In 1998 a group of Silicon Valley’s finest and brightest met in Palo Alto and created the term “Open Source”.
Originally it was used purely to describe software (source being short for “source code”). In the twenty years since, the terms usage has extended to agriculture, manufacturing and now increasingly in finance.
Freedom of movement
The financial industry has been notorious in the past for the bureaucratic processes and archaic transfer, often resulting in clients sticking with a pension, banking or insurance provider, simply for an easier life.
Trust structures too have a reputation, perhaps unwarranted, for being complicated to set up, administer and liquidate. But with a Private Trust Company (PTC), there is a flexible, convenient and transferrable way to create tailored trustee services.
PTCs offer a structure which allows clients to participate in a meaningful way in the management of underlying assets, as well the ability to more easily transfer structures to another administrator if necessary.
But before heading straight to USwitch, there are some important things to consider. Just because something can be seen as easy, it doesn’t mean that it is simple.
A PTC is designed to act as trustee for a trust or trusts and importantly doesn’t provide trust company services to the public.
They have been widely used in the Middle East and Far East including Singapore and Hong Kong for many years and now PTCs are becoming increasingly popular globally by high net-worth private clients, with Jersey as the location of choice.
The highly regulated and transparent industry, along with a world renowned expertise in financial administration has proved a winning combination for those who prefer to establish their own PTC to act as the trustee of their family trusts, rather than transferring assets to an offshore service provider’s professional trustee company.
The advantages include:
- As the PTC is managed by directors not trustees, it is generally easier to make a change to the directors rather than trustees
- Confidentiality is preserved by keeping the trusteeship of a family trust within the family
- Using a PTC allows members of the family to be involved potential succession plans in a controlled and structured manner. It also means that trustees can have a working knowledge of the assets held to allow a swift response if circumstances change
- In Jersey, there is no requirement to seek express exemption from regulation, to pay any PTC fees or to capitalise the PTC in a particular way. Jersey’s regulator, the Jersey Financial Services Commission (JFSC) does however need to be notified of the PTC, and this is usually done by way of a letter
- A PTC can be established in Jersey on a fast track basis within 24 hours
It is important to pay particular attention with the initial set-up of a PTC. This is the stage at which all of the rights, powers and responsibilities are drawn up and agreed.
All sounds good so far?
It is crucial that that all parties fully understand the structure that has been created. In addition, Jersey’s regulatory system means that most regulated trust companies such as Fairway would look to place at least one of its directors on the board of any PTC. There are few reasons to do this but the main one is to ensure that the management and governance of the PTC comply with the necessary regulatory obligations.
One potential barrier for using a PTC is the cost of establishment. However, in the majority of cases having a dedicated bespoke Trustee for a Trust or group of Trusts outweighs the cost. The annual running costs of a PTC can also, in some instances, be less than those of a public trust company.
Family members can retain involvement and decision making powers in relation to the family trust. For example, the settlor and people connected with the settlor may sit on the board of the PTC, or be protector or enforcer of the trust which holds the PTC’s shares.
We have already seen an increase in the use of PTCs. The primary reason for this is that rather than transferring assets to a new trustee, clients establish their own PTC and it then acts as trustee. The directors of the PTC retain control and if deemed necessary, can be transferred to another provider. By establishing a PTC, those who set up the structure have more control and can increase family participation in succession planning.
It should be only experienced and trusted advisers with experience and knowledge of the family and its business that become board members of the PTC. We also recommend that a professional service provider is in place alongside the family’s chosen Directors.
As with all wealth management and succession planning, the best advice is to seek advice. Jersey is home to one of the most respected and well-regulated trust centres in the world.
Families and businesses are increasingly looking to long-term strategies and multi-generational planning to preserve, enhance and ensure success. By choosing a structure that puts the power in the hands of the client, possibly in partnership with a service provider, it becomes not only open source but makes for a far more inclusive experience for the family.