Palladium Newsletter - August 2011

Dear Clients,

Welcome to our August newsletter. We hope that your summer has been enjoyable in spite of even more ups and (mainly) downs in the Euro-zone and US markets. Now more than ever private clients are re-evaluating their risk management and the structure of their personal wealth is the first place to start.

This month, we focus on the concept of trusts and their uses.

We often like to begin discussing trusts with private clients by explaining their origin and how common law in England created the concepts of legal and ‘beneficial’ ownership, a concept which can seem strange to our civil law jurisdiction clients eg from mainland Europe.

The earliest documented use of trusts was seen around the time of the Middle Ages. As oft crusading knights sought to protect and preserve their estates during their likely lengthy absence, they would transfer the legal ownership of their estate to a third party, such as a close friend, with an arrangement that ownership would be transferred back to the knight upon his return. This transfer of legal title enabled the close friend (a “trustee”) to manage the estate effectively and to enforce the rights of the estate against all parties while the knight was away.

Usually a returning knight would reclaim ownership of his estate without any difficulties. Sometimes, however, the "trustee" refused to revert ownership to the knight, despite the agreement between the two parties. Unfortunately for the knight, the agreement he had made was not deemed to be legally binding under English common law and the Court invariably asserted that the person with legal title over the estate was indeed the outright owner.

Due to the increase in such conflicts, separate rules of Equity emerged in parallel with the English common law so that a “beneficial” interest in property could co-exist with a distinct and separate legal interest. Increasingly, the Court of Chancery drew a distinction between the legal and equitable ownership of assets. And it is this concept upon which a trust is based.

Trust law has developed over the centuries since, and the use of trusts has spread not only within the geographic expanse of the former British Commonwealth (from New Zealand to Ghana, Samoa to the United States) but also in the ‘offshore’ world, as the uses of trusts and their reputation for a variety of benefits became widely known.

While England and Wales has the most developed and tested trust law, courts in significant other legal jurisdictions, including Canada, Isle of Man and New Zealand, have developed their own trust laws while smaller jurisdictions (sometimes the larger too) impute other jurisdictions’ rulings on points of law untested in their own jurisdiction. The mixture of both court rulings (“common law”), which develop over and with the time, jurisdiction and culture in which they operate, and statutory acts of parliament form the law upon which trust law in any jurisdiction is based.

Today, the picture is vastly complex and countries with populations as small as 10,000 have enacted their own trust statutes – even where they have typically been civil law countries which have not recognised the concept of separate legal and beneficial ownership. The reason is, of course, to capitalise on the huge global market of ‘offshore’ services. And the quality of the laws of those countries and the integrity of their implementation, put politely, is very “varied”.

Our advice is always to use a jurisdiction where trustees fall under a strong and ethical regulatory code, where courts have a history of trust law, culture of impartiality and low corruption, as well as a high standard of legal interpretation

In the recent past, the bona fide and practical applications of trusts in the personal sphere have mixed with commercial uses as ever more wonderful and convoluted results to separation of legal and beneficial ownership are conjured by the legal and tax planning community.

The Palladium approach is to examine whether the trust at hand can be said to further what we think a trust’s core should achieve: confidentiality (protecting people’s right to privacy, and not secrecy); tax planning (mitigation not evasion); asset protection(from future creditors, commercial or personal); and estate planning (to protect the beneficiaries as much as ‘dole out’ trust funds – money is a powerful tool).

We love to work with clients whose trusts further these wholly legitimate aims in wealth planning and structuring, and which manoeuvre within the letter and spirit of the trust laws which affect them. A well structured and thought through trust can set an individual, his family or a corporation at ease and lead them confidently into the unknown future in very insecure times and when the value of money itself is in doubt.

By using a combination of the law of and administration in excellent and well established jurisdictions - such as New Zealand, Isle of Man and the BVI – together with trusts drafted and administered to enact our four “core” values to the trust, whether their aims are charitable, private or commercial, we foresee a strong and resilient future for trusts as a whole.

Please visit us at www.palladiumtrustservices.net or contact me directly at stephen@palladiumtrustservices.net if you would like more information on what Palladium can do for you and help you plan for what may lie ahead.

We hope you enjoy the articles below and find them an interesting resource.

Until next month,

Stephen

Clash over financial tax likely – Britain to fight Germany with France at its side:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8714604/Icap-boss-Spencers-fury-over-EU-transaction-tax-plans.html

Brazil cracks massive tax evasion scheme:
http://www.laht.com/article.asp?ArticleId=417375&CategoryId=14090

Delaware company – DTT relief not allowed. Is this the end of the road for Delaware?:
http://citywire.co.uk/new-model-adviser/non-dom-private-equity-boss-loses-tax-case-over-us-profits/a515172

Italy introduces substantial tax hikes and anti-evasion instruments:
http://www.tax-news.com/news/Italy_Presents_Its_AntiCrisis_Budget____50966.html

The ‘best’ pre-nup? “Don’t marry”:
http://www.spearswms.com/legal/26067/hands-off-the-loot.thtml

The reason why Tax Information Exchange Agreements can be so dangerous - literally:
http://www.stepjournal.org/news/news/main_story/belarus_scandal_demonstrates_r.aspx?link=journalTitle

50p income tax is ‘uncompetitive’ – UK Chancellor Osborne confirms:
http://www.managersofwealth.com/article/394/george-osborne-confirms-intent-to-end-50p-tax-because-it-is-039uncompetitive039