Private Trust Companies (PTCs) are gaining in global opularity and are touted by many jurisdictions as the ‘latest’ way for settlors to retain greater control and involvement over trust affairs while at the same time maintaining the integrity and validity of the trust structure.
With over 25 years’ experience in PTC business, Bermuda, with its prudent regulatory environment, is often a first-choice jurisdiction for setting up and operating a PTC.
Unfortunately, over the years Bermuda acquired a reputation as an ‘expensive’ place to do business. However, that is now a thing of the past. Bermudabased, Canadian lawyer, Randall Krebs, recently spoke at a BIBA ‘Bermuda Briefing’ in London. He commented that, before moving to Bermuda, he was very much part of the ‘outside’ legal pack that perceived Bermuda as a jurisdiction that was generally deemed suitable only for high net worth individuals. His specific comments were, “There is the presumption that it is very expensive to do business; a ‘top-drawer jurisdiction” that is difficult to deal with”.
Now in Bermuda, he admits that while perhaps that may have been true many years ago, the perception developed because Bermuda was vigilant and put into place comprehensive ‘Know Your Client’ regulations years ahead of its competitors. The result was that those seeking to move forward quickly and cheaply tended to choose jurisdictions with less onerous restrictions.
Now, with the Post 9/11 mindset, Bermuda has proven that it was ahead of the regulatory curve. Most other jurisdictions have hastened to catch up and, accordingly, their costs have increased. So, jurisdictional costs are on a level playing field. Krebs has also witnessed trusts moving from the old, ‘cheaper’ jurisdictions to Bermuda as the cost pendulum has shifted. He affirms Bermuda has stayed the course and has been skillful and practiced at ensuring its legislation is practical and efficient, yet meets the needs of its client base.
The Benefits
PTC structures are beneficial to many, most notably those from civil law countries, those wishing to establish a family office structure or those who do not wish to use public trust companies. They are also useful in commercial applications such as a company acting as a trustee for Unit Trusts, pension funds, employee benefit plans, insurance trusts, insolvency/ escrow arrangements, financing special purpose vehicles or even the direct ownership of an operating business.
Participation & Control
A PTC primarily acts as trustee of a single or related group of trusts. Unlike trusts, where settlors wishing to maintain control of assets face potential adverse tax consequences or unwanted exposure to creditors, a Bermuda PTC enables settlors, family members or advisors to have a ‘hands-on’ role in the trust‘s administration at the board level, yet keep the residency of a trust offshore. The structure, where the settlor is either a shareholder or director with the power to elect directors, offers ‘comfort’ to those settlors who may otherwise have difficulty understanding the trust concept and resultant handing over of assets to a third party institutional trustee or bank.
Wealth Transmission & Generational Planning
As a ‘family owned’ company, PTCs also offer a forum for the education of beneficiaries on financial matters, including the management of the family business empire. This greatly facilitates the gradual transfer of control and influence to upcoming generations.
Cost
In addition to Bermuda’s cost effectiveness for incorporation, operating costs can be less than the fees normally paid to an institutional professional trustee as PTCs do not, generally, incorporate fiduciary-risk-related charges.
Administration
While the very nature of an institutional trust company frequently limits the flexibility and/or responsiveness a client seeks, a PTC eases (and reduces the costs) of many decisions. For example, changing a trustee can be slow and costly since it necessitates drawing up new deeds, trust accounts and novation of the transfer of assets and liabilities. PTC directors can simply resign or be removed in favour of new ones.
Limited Liability
PTC board members are agents, rather than principals. Any liabilities incurred fall on the company, rather than the board members personally. However, it is not always safe to assume that a director can escape personal liability and participants should carefully draw on legal advice, particularly noting the principles outlined in Hogg Robinson Trustees Ltd. V J Alsfor Pensions Trustees Ltd. [1997] PLP99 and Young v Murphy [1994] 13 ACS 12.
Bermuda’s sensible, but non-intrusive levels of regulation and the ease of administration of its PTCs provide a uniquely flexible vehicle for those seeking generational planning or to avoid engaging the services of an institution professional trustee.
BIBA invites readers wishing more information on PTCs to visit the websites of the contributors to this article, Conyers Dill & Pearman (www.cdp.bm), Appleby Spurling Hunter (www.applebyglobal.com) and HSBC Bank of Bermuda (www.bankofbermuda.bm). For more on doing business in Bermuda or invitations to Bermuda Briefings in your locale, please contact sstirling@biba.org. |
