A matter of trust

Written by: David Craik Posted: 11/01/2021

BLASIA_Matter of Trust illoWhy are wealthy Far East families and entrepreneurs increasingly turning to the Channel Islands to set up trusts and protect their assets?

This year, Channel Islands-based law firm Bedell Cristin launched a comparative analysis into the trust structures of Guernsey, Jersey, Singapore and Hong Kong.

The catalyst for the work was an increasing demand from Asian and Far Eastern clients to discover more about what offshore services were offered in the Channel Islands.

“They often come to us for advice about where best they can set up a trust structure to lessen risk,” explains Bedell Cristin Partner Nancy Chien. “They are very familiar with Hong Kong and Singapore structures, for obvious reasons, and even the British Virgin and Cayman Islands, but they don’t know the Channel Islands so well. 

“Although their knowledge is improving, we felt it would be helpful to do a more detailed analysis to help meet the increase in demand.”

Chien discovered that, despite the huge geographical differences, there are a number of fundamental similarities between the jurisdictional trust structures. But there are also enough key differences to ensure that Asian clients could take advantage of getting closer to the Channel Islands in terms of asset protection.

Comparing structures

The starting point when comparing trust structures is that those in Hong Kong and Singapore are modelled more on English law and are therefore not as modern as those seen in the Channel Islands.

The Singapore trust period is for a maximum of 100 years, so those looking for perpetual trusts – those that will last for generations – may well choose to look to Jersey, Guernsey or Hong Kong instead.

Another fundamental difference is with reserved power trusts. In Hong Kong and Singapore, settlors have power over investments and asset management only – compared with a much wider range in Jersey and Guernsey – without invalidating the trust.

Other differences include beneficiaries’ right to information, firewall legislation, dispute resolution and non-charitable trusts (see box below). 

As a result of these differences, and as awareness of these offshore comparisons grows, Chien expects more clients to look to Guernsey and Jersey. 

“Previously, it was difficult for people in Asia to understand why they would want to have structures in the Channel Islands, because they’re so far away from where the clients are based,” she says. 

“But clients are beginning to understand that Jersey trust law in particular is very robust and flexible. Indeed, the whole regulatory regime and financial services sector is more stable and more mature than jurisdictions such as Singapore. It is tried and tested and has an excellent reputation.”

Chien highlights the work of bodies such as Jersey Finance in making advisers and clients more aware of what the islands offer. Channel Islands firms such as Bedell Cristin are also setting up offices in other jurisdictions, including Singapore, to help attract new business.

“Clients are now better suited and equipped to consider choosing new jurisdictions,” she adds. “It is not just based on location and convenience anymore. It is more of a holistic solution.”

Different trust for different needs

Alongside this enhanced awareness of the options available, interest in the Channel Islands has been driven by the growth of high-net-worth individuals (HNWIs) in Asia in recent years – a result of the region’s economic boom, highly valued listed businesses and thriving entrepreneurial sector.

But what kinds of trusts are Asian clients seeking from Channel Islands providers? Chien believes reserved power trusts are proving particularly popular. 

“There is a lot of young money with very wealthy entrepreneurs in their 30s and 40s,” she says. “They want to keep control of their assets and not just have the power of investments but also to appoint beneficiaries or vary the trust deeds.” 

BLASIA_Matter of Trust illoWisdom Hon, Senior Associate at Ogier, adds that these younger wealthy entrepreneurs are also looking for more guidance on long-term family asset protection. Recent geopolitical events, such as the social and economic unrest in Hong Kong, have played their part in this. 

“In Hong Kong over the past few months, we have seen more and more people looking to set up trusts offshore rather than in Hong Kong,” says Hon. “They are worried and looking for stability. Their wealth is enormous for their age and they particularly want better and earlier succession planning.”

These entrepreneurs are still very active in their businesses, and they have young children and are concerned that creditors could come and claim their assets if things go awry. 

“Where they want to ringfence those assets for their family before things go wrong, using a trust is one of the options,” Hon says. “In addition, their businesses and families may have expanded abroad, and they may want more tax and estate-planning advice.”

Asian clients are also attracted by alternative dispute resolution availability in Guernsey and Jersey trust structures. 

“If there is a dispute in a Hong Kong or a Singapore trust, litigation is a usual avenue for dispute resolution,” Hon says. “In Guernsey and Jersey, it is possible to set out in a trust deed that a dispute should be resolved by mediation or arbitration. 

“Chinese entrepreneurs like arbitration, as it is widely used in a commercial context in China. Arbitration keeps the dispute private and confidential, with less risk of attracting the media’s attention.”

Despite all of this, the picture is not as simple as a stark choice between ‘Channel Islands, good; Asia, bad’ or vice-versa. Chien says they do not have to be mutually exclusive – a combination of Channel Islands and Asia solutions potentially produces the most advantageous result.

“It is a case of finding the right structures for each individual,” she says. “It is also very common to choose a Jersey or Guernsey law-governed trust structure but to have the trustee based in Asia. 

“That means they are in the same time zone as the settlor and they don’t have to worry about any misinterpretations around language.”

Cultural shifts

There can also be confusion over culture. “In the West, for example, we are accustomed to speaking to different advisers for different issues, such as a conveyancing lawyer for a property purchase or a corporate lawyer for business,” Chien says. “Asian clients prefer to have a single point of contact for all their legal needs. 

“They are also sensitive about giving you personal information for the first few meetings – it takes quite a while for them to build up trust. But don’t think their reluctance means that they have something to hide.”

Speaking the same language also helps. Chien calls on her Mandarin skills to better explain the nuances of Channel Islands tax structures to Chinese clients. 

“You need to be tolerant, patient and flexible when dealing with Asian clients. There is a big market out there,” she says.

Hon agrees that her Chinese language capability and understanding of Chinese culture help her better connect with Chinese clients and that the flexibility of Jersey and Guernsey laws provides a good solution for Asian clients. 

“Jersey and Guernsey fiduciary practitioners need to collaborate with local advisers in Asia to develop the Asian market,” she says. 

“Speaking Chinese is important, but having local market intelligence is the key to success. Every family has its own features. Families coming from different parts of Asia can be vastly different. 

“Take your time to build trust with your clients and understand the culture.  Relationship is everything in Asia.” 

This feature was first published in the Asia Edition of Businesslife in December 2020

Comparing trusts across the four jurisdictions

• Non-charitable purpose trusts – Hong Kong and Singapore do not yet permit these.

• Perpetuity period – Singapore is the only jurisdiction with rules on perpetuity, limiting the trust period to a maximum of 100 years. 

• Asset protection – All four jurisdictions have statutory provisions to prevent trusts being attacked by forced heirship provisions. Guernsey and Jersey’s statutory firewall provisions go further by also restricting the enforcement of foreign court judgements. In addition to court orders, Jersey’s provisions also restrict the enforcement of decisions by foreign tribunals. 

• Settlor reserved powers – The statutory list of powers that can be reserved by a settlor without invalidating the trusts is far more extensive in Guernsey and Jersey than in Hong Kong or Singapore, both of which limit reserved powers to investment and asset management.

• Private trust companies – While all jurisdictions permit private trust companies, Hong Kong does not have specific legislation to regulate private trust companies.

• Power to vary – Unlike Guernsey and Jersey, the courts in Hong Kong and Singapore do not have the power to vary trusts on behalf of a minor, unborn or unascertained beneficiary.

 


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