Category: Private Client

Whilst Isle of Man Trusts and Isle of Man Limited Companies have been mainstays of offshore wealth planning for decades, the relatively recent introduction of the Isle of Man Foundation in 2011 has provided advisers with a blend of features possessed by corporate entities and fiduciary vehicles, to further their clients’ objectives.

Having been the preferred choice of our Civil Law counterparts for centuries, a Foundation offers objectivity and operational structure without compromising on flexibility, where discretion is concerned.

This is the first in a three part series we have produced on Foundations, building up to a webinar hosted by experts who can help you to meet your clients’ needs.

• Establishing and Administering an Isle of Man Foundation (2 of 3)
• When to use an Isle of Man Foundation (3 of 3)

In this introductory article, we will discuss the rudimentary aspects of Foundations, to aid or refresh your understanding:

• What is an Isle of Man Foundation?
• Foundation vs Trust vs Limited Company
• What is an Isle of Man Foundation used for?
• Supporting the Establishment & Administration of Foundations

What is an Isle of Man Foundation?

An Isle of Man Foundation is established and regulated under the Foundations Act 2011, and registered on the Isle of Man. The Act has added the Civil Law entity to the toolbelt of advisers seeking to provide offshore services from a well-established international financial centre.

The blended approach that Foundations offer is unique, with features that make them distinct from more familiar structures such as Limited Companies or Trusts.

The next article in this series will take a dive into the technicalities of all aspects of this vehicle, but for now we have just provided a brief overview of the constituent elements that you need to be aware of:

• Founder – The person who initially instructed the establishment and agreed the objects of the foundation.
• Dedicators – Anyone other than the Founder that dedicates assets to the Foundation.
• Official Documents – There are two official documents, the Foundation Instrument and the Foundation Rules, which set out the details relating to the administration of the foundation and the rights and obligations of the persons appointed under the rules.
• Objects – Specified in the Foundation Instrument, these detail the specific purpose and objectives of the Foundation.
• Council – Comprised of one or more members, the Council carries out the administration of the Foundation in accordance with the Official Documents.
• Registered Agent – All Foundations must have a Registered Agent licensed by the Isle of Man Financial Services Authority. You can find more information on Isle of Man Registered Agents here.
• Enforcer – If an object of a foundation is to carry out a non-charitable purpose, the foundation must have an Enforcer.  This person ensures that the Council operate in line with the Official Documents and in the best interests of the Foundation.
• Beneficiary – The party that can benefit from the Foundation.  

Foundation vs Trust vs Limited Company

The table below compares and contrasts the features of Isle of Man Foundations, Trusts, and Limited Companies and may be helpful to determine the most appropriate vehicle to achieve the desired objectives.

Whilst Foundations cannot conduct commercial trade directly, other than trade relating to the Objects, it can hold subsidiary companies which can in turn be used for commercial transactions.

As you can see from the table, both a Foundation and a Trust can be used in very similar circumstances, to benefit successive generations or charitable initiatives. The main differences relate to the flexibility in making operational changes (e.g. appointment and removal of Council Members / Trustees and/or editing the constitutional documents), liability of the managers (i.e. legal action is against the Foundation rather than its Council Members), perpetuity and winding up – each offering discretion or choice in certain areas, which can make it better suited to the client’s needs.

Ultimately, a Foundation provides a living structure that can be reactive and adaptable to changing needs, where provided for, in the Official Documents. Something that can be more limiting when using a Trust structure.

Of course, Foundations can also be used in conjunction with trusts to provide some of the benefits of a trust combined with those of a corporate entity – e.g. diversified interests, to act as trustee and to provide additional oversight and transparency; which might make institutional transactions more attractive.

What is an Isle of Man Foundation used for?

A Foundation holds and owns assets, typically provided for specific purpose; for example, to benefit family members or philanthropic endeavours. With this in mind, uses of Isle of Man Foundations can include:

• A familiar alternative to trusts for clients from Civil Law jurisdictions;
• A legal entity for succession planning or philanthropic pursuits;
• A wealth planning vehicle to hold assets (e.g. private company shares, yachts, aircraft);
• Use in conjunction with a Trust to provide additional structure and oversight;

Supporting the Establishment and Administration of Foundations

At Dixcart, we offer a full suite of offshore services to advisers and their clients when considering the establishment of an Isle of Man Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent, Council Member or Enforcer as well as providing specialist advice, where appropriate. 

From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.

Get in touch

If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Paul Harvey at Dixcart: advice.iom@dixcart.com

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Certainty/Uncertainty

At the end of the first quarter of 2021, optimism is starting to rise and the challenges of 2020 and the start of 2021, are beginning to slowly diminish. Vaccine programmes have started to be put in place in a number of countries, with some achieving excellent vaccination rates, in a relatively short space of time.

For the UK and for Europe, Brexit has also taken place. There will be some heated discussions along the way, but the high element of uncertainty has been reduced.

There is a new era of politics in the US, with Joe Biden adopting a more conventional approach and hopes of less division and a more positive period for USA international policy.

However, many uncertainties remain and are likely to do so throughout 2021 and into 2022.

This climate has led to new trends emerging in the fund arena and has reconfirmed other existing trends, a number of these are detailed below: 

Ethical Investing and Renewable Energy

There has been a significant increase in sustainable and ethical investing. The fallout due to a worldwide pandemic has reinforced fears of a similar outcome, if carbon emissions are not reduced.

The pandemic has encouraged more people to be aware of and embrace environmental causes. The temporary lull in economic activity during lockdown, with its positive effects on air quality being appreciated by many, has prompted calls for an even more rapid move towards carbon neutrality. The US has already re-entered the Paris Climate Change Agreement and green issues are increasingly being discussed, as part of the political agenda in most countries.

As Governments seek to stimulate their economies, renewable energy, such as wind and solar power, are becoming popular areas to invest into. There is also likely to be increasing resources directed towards solutions in terms of how to store the excess power generated from renewable energy sources, for use, when it is needed.

Technology: Cloud Computing, Automation and Artificial Intelligence

A number of significant areas of the tech industry are becoming stronger; cloud computing for example.

Such technology has enabled millions of people to work,  shop and to play from home. The downloading of music and films, and taking part in eGaming has increased. E-learning has also mushroomed. The delivery of take-away meals is another sector that has increased significantly and again relies on cloud computing.

Whilst there will be a gradual return to people going back to work at their ‘place’ of employment and shopping in the high street, many patterns and routines have irrevocably changed.

As the world starts to recover from covid-19, a world-wide growth in entrepreneurship is predicted to occur, again relying on cloud computing technology. Even greater numbers of people will be starting their own ventures in the wake of covid-19, as the likelihood of unemployment looms large for many.

The pandemic is likely to accelerate investment into technology such as robotics and artificial intelligence. Organisations will be motivated to reduce the number of employees on the ‘shop floor’ and the growth in e-commerce demand is a phenomenon heavily reliant on API.

Healthcare

Bio Tech companies have multiplied as gene and cell therapies have offered exciting advances in the way diseases are treated, cured or vaccinated against.

Pharmaceutical companies such as AstraZeneca and Pfizer have proved themselves to be innovative and efficient in terms of developing a vaccine and the mass production of these medicines. There are a number of other pharmaceutical companies developing additional vaccine solutions.  

Ongoing Uncertainty – Particularly for Certain Sectors

It is difficult to predict the speed with which life might return to normal, post-covid, and this is likely to vary from country to country.

There is potential for airlines, leisure companies and the hospitality sector to thrive in the second half of 2021 and 2022, but only if the world moves out of the pandemic reasonably quickly.

The key to a successful business will be, a high quality product or service, an efficient organisational structure and a strategy that allows for more than one outcome. Diversification may be needed to insure against the possibility of a slow recovery from the pandemic.

Digital Transformation of Business Services

As with other sectors, business services have needed to rapidly adopt digital solutions to keep in touch with clients and contacts.

For many such organisations, including those in the funds sector, this has necessitated the introduction of updated governance and reporting mechanisms.

Additional Information

This Article summarises recent influences affecting the Funds sector.

If you would like additional information regarding Funds and the solutions that Dixcart can offer, please contact Antonio Pereira at the Dixcart office in Portugal: advice.portugal@dixcart.com.

Introduction

The Private Trust Company (PTC), is a concept introduced into Maltese law in 2014. PTCs offer high net worth individuals and their families, a tailor-made solution for their estate and succession planning.

Such solutions give families the possibility to manage their own estate, through a bespoke estate planning tool, to suit their specific needs.

Benefits of a PTC

A PTC is a trustee, acting for a family trust, which is the corporate equivalent of a private individual trustee. Malta can therefore offer an alternative to the more traditional and common professional trustee/administrator or individual private trustee.

Why is a Malta PTC Attractive?

• Malta PTCs are considered to be an attractive option to incorporate within a family estate succession plan, due to the simplicity and speed of the registration process.

Another advantage of a PTC is that it allows a degree of family involvement in the administration of the trust. Family members may be appointed to the board of directors of the PTC. Those involved in the management of the assets will have better knowledge of the asset performance in the trust and the flow of information can also be improved, via the board. Information relating to the family trust, can easily be shared with the family members.

An additional benefit of a PTC is the management cost. PTCs can typically be integrated within a family business, and can share a common board of directors and administrative facilities, as the family business, which in turn reduces costs. The initial set-up costs of a PTC might be higher, but the ongoing running cost will be reduced.

PTC Registration Process

A PTC is not required to undergo the full authorisation process, with the Malta Financial Services Authority (MFSA), that professional trustees and/or the administrators of foundations are required to undergo.

As long as all of the criteria are met, a PTC can then apply to register with the MFSA. This relatively simple registration process gives PTCs a significant advantage compared to  professional trustees and/or administrators, in terms of the reduced compliance obligations that need to be met, and the time taken.

PTC Objectives

PTC Objectives and Activities are limited to the following:

• Acting as a trustee in relation to a specific settlor or settlors;
• Providing administrative services in respect of a specific family trust or trusts;
• Trustee services, available through a PTC must not be offered to the public;
• Trustees must not frequently act as a trustee, and must not do so for more than 5 settlors of a family trust, at any given time.

Requirements for the Establishment of a PTC

A PTC should be a limited liability company based in Malta, to be eligible for registration, and must submit a form requesting inclusion in the ‘Register of Trustees for Family Offices’.

A PTC must have insurance cover proportionate to the size and nature of the trustee’s business operations.

The board of directors must comprise of at least 3 directors, each of which are collectively responsible. One director must take up the role of Money Laundering Reporting Officer (MLRO), and at least one of the directors of the company must have knowledge and experience in relation to the administration of trusts. The directors must be individuals, deemed by the MFSA, to be fit and proper individuals.

The Memorandum and Articles of Association of the PTC must limit the Objects and Activities to providing; trustee services, including administrative services to not more than 5 settlors at a time.

Additional Information

If you would like further information regarding PTCs in Malta, please speak to Jonathan Vassallo on advice.malta@dixcart.com, at the Dixcart office in Malta or to your usual Dixcart contact.

The transfer of wealth to the next generation is a critical issue. The next two years are expected to see the largest transfer of wealth from ‘Baby Boomers’ (those born between 1944 and 1964) to the younger generations. One of the biggest question is whether the inheriting generations and beneficiaries are in a position to handle whatever is passed down to them, and what are the best structures in order to achieve this?

It is not surprising that the US has the largest amount of UHNW wealth (US$16 trillion). The next “top hot spot” countries are: Germany (US$1.645 trillion), Japan (US$1.645 trillion), the UK (US$830 billion) and Brazil (US$560 billion).

Since the breakout of Covid-19, more individuals are now reviewing their estate and putting practical measures in place regarding succession planning. Although not a catalyst for encouraging individuals to review their affairs, Covid-19 has certainly reinforced the importance of it. The last year has provided a reason for many families to ‘take stock’ and to put in place or revise practical measures regarding succession planning. 

A family’s financial wellbeing can be lost or reduced in disputes over control and management of the wealth. Unfortunately, the old English expression “from rags to rags in three generations” can often become true. The ability and understanding of the next generation as to how to deal with the organisation and management of the wealth being passed to them is also a vital consideration.

Where in the world?

In a number of countries, succession planning can be complex, particularly some Latin American countries and other Civil Law countries, where forced heirship rules still apply. Unless alternative plans are put in place early, at least part of an estate, will be automatically divided between surviving family members, rather than shared according to the individual’s preference. 

International taxation is another reason why individuals may wish to put structuring measures in place. Many high-net-worth individuals and families incorporate one or more of a Corporate Family Investment Structure, a Trust or Foundation as part of their planning. But how to choose which one?

How to transfer wealth wisely? Trusts and Foundations for Succession Planning

Both Guernsey and the Isle of Man are highly favoured locations for the establishment and administration of Trusts and Foundations; each has an established and robust legal structure and specific legislation.

At an early stage, a family structure can be transferred to a single fiduciary provider or trustee with whom the family has a good relationship and understanding of the family needs. These structures usually take the form of a discretionary Trust or Foundation.

Trust structures are generally used by Common Law jurisdictions, whereas Foundations can fulfil many of the same functions in Civil Law countries. Dixcart has over forty-five years’ experience in assisting clients with managing their assets and can help you and your family decide the right structure to best suit your needs.

Private Trust Companies (PTC)

For many years, PTC’s have been the preferred vehicle for administering the assets of wealthy families. One of the main attractions of the PTC is that decisions relating to the underlying trusts, are made by directors who are carefully chosen by the family or may even be family members. There are a number of variants of the PTC, which can be limited by either shares or guarantee or even with separate classes of shares for voting purposes. Careful consideration as to the level of control exerted over the PTC needs to be planned so as not to lead to tax implications.

Whilst PTC’s remain a popular specialist solution, our Guernsey and the Isle of Man offices can offer a simpler structure through the Private Trust Foundation (PTF).

Private Trust Foundations (PTF)

The PTF removes the need for any ownership layers above the PTC and can simplify the structure and therefore administration and cost. The PTF is established under the relevant law for either of the two islands with the sole purpose of acting as trustee of the trusts for the benefit of an individual or family.

The Law will make it clear that a Foundation, upon establishment, has its own legal personality, independent from that of its founder and any foundation officials. The PTF will be run and managed in a similar way to a PTC with the involvement of a local licensed fiduciary, such as Dixcart, but with the significant advantage that, as an orphan vehicle, it does not have any other owners or controllers.

Additionally, family members or other trusted advisors can be appointed to the PTF council, which is responsible for acting as trustee to the underlying family trusts.

Corporate Family Investment Structures

A family investment company is a company where the shareholders are drawn from different generations of the same family. The use of a family investment company has grown significantly in recent years, particularly in situations where it has become difficult to pass value into a trust, without incurring an immediate tax charges but there is a desire to continue to have some control and influence over the family’s wealth preservation. 

More information regarding the benefits of a family investment company is available on our website.  

Summary

As wealth owners move from one jurisdiction to another, an opportunity to restructure the ownership of family wealth for succession planning purposes presents itself. Simultaneously, this provides an opportunity to implement the initial organisation of an ongoing family office and the tax neutral organisation of family affairs.

Dixcart works with each family wealth structure to coordinate communication with the family and to provide access to, and liaison with, additional independent, professional advisers.

Plans can be put in place to allow for changes in a family’s structure and relationships to be recognised. Dixcart can coordinate variations in structure to accommodate individual and specific family wishes, whilst complying with the overall family office policy.

If you would like further information, please speak to your usual Dixcart contact or to one of the professional advisers in the Guernsey and Isle of Man offices: advice@dixcart.com.

Each of the nine offices in the Dixcart Group provide wealth management services. In addition to Guernsey and the Isle of Man, the Dixcart offices in Cyprus and Switzerland are licensed to offer trust services.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Why are People More Mobile in their Lifestyle and What are the Options?

Dixcart has extensive experience, in advising individuals around the world regarding potential changes of residence, when family reasons, personal and/or financial, are dictating that a move is desired or would be helpful.

How Can Dixcart Help?

Dixcart has almost fifty years of experience helping clients structure their international wealth and investments with supporting advice on changes of residence and/or citizenship changes.

Support and advice can include:

• Assistance in choosing the most appropriate country to re-locate to and/or invest into, considering multiple personal and tax efficiency considerations.

• Wealth management – a review of the most appropriate way to structure wealth internationally, including succession planning.

• Exploring business ideas and opportunities with tax efficient corporate structures. Dixcart has the relevant accounting, legal and tax expertise to also provide support for the management of these entities.

• Assisting individuals to move to the UK and other countries in Europe: pre and post arrival planning and immigration advice. 

• Tax advice for individuals, including expertise regarding the UK remittance basis of taxation, for clients moving to the UK.

Snapshot Summary by Jurisdiction

Please see below, a ‘snapshot’ of what different countries might offer and where Dixcart can offer direct assistance:

• Cyprus, is within the EU and has an attractive regime for new residents offering a number of benefits, for companies and individuals.

• Malta has several residence and visa programmes appropriate to different circumstances, each of which offers tax efficiencies. Malta is within the EU. 

• Portugal is also a member of the EU and offers the Non-habitual Residents Regime (NHR), which is proving very popular with individuals already in Europe and also those from outside Europe. Portuguese companies are being used increasingly for international business and investment.

• Switzerland is not a member of the EU, but is located in Europe and is a member of the European Free Trade Association (EEFTA). It offers an attractive tax regime for individuals and is world-renowned as a centre for holding companies.

• United Kingdom – post Brexit the UK has already successfully negotiated trade deals with the EU and 63 other countries, with more deals under negotiation. The UK Remittance Basis of Taxation can offer significant tax advantages for individuals, for up to 15 years of residence.

Action to Consider

If you are considering a move abroad for yourself, or other family members, this can open up significant investment and financial opportunities. We strongly recommend that you take professional advice to discuss any such move and the pre and post planning that should take place.

Dixcart has many years of experience in managing family wealth across a number of countries and coordinating the movement of individuals. Services also include assistance in securing the necessary visas involved and the establishment and/or re-domiciliation of companies

Additional Information

If you would like any additional information on this topic, please speak to Peter Robertson: advice.uk@dixcart.com.

Maltese legislation combines features of both Common Law and Civil Law, which adds to its appeal, to individuals from countries operating either of these legal systems.

In order to attract not only local, but also foreign clients, trusts and private foundations were introduced, in 2004 and 2007 respectively, as legal vehicles available in Malta.

Trusts and foundations are recognised as flexible vehicles for the holding of many types of asset.

What is a Trust and What is a Foundation?

Maltese Trusts

In 2004, the Trust and Trustees Act was implemented as the first written law regulating domestic trusts in Malta.

A trust is a legally binding arrangement whereby a person (the settlor) transfers asset to another person (the trustee) who takes legal title to the trust assets. The trustee holds the trust assets for the benefit of other persons (the beneficiaries, which may include the settlor), or for a specified purpose.

There are many forms of trust that have been developed over time, some of the most common forms are:

•          Accumulation and maintenance trusts

•          Discretionary trusts

•          Fixed interest in possession trusts

•          Revocable trusts

Maltese Foundations

In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhances Malta as a jurisdiction for international private asset planning. Foundations have been described as the civil law alternative to trusts.

The main difference between trusts and foundations is that whereas, in the case of a trust, the settlor settles assets to a trustee to hold for the benefit of the beneficiaries, a foundation entails the creation of an entity with separate legal personality distinct from the founders, the administrators and the beneficiaries.

The legislation introduced registration as a pre-condition to gaining recognition as a separate legal personality, whilst at the same time acting to safeguard the privacy of each private foundation. This is due to the fact that any documents in the Registrar’s possession are not available to third parties, without the prior written consent of the administrators, the supervisory council, if any, or the Court, and only when satisfied that such third parties have a legitimate interest to see this information.

Why Establish a Trust or Foundation?

There are numerous reasons why a trust/foundation may be of benefit, which apply to a trust and private foundation established in Malta: 

• Confidentiality: the foundation deed states the foundation’s name, its registered address, a description of the initial endowment with which it was formed, and its purposes and objects.

On the settlement of assets into a trust, those assets cease to form part of the estate of the settlor. The legal title passes to the trustee, whilst the rights to future enjoyment are passed to the beneficiaries.

• Asset protection: if a home country is not politically or economically stable, a trust/foundation can be established overseas and assets transferred into it (professional advice should always be taken in the home country, prior to any transfer taking place).
• Securitisation vehicle: Maltese law allows for the use of a foundation in place of a trust, as an appropriate vehicle for the securitisation of debt.
• Tax benefit: A Malta trust or foundation may be set up to make use of compliant avenues to minimise estate taxes, defer taxable events to a later date or shift tax burdens onto beneficiaries with more favourable tax impositions
• Succession planning: a trust and foundation can generate a greater degree of privacy and flexibility than may be possible with a will alone. Trusts and foundations can be used to avoid the separation of family estates and to prevent disputes between heirs.
• Spendthrift beneficiaries: trusts and foundations can be created to prevent reckless heirs from spending family wealth on the death of their parents, by limiting their interest to income or to capital (at least until they reach a certain age, or until they fulfil certain requirements). Trusts and foundations can be drafted in such a way that a beneficiary is ‘excluded’, if they are, for example, declared bankrupt.
• A solution for the care of individuals with special needs and minors: a trust and foundation can be used to make special provisions for beneficiaries who will be unable to care for themselves on the death of the settlor/founder, and in situations where it may be appropriate that one heir should benefit more on the death of the settlor/founder, as they require a greater amount of care, with its associated costs.
• Lifestyle planning: partners who are not married, or whose family arrangements are not straight-forward may find that some countries’ legal systems do not provide adequate solutions on their death or separation. In such cases a specifically drafted trust or foundation can be used to ensure that partners, and children of such partners, are treated as the settlor or founder intends.

Taxation of Trusts and Foundations in Malta

Taxation of Trusts

Under Maltese Tax Laws, trusts are considered to be transparent in that income earned by the trust and distributed to the beneficiaries is not taxable in Malta.

Taxation of a Foundation

A foundation can either be treated as a company, which is both resident and domiciled in Malta, OR as a trust:

• Taxation as a Trust

A Maltese foundation can irrevocably elect that the foundation be treated as a trust, for tax purposes.

An election to be treated as a trust gives rise to beneficial private asset planning opportunities, particularly where the founder and beneficiaries are not resident and/or domiciled in Malta. In such a situation no tax and/or duty will be payable in Malta. This applies on settlement and in relation to the income, attributable to the foundation.

• Taxation as a Company

If a Maltese foundation decides to be taxed as a company, as with other companies in Malta, the income and/or gains realised are subject to tax in Malta on a worldwide basis at the flat rate of 35%.

However, on the distribution of qualifying foreign or local source income, by the foundation in favour of its beneficiaries, the beneficiaries will generally be entitled to a refund of 6/7ths of the Malta tax paid by the foundation, giving an effective tax rate of 5%. This assumes that the beneficiaries are not resident and/or domiciled in Malta.

A number of reliefs are also available to foundations, as well as to companies – amongst these are; the full imputation system, participation exemption, and access to appropriate unilateral agreements, Malta also has wide network of Double Tax Treaties.

Where the beneficiaries of a trust are not resident in Malta and there is no Maltese source income, the income will not usually suffer Maltese tax even if it is not distributed to the beneficiaries.

Duration

Under Maltese Law both trusts and foundations can continue until the 100th anniversary of the date of creation.

Dixcart as Trustees

Dixcart has provided trustee and related trust services in Guernsey, the Isle of Man, Switzerland and the UK for over thirty five years and has extensive experience in the formation and administration of trusts and foundations.

Dixcart can provide trust services through its wholly owned group company Elise Trustees Limited, in Malta, which is licensed to act as a trustee by the Malta Financial Services Authority.

Additional Information

If you would like further information regarding trusts and foundations in Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com, at the Dixcart office in Malta or your usual Dixcart contact.

Background

As we start 2021, the Covid-19 pandemic remains prevalent across most of the world. Measures are starting to be put in place, in particular the introduction of vaccination programmes, that will hopefully bring the pandemic under control.

Behaviours and lifestyles have had to be dramatically altered. This has impacted on private wealth management, as much as almost every other sector of our lives. Some of these changes are likely to remain with us post pandemic. 

What are the New Wealth Management Trends?

• Modified Perception: What is Wealth?

We are witnessing a re-assessment of key priorities.

The importance of family and health have been elevated significantly as have self-fulfilment and happiness. Financial gain naturally remains an important goal for wealth management but this is being balanced against priorities, many of which have been elevated to much greater importance during the past year.   

• Increased Importance of Business Continuity for Family Wealth Management Planning

Contingency plans for business continuity and wealth management now need to take into account widespread country and regional lockdowns and quarantines, travel disruptions, and significant general disruption to businesses and communities.

Continuity plans need to be assessed and strengthened, where necessary, to build  capabilities now and in anticipation of recovery. These plans and contingencies need to be communicated to key internal and external stakeholders to enhance trust and transparency, and to help mitigate against potential  damage to the preservation of family wealth in the future.

• Investor Preference for Lower Cost and More Passive Strategies

In general, there has been movement towards less risky and more ‘steady’ investment strategies. In a time of crisis, upheaval and volatility this is to be expected.

• Client Preference for Less Risk and Additional Planning for the Future

Clients generally have a reduced risk appetite.

Covid-19 has also emphasised people’s mortality and there has been an increased  emphasis on succession planning and the sharing or moving on of responsibilities to the next generation.

As part of this process, clients have been drafting wills and/or reviewing and amending current wills.

• Increasing Moves Towards Holistic Financial Planning and Philanthropy as a Key Objective

Dixcart has long believed in the advantages of holistic financial planning, by assisting with the management of our clients’ assets as a whole. Increasingly this is being recognised as the most effective way for the future, with a trusted adviser knowing the family members and appreciating and understanding their goals and the nuances of their specific wealth management plan.

In the post-pandemic world it is likely that there may be an increased desire by individuals to spread wealth to those less fortunate than others.

Philanthropy is increasingly becoming an objective for private wealth clients. Individuals can give directly to charity (‘chequebook philanthropy’) or more formal structures can be put in place, to provide an organised platform for giving, as well as offering important tax-planning benefits. It is important that this topic area is discussed with clients and accurately reflected in any wealth management plan.

• Interaction with Clients Digitally – Rather than Face to Face

In many cases the only way to ‘meet’ the majority of clients has been on-line. This requires a different approach and discipline and an investment in appropriate and secure technology by professionals working with wealthy individuals and family offices, to retain relationships and maintain required support levels.

Whilst previously the older generation had, at times, been reluctant to adopt new technology, Covid-19 has provided a real incentive to embrace change. The inter-generational divide, in terms of technology use, is generally not as great as it was pre-pandemic.

Key business workflows are being ‘digitialised’ to accommodate changes in both client behaviour and employees working remotely. This trend is likely to evolve further and lead to the use of more interactive planning and performance reporting tools, initially in a virtual setting and, in the future, for in-person meetings.

With the increasing reliance on technology, the importance of cyber-security has been elevated to a much higher level. The training of family members and of staff to identify potential breaches, is becoming even more critical.

• Collaboration Software is Changing the Way People Work

This trend is evident across a number of sectors, including private wealth.  

Wealthy families, as well as the professionals providing wealth management services, have needed to develop new methods of sharing resources across; families, teams and markets.

The new imperative is to provide access to expertise through a variety of different means, other than solely through geographic proximity and physical interaction.

The use of ‘secure team software’ is likely to continue. This applies to wealthy families with individuals located in a number of counties/locations as much as to Family Offices and private wealth managers.

Summary and Additional Information

As we slowly emerge from the recent upheaval and we move to the next ‘normal’, as in the past, the success of wealth management will depend on the ability of professional advisers to listen to clients and adapt to their changing needs. Wealth management specialists will also need to ensure that they are digitally intelligent, in terms of embracing revised means of keeping in touch with contacts and adopting more flexible wealth management operational systems.

• Dixcart is well placed to meet these challenges. Getting to know our clients and really understanding their objectives, has consistently been our key priority. In addition, we embrace new technology and have our own IT department. The IT team works on projects across the Group, and has helped ensure that we have solutions in place, to communicate with each client in a meaningful manner, and in a way that is most appropriate to them.

If you would like to discuss any of the matters raised in this Information Note, or have any other questions, please contact John Nelson or Paul Harvey at: advice@dixcart.com.

A trust can be used for a variety of reasons including for estate and succession planning and administering family assets or wealth. A trust may often be used with underlying companies and Dixcart Isle of Man can help with such formation and administration services.  The Isle of Man is a leading offshore jurisdiction for trusts with its own trust legislation.

What is a Trust?

Simply put, a trust is a legal arrangement where the ownership of the “Settlor’s” assets (such as property, shares or cash) is transferred to the “Trustee” (usually a small group of people or a trust company) to hold and manage for the benefit of third parties known as the “Beneficiaries” under the terms of a Trust Deed.

A trust can provide flexibility as it can set out terms on how and when assets may be distributed after the death of the Settlor and often without burdening the beneficiary with the weight of responsibility that immediate wealth inheritance can bring. 

What are the Main Reasons for Establishing a Trust?

• Preservation of wealth

The entrusting of the legal title of the assets in a Trustee prevents the ownership of the assets being diluted by successive generations, whilst allowing individuals to continue to benefit from the assets, such as a family business. As the legal title to the assets remains with the Trustee, this prevents the dilution of ownership that would occur if the assets were distributed from the original owner to second and third generations.

• Circumvention of forced heirship laws

By divesting assets during the lifetime of the Settlor, the trust will not form part of his estate upon his death, avoiding forced heirship rules which may apply under laws in the Settlor’s country of residence.

• Succession planning

As the Settlor no longer owns the assets, the need to obtain probate or similar formalities on his death can be avoided. A trust is therefore an efficient vehicle for transferring the benefits of property through generations, providing a useful tool for Settlors as part of tax and financial planning. 

• Asset protection

The Isle of Man offers a secure and stable political environment in which to hold assets and protect them from strategic risk. In addition, a trust can offer protection from creditors or other third parties in the country of domicile or residence of the Settlor.

• Confidentiality

On the settlement of assets into a trust, those assets cease to form part of the estate of the Settlor. The legal title passes to the Trustee, whilst the right to future enjoyment can be passed to the Beneficiaries. Private trusts formed in the Isle of Man are not required to have accounts audited or to file accounts with any public body.

The Use of an Isle of Man Trust

Using an Isle of Man trust for estate planning is a popular and efficient way to structure your assets. The Isle of Man is autonomous from the UK and is a self-governing Crown Dependency. This political independence and the Trusts Act 1995 mean that all matters and questions related to an Isle of Man trust are determined solely by local laws. That said, as much of the island’s legislation is based on English Law, decisions of the English High Court and the Court of Appeal will be persuasive in the Isle of Man courts.

The location of a trust and its Trustees is an important factor to consider when creating a trust. We advise clients to establish a trust in a jurisdiction which is reputable and well-regulated.  The Isle of Man satisfies such requirements and is considered a suitable location of choice for a trust.

Isle of Man trusts receive many benefits, including:

• An Isle of Man resident trust has no liability to Manx tax provided there are no Manx resident beneficiaries and no taxable Manx source income. Bank interest from Manx banks is exempt if there are no Manx resident beneficiaries.
• No income tax for non-residents: non-resident Beneficiates can benefit from a zero rate of tax for either distributed or undistributed income.
• No capital gains tax, inheritance tax, gift tax or estate tax.
• There is no restriction on the accumulation of income.
• Privacy and confidentiality: Under current legislation Isle of Man trusts are not required to provide information on public record, offering an additional level of confidentiality protection, for trust Settlors and Beneficiaries, nor do they need to be registered (unless they hold Isle of Man real estate or are charitable).
• The ability to appoint a ‘Protector’ (such as a trusted professional advisor) to provide an additional layer of oversight for the Settlor and to provide further advice, if required.

Summary

Not only do trusts help to navigate the tax environment and provide long-term security for the Beneficiaries in an efficient manner, they also allow the wishes of the Settlor to be carried out over a longer period of time, with the correct discretion.

Additional Information

The Dixcart Group has provided Trustee and related trust services for over forty-five years and has extensive experience in the formation and administration of trusts.

The Dixcart Isle of Man office can assist with the formation and administration of trusts and also with foundations, private and managed trust companies and other family office services. Our team of professionals, work with private individuals, international families and also with legal and accounting firms around the world.

Dixcart Management (IOM) Limited is licenced by the Isle of Man Financial Services Authority to provide trust and corporate services.  The company is also a member of the Association of Corporate Service Providers in the Isle of Man.

For more information, please contact the Dixcart office in the Isle of Man: advice.iom@dixcart.com.