ADVISING THE ASIAN HNWI FAMILY

by

Mark Lea

Partner : Lea & White Solicitors (Hong Kong)

Managing Director : Lea & White International Advisers Limited

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Some matters of concern

SOME CULTURAL FACTORS

1. Language -When the skill is present, the client may prefer to work in his language. - Linguistic ability may hide lack of comprehension through a different thought process. -Simplicity of explanation – diagrams help. 2. Cultural -Understand the thinking: For example; making a Will or planning for succession courts bad luck. -Understand the history and the reason for the culture – try and think like the people you are dealing with. -Other people do not like being told what to do.

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3. Religion -Look for similarities and not differences.

4. Politics -The need to realize the way countries do or do not work: For example; PRC – Many forms of IT – different treatment in different regions and by different people.

5. Problems -Lack of trust; paranoid on privacy; fees resistance; attitude to legality.

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THE BACKGROUND TO CHANGES IN ASIA/PACIFIC

• 2002-2004 : Changes to the Singapore Trustees Act

• 2004-2013 : Changes to the Trustee Ordinance of Hong Kong

• 2008-2010 : Changes to the Labuan Trusts Act & Introduction of the Labuan Foundations Act

• 2012 : Passing of the Cook Islands Foundations Act

• Proposed : Samoa:- (1)Trusts Act (probably in March 2014) (2)Foundations Act (probably in May 2014)

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THE APPROACH

• Singapore and Hong Kong:

Substantial domestic economies Not to be seen to be “offshore” Benchmarked on UK

Therefore, we give you what we want to give you

• Malaysia/Labuan and Samoa:

Wish to provide the user with as much scope and benefit as legally possible

Comparison with all jurisdictions 5

THE CHANGES IN SINGAPORE

• Maximum fixed Trust Period of 100 years

• Accumulation of income throughout the Trust Period

• Reserved power to a Settlor of investment and investment management

• Statutory Duty of Care: Applicable to powers of investment, delegation (including nominees and custodians), remuneration and insurance

• Anti-forced heirship provision – not applicable where at the time of transfer the transferor is a Singapore citizen or domiciliary

Singapore also has Business Trusts.

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THE CHANGES IN HONG KONG

• The difference with Singapore:

− Singapore’s changes were Government driven

− Hong Kong’s changes are professionally driven

Similar to Singapore, except:-

• Perpetual trusts permitted

• Anti-forced heiship provision will not have a limitation as in Singapore

• If there is no person given the power to appoint and remove trustees under the provisions of the Trust Deed, ability for the Beneficiaries if they are all of full age and capacity, to require a change of trustees

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CHANGES IN LABUAN - TRUSTS

• Flexible Trust Period – can be perpetual or fixed and can be changed from one to the other. If fixed, then the fixed period can be lengthened or shortened

• Wide reserved powers to a Settlor

• Protector provisions: Protector can have proactive or reactive powers – limited and valuable default powers − to remove and appoint Trustees

− to determine the proper law

− to change the forum of administration

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• LST – similar to VISTA: Protection of Trustees retaining the shares of a company and permitting the directors to exercise their powers without the Trustees involvement

• Non-charitable purpose trusts- can be for non-charitable purposes, charitable purposes or persons

• Charitable Trusts – wide definition of charity

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• Asset protection: No claim after 2 years from date the creditor’s cause of action arose

• Anti-forced heirship provision: Covers not only

succession rights testate and intestate but also the personal and proprietary consequences of marriage and of the termination of marriage

• Provisions covering the migration of Trusts • Trustees’ powers: Prudent man test and otherwise

similar to Singapore • Specifies Trustees’ duties

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PROPOSED CHANGES IN SAMOA

• All the changes provided by Labuan

• Trustees’ powers: Statutory duty of care: As in Singapore & UK

• Trustees’ duties: Distinction between mandatory and discretionary duties

• Asset protection: 3 year period

• SISTA is the equivalent of VISTA

• Charitable Trusts can be enforced by the Settlor and provide reverter to Settlor

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• Statutory recognition of a Trust/Limited Partnership structure: The General Partner has day to day control. The Limited Partner’s interest is held by the Trustee who is protected from the acts or omissions of the General Partner

• Special Purpose International Company: A Hybrid between a company and a Foundation

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RETENTION OF CONTROL

Reserved powers to a Settlor

: Cayman, Dubai, Guernsey, Jersey, Labuan & Samoa

(suggest for quoted securities and cash)

Reserved powers to Founder

: Interest in Foundations Laws - Guernsey, Jersey, Labuan & Samoa

Reserved powers to a Protector

: Dubai, Guernsey, Labuan & Samoa

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Split share capital:

(remember the rights of minority shareholders)

Two trustees - Different roles

: New Zealand

VISTA (The Virgin Islands Special Trust Act)

: BVI Labuan (LST) Samoa (SISTA)

[Trustees may retain shares of a company and permit the directors of the company to control it without the Trustees being liable]

(A solution in trust law; jurisdictional specific; intervention calls – for relatively simple structures)

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Anti-Bartlett Clauses:

(Does not work where actual or imputed knowledge: Reflective loss problem)

Trust/Limited Partnership structure

: Samoa will be the first jurisdiction to legislate for this

(For complex structures): Not a solution in trust law; Trustee cannot misappropriate assets: Not jurisdictional specific)

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CASE STUDY • P has a number of operating companies (4 only are shown here) and

wishes to provide in this respect for

− family succession

− asset protection

− avoidance of Probate

• P has more than one family. If he does not plan during his lifetime, there will be forced heirship consequences which he wishes to avoid. In this respect P changes his mind and needs flexibility.

• P wishes to retain day to day control over the operating companies and to determine the future control of them. He may want different control for different companies.

• P trusts no one. Particularly he is concerned at any role which others will play.

• P is paranoid about privacy.

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DIAGRAM 1

of proposed Trust/Limited Partnership Structures for Mr. P

“MAIN TRUST”

DISCRETIONARY TRUST

•Trustee: Independent Trust Company •Protector: Mr. P •Discretionary Beneficiaries (see Diagram 2)

ONE OF THE HOLDING COMPANIES OF THE MAIN TRUST

GENERAL PARTNER COMPANY

1%

HOLDING COMPANY

LIMITED PARTNERSHIP

LIMITED PARTNER 99%

100 shares

Declaration of Trust by the General Partner of the shares of the Holding Company

for the Partners of the Limited Partnership in the ratio in which they share

the capital of the Limited Partnership

Directors: Mr. P & Mr. P’s appointees

Declaration of Trust of 100 Shares of GP Co.

NOMINEE SHAREHOLDER

PURPOSE TRUST

•Trustee: PTC •Purpose •Ultimate Beneficiary •Protector: Mr. P •Enforcer

100 shares

100 shares

Issued shares ONE OF THE OPERATING COMPANIES

Declaration of Trust of the Interest of the Limited Partner

[NOTE: Allow for 4 x this structure – one for each operating company]

EXAMPLE OF 1 SUCH STRUCTURE IN GENERAL TERMS: DETAIL

FOLLOWS IN OTHER DIAGRAMS

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DIAGRAM 2 DISCRETIONARY TRUST 1

100 shares

[THIS ASSUMES 4 OPERATING COMPANIES AND THEREFORE 4 X LIMITED PARTNERSHIPS

FOR THIS EXAMPLE

100 shares

THE MAIN TRUST DISCRETIONARY TRUST

SETTLOR : MR. P

TRUSTEES INDEPENDENT TRUST COMPANY

PROTECTOR : MR. P

SUCCESSOR PROTECTOR :

BENEFICIARIES : Mr. P and TRUSTS 1, 2, 3 & 4

SETTLOR : MR. P

TRUSTEES : INDEPENDENT TRUST COMPANY

PROTECTOR : MR. P

SUCCESSOR PROTECTOR :

BENEFICIARIES : CHILD 1 & CHILD 1’S CHILDREN

& REMOTER ISSUE

DISCRETIONARY TRUST 2

SETTLOR : MR. P

TRUSTEES : INDEPENDENT TRUST COMPANY

PROTECTOR : MR. P

SUCCESSOR PROTECTOR :

BENEFICIARIES : CHILD 2 & CHILD 2’S CHILDREN

& REMOTER ISSUE

DISCRETIONARY TRUST 3

SETTLOR : MR. P

TRUSTEES : INDEPENDENT TRUST COMPANY

PROTECTOR : MR. P

SUCCESSOR PROTECTOR :

BENEFICIARIES : CHILD 3 & CHILD 3’S CHILDREN

& REMOTER ISSUE

DISCRETIONARY TRUST 4

SETTLOR : MR. P

TRUSTEES : INDEPENDENT TRUST COMPANY

PROTECTOR : MR. P

SUCCESSOR PROTECTOR :

BENEFICIARIES : CHILD 4 & CHILD 4’S CHILDREN

& REMOTER ISSUE

100 shares

HOLDING COMPANY 1

INTEREST OF LIMITED

PARTNER IN LIMITED

PARTNERSHIP I

HOLDING COMPANY 2

INTEREST OF LIMITED

PARTNER IN LIMITED

PARTNERSHIP 2

HOLDING COMPANY 3

INTEREST OF LIMITED

PARTNER IN LIMITED

PARTNERSHIP 3

100 shares

HOLDING COMPANY 4

INTEREST OF LIMITED

PARTNER IN LIMITED

PARTNERSHIP 4

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