as an exempted company, limited by shares)
• They need to maintain a registered office in the Cayman Islands (at the office of a firm that holds a Trust License under the Banks and Trust Companies Law)
• That the name of the firm includes the words “Private Trust Company” or the letters “PTC.”
• That the Private Trust Company conducts only “connected trust business.”
Ultimately, the responsibility falls on the Trust License Holder to make sure that all due diligence needs are met regarding the PTCs.
What Is “Connected Trust Business”?
“Connected trust business” is a trusted business in which the sponsors of funds to the trusts are all “linked persons.” The term “connected persons” is then well defined within the set Guidelines. The Principles set generally look into the family connection and connections through the groups of companies.
If you want to join any private trust company, then you need to look at a trusted financier to help you, in any given situation, as to whether the trusts would be linked for the aim of the Regulations.
The Advantages of PTCS
Some of the common benefits of using PTCs as trustees are:
- You get the benefit of discretion. PTCs value confidentiality above all, unlike the large and highly regulated international financial institutions.
- PTCs also permit trusteeships to be coherent among a group of trusts (even those administered by different laws and guidelines).
- They facilitate the direct immersion of family members (and one’s trusted advisors) in the decision making processes.
- Unlike with the highly regulated institutions, succession issues in PTCS are reduced by the structuring for the proprietor of the PTC to be a STAR Trust.
- PTCs can also be set up quickly and at an affordable rate that establishing a Trust Company with Restricted Trust License.
- You get the benefit of exemption from investment adviser registration with the Securities and Exchange Commission (SEC) when the Trust is governed by state law and meets the requirements of regulatory oversight.
- They offer more management flexibility for the investment of assets.
- Trusts can also be established in states with tax benefits specific to Trusts, like no income or capital gains taxes
Ownership of the PTC – Utilising STAR Trusts
One of the significant benefits of using PTCs is the utilisation of the incredible structure, along with another Cayman Islands invention, the STAR Trust.
A STAR Trust is one that’s developed for the benefit of persons, purposes or both. According to various financial experts, what makes PTCs more appealing is the fact that the STAR Trust isn’t restricted by a perpetuity period (and so it can effectively and efficiently continue indefinitely). Moreover, the rights of administration of a STAR Trust are granted to, or reserved by, an Enforcer.
STAR Trusts were introduced into the Cayman Islands Law under the Special Trusts (Alternative Regime) Law 1997. The law is now within Part VIII of the Trusts Law. One of the best and significant innovations of the STAR Law was the incredible decision of parting from the notion of the recipients of a trust having “beneficial ownership” of the trust assets.4
Through using the STAR Trust to hold the shares in a PTC, it’s possible to develop a corporate trustee whose shares aren’t in the beneficial proprietorship of any person. The STAR Trust’s aim is then to hold the shares in the Private Trust Company and to facilitate the Company acting as trustee on a Trust or trusts, in compliance with the Guidelines and Principles set.
By using PTC / STAR structure, one can also steer away from the issues that crop up in terms of the ownership of the PTC, particularly in the event of deaths occurring within a family.
If you don’t have a defined structure, when the owner of shares in a PTC passes away, the shares in the PTC form part of the decedent’s estate and will be handled by the executor according to the provisions of his or her will. That said, though, this can lead to unfortunate results and can be the cause of trust disputes and litigation.1