Quantum of Success

Richard FrimstonI used to understand the Succession Regulation, but now I am not so sure.

The EU Commission put together an excellent conference in Brussels on 19 November, on the subject, which many STEP members attended.

Although several interesting individual topics were covered, the overriding impression I obtained was that we are all still looking at the Regulation through the prism of our own individual national systems. Not all of us have quite made the mental leap that the Regulation introduced a new system that is supra national.

The most contentious debate probably related to the legal effects of the Succession Certificate (ECS). Does it really replace local certificates? France may be concerned as to the fact that an ECS is not an Acte Authentique, while Germany worries as to the preservation of the purity of its Land and other Registers.

If a notary is not acting as a ‘Court’, are notaries subject to the jurisdictional limits of the Regulation? Who is asking?

The Italian perspective was expressed in the view that a professio juris of the national law might not be effective, if it coincided with the current habitual residence. Everyone else disagreed.

Many differing opinions were expressed, but the only real conclusion was that we are all feeling our way in territory that has never been explored before. We need to keep talking to professionals and advisors in other jurisdictions and try to discuss these matters with as few preconceptions as possible.

As ever, the real benefit of the conference was the opportunity to spend time meeting others from different Member States, and discussing the problems of international succession. We all shared a common interest in trying to find solutions to the problems faced by EU citizens attempting to plan their succession.

Clients and advisors like certainty. Helping everyone understand that it does not exist, and finding the best route through, has always been the unhappy job of the quantum mechanic.

  • EU Regulation on Succession and WillsFor more analysis of the Regulation see EU Regulation on Succession and Wills, Commentary by: Ulf Bergquist, Domenico Damascelli, Richard Frimston, Paul Lagarde, Felix Odersky, Barbara Reinhartz. STEP members receive a 20% discount: www.step.org/discounted-books (log in).

Richard Frimston, Partner, Russell-Cooke, London

Have you sorted your LEIs?

George HodgsonThe Financial Stability Board is probably the most powerful body nobody has heard of. It was set up by the G20 after the financial crisis and is drawn largely from central bankers. One of the issues it has focused on is effective monitoring of counterparty risk in financial markets. In a process most bureaucrats will recognise, the Financial Stability Board (FSB) therefore spawned the Regulatory Oversight Group (ROC), which decided that what the world needed was better identification of the legal entities which are counterparties to transactions on financial markets, so it in turn spawned the Global Legal Entity Identity Foundation (GLEIF) based in Switzerland.

The GLEIF has designed a system where every ‘legal entity’ will need to register and obtain a unique identification number – a Legal Entity Identifier (LEI) before it can trade on financial markets. Crucially, to the dismay of the purists, in the world of GLEIF, ‘legal entities’ appears to include trusts.

Acquiring an LEI will of course involve a fee (in the UK around GBP100), and it will need renewing annually (a further fee, of course), but the real challenge is that the body which issues the LEI (which in the UK will be the London Stock Exchange) will need to validate the details of everyone it issues an LEI to against various public sources. If it can’t validate the details, then it can’t issue an LEI, and the entity can’t trade in financial markets, even when it’s acting through a third party such as a fund manager or broker.

This all works for corporate entities, but what about trusts? Trusts generally do not have publicly available information against which their application for an LEI can be validated. With the current plan, therefore, they will not be able to get an LEI.

To be fair, the London Stock Exchange acknowledges the problem and has looked for guidance to its own regulator, the Financial Conduct Authority. The regulator, however, seems to be disinclined to get in the way of the GLEIF, ROC or FSB.

LEIs are already being issued but the new regulations will come into force in January 2017, and after that date an LEI will be required by all investors in financial markets. We therefore seem to be heading for a situation in which, apparently by accident, trusts – one of the commonest ways of holding family wealth in the common-law world – are effectively locked out of participation in financial markets.

Some might call this a bit of a mess, but the American term of SNAFU might be nearer the mark. We can, however, only see if over the coming months some common sense can be brought into the process.

George Hodgson, Deputy Chief Executive, STEP

Lord Lucan is presumed dead, but what about other missing people?

empty armchair
Lord Lucan has been back in the news, with his son’s bid to inherit the title from his father, who disappeared in 1974 after the family nanny was found murdered.

But it throws into sharp focus the plight of around 30 – 40 families a year who lose a family member but are unable to prove a death.

The Presumption of Death Act 2013, which came into force in England and Wales in October 2014, much improved their position. Under the new law, which was passed after a lengthy campaign from the charity Missing People, families can apply for a Certificate of Presumed Death, which acts like a death certificate and means the estate can be administered.

However, many legal professionals are unfamiliar with the new law, and Missing People is actively campaigning to get it better known.

“Although the law helps families resolve their loved one’s affairs, making the decision to apply for a Declaration of Presumed Death is a difficult, daunting and emotional one,” said Susannah Drury, Director of Policy, Research and Development at Missing People, “The process is currently made all the more challenging as we know that there is a shortage of legal and financial professionals who are familiar with the new legislation.”

Sarah Young, Partner at Ridley and Hall Legal Limited, in Huddersfield, has used the Act a number of times and has more cases underway. “It’s working well,” she says, “It’s great that we now have this Act as it has raised public awareness that someone can be legally presumed to have died. The Act is also very useful in that it can dissolve a marriage or a civil partnership. Previously a separate application had to be made.”

She acknowledges, though, that even some legal professionals are not aware of the Act and have still been advising people they need to wait seven years. The fact that the Act refers to the old seven year rule does not help, she says.

The cost is also expensive for many people. Apart from the £480 fee, they have to place an ad in the local paper, which can easily be £200. They also find that placing an ad, and the requirement to send copies of court papers to any relative are a breach of their privacy, and can be problematic if family members don’t get on well or haven’t been in touch. “I suppose it is important as if it was private it could be concealing something dodgy,” she concedes, “but the families don’t much like it.”

Missing People’s Susannah Drury cites the case of one family whose suicidal 20 year old son with Asperger’s Syndrome disappeared in 2012. While he was witnessed jumping from the Humber Bridge, and had left suicide notes, no body was found, and the family decided to pursue a Certificate of Presumed Death.

The young man’s mother found she had to manage the application on her own after finding local law firms unfamiliar with the process. While it was ‘bittersweet’ when the judge granted a Presumption of Death certificate, the family was finally able to deal with such practicalities as closing accounts and stopping letters addressed to him.

Rita Bhargava TEP, a partner at Russell-Cooke Solicitors in London, notes how important this is for families. “While the Act cannot address the trauma and emotional struggles caused by the disappearance of a loved one, it will finally allow the family to deal with their loved one’s estate, giving them some closure,” she says.

Missing People has published information for professionals working with families on a missing person’s financial or legal affairs:

Joanna Pegum, STEP PR & Media Executive

Money laundering and ‘The Red Tape Challenge’

George HodgsonMost STEP members, almost wherever they are based, would probably agree that we are facing a real risk of bureaucratic meltdown. Practitioners have only just negotiated the joys of the US Foreign Account Tax Compliance Act, FATCA, but they must now focus on the Common Reporting Standard, CRS (not forgetting the UK/Crown Dependencies and Overseas Territories inter-governmental agreements). At the same time, many jurisdictions are now beefing up their anti-money laundering (AML) regimes in the wake of the revisions to the Financial Action Task Force international AML standards, with Europe now working on implementing the 4th AML Directive.

On top of all that, many STEP members will also need to think about the new European Markets in Financial Instruments Directive and the additional burdens that will place on investors in terms of registering and reporting.

In this environment STEP practitioners will probably welcome the announcement that the UK government, philosophically committed to cutting regulation and bureaucracy, has launched a so-called ‘Red Tape Challenge’ to see if there is any unnecessary bureaucracy in the AML area. This informal consultation closes on 23 October.

STEP has already made a short submission based on feedback we have received from members (see more). Our submission focuses first on the problems faced by those who don’t fit the normal tick boxes many financial institutions now use for AML checks.

Second, we highlight the growing difficulty many STEP members report in doing business with financial institutions as they switch to a much more risk averse approach.

Finally, we highlight the absurdity that practitioners in the UK now find themselves having to struggle with three different new reporting processes (FATCA/CRS, the Corporate Register of Persons with Significant Control and the Legal Entity Identifier registration process under MiFIR, the Markets in Financial Instruments Regulation). These are all broadly focused on tracking beneficial ownership, but coming through with no attempt at coordination, or to share either the administrative burden or cost.

Of course given that many of the problems we have identified flow from initiatives launched by the current UK administration, it may be politically difficult for the current government to change tack.

Nonetheless, if STEP members want to make their own submissions to the current consultation process, that may add to the pressure for a government philosophically committed to cutting the regulatory burden on business to examine if there any easier ways of achieving its AML policy objectives than those currently on the table.

George Hodgson, Deputy Chief Executive, STEP

The US’s status under the CRS

George Hodgson, Deputy Chief Executive, STEPThis week the IRS confirmed that it has begun fulfilling its obligations to those jurisdictions with which the US government has signed a Model 1A inter-governmental agreement. Under the reciprocal exchange accords, it has transmitted information on those who are tax resident outside the US to the relevant national tax authorities. This puts the spotlight on the US’s position under the OECD’s Common Reporting Standard (CRS).

The US has made it clear that it does not intend to adopt the CRS, arguing that FATCA (US Foreign Account Tax Compliance Act ) better fulfils its needs. This leaves the US as a ‘non-participating jurisdiction’ under the CRS regulations. While under the CRS there is no equivalent of the withholding sanction that is the big stick underpinning FATCA, the result of the US being a non-participating jurisdiction is that all Financial Institutions (FIs) in the CRS will need to treat any US Reporting FI as a Non-Financial Foreign Entity (NFFE). In English, what that means is that any CRS FI holding an account for a US FI (such as a trust in Wyoming, South Dakota or wherever) will need to ‘look through’ the US FI and establish – and report if need be – on its controlling persons.

Some will find this perverse given that the US is exchanging information with many CRS jurisdictions, but not via the CRS. It’s a position the OECD seems to be holding, however, and it raises issues that STEP members should be aware of when dealing with US FIs.

George Hodgson, Deputy Chief Executive, STEP

Specialist apprenticeships on the way

Nigel Race, Director Professional Development, STEPThe Private Client industry continues to grow as a legal area and demand for private client legal services will only increase as the UK’s demographics change. It is good news, then, that a new apprenticeship in probate has been approved. The apprenticeships will open the door to a younger and more diverse labour pool than exists at present.

And aside from helping to meet the demand for estate administration, the apprenticeship will ensure a well-qualified group, grounded in practical experience and mentored and supervised by specialists in their firms, will increasingly be handling this sensitive area of work and at a level of complexity to suit their competence. STEP has advocated the regulation of will writing and estate administration for many years but, in the absence of regulation, believe this supervised and controlled development of an appropriately skilled work-force is key.

Developed by a group of employers focused on estate administration, with the support of STEP, CLTI and CLC, the new Probate Technician programme offers an exciting career opportunity for those wishing to work in probate but who do not have a prior legal qualification.

The Probate Technician Standard apprenticeship was developed by a consortium of specialist practitioners led by Andrea Pierce of Kings Court Trust together with input at the designated meetings from Michelmores LLP, Irwin Mitchell LLP, Stratega Law, Withy King LLP, Goodwills, and with the support of STEP as the relevant professional body in the private client sphere. Many other forms supported the project through survey responses.

Those qualifying as a Probate Technician will have proof of achievement of expertise in a specialist area of law – making them more attractive to prospective employers, and helping them get that crucial first step on the career ladder. They will also be able to apply for STEP affiliation.

The apprenticeship is part of the UK government’s Trailblazer scheme and is due to come in for the academic year 2017-18. Employers will be able to apply for assistance with their cost for training apprentices.

Read more

Nigel Race, Director, Professional Development, STEP

New EU rules give UK families more freedom over legacies


The EU Succession Regulation comes into force today, giving much more freedom to families as to how they pass on assets they own in the EU in their wills.

This could be particularly important for UK families with holiday homes in the EU or for those with parents and grandparents living in the EU.

George Hodgson, Deputy CEO of STEP, the professional body for specialists in family inheritance and related areas commented: “Many European countries have so-called ‘forced heirship’ rules, where the law lays down precisely how someone’s assets have to be passed on within the family after death. Until now, for example, a UK family with a holiday home in France had very limited options as to how that could be passed on through the family. The new regulations change that, and should be a prompt to everyone with EU assets to review their inheritance plans”.

Mr Hodgson cautioned that the new rules are complex, but even though the UK itself has opted out of the Succession Regulation, they still give potentially valuable new rights to those with property or other assets in the EU. Given the complexity, however, it would be wise to seek specialist advice as to how to change any inheritance plans.

The EU Succession Regulation comes into force today, Monday 17 August. It has the potential to affect the estates of any individuals with any connection to any EU Member State in which the Succession Regulation has direct application.

The UK has opted out of the EU Succession Regulation, but British owners of holiday homes in EU member states such as France should update their wills and draw up French ones to avoid the country’s forced heirship rules.

Details on the new regulation can be found at http://ec.europa.eu/justice/civil/family-matters/successions/index_en.htm and an example of how the new rules might work is attached.

An example:

Clare is a British citizen who is resident in England but has a French holiday home she uses a few weeks each year. French forced heirship rules would oblige her to leave her holiday home to her husband and children, with clear rules as to how it would be divided. She would like instead to leave it to her brother, since it was bought with money from their grandparents.

Until today, the law governing who receives the French house on Clare’s death was generally French law. But as of 17 August 2015, this need no longer be the case.

The new regulations say that someone can generally choose the law applicable to their inheritance. This can either be the law applying where the deceased had their ‘habitual residence’ at the time of death, or the law of the state of nationality at the time of making the choice, or at the time of death.

As a British citizen, therefore,  Clare can now opt to have her French holiday home treated under English law and leave it to her brother.

George Hodgson is STEP Deputy Chief Executive

STEP LatAm News Digest wrap-up – July’s top stories

Argentinian-flag-behind-courtArgentina topped our most read stories from the region last month, with changes to trust law and a succession ruling of most interest. In case you missed them, here are the top five:

Regulation of Argentine trusts under the new Civil and Commercial Code: On August 1, 2015, a new civil and commercial code (the ‘new Code’, Law No. 26.994) will become effective in Argentina which introduces new regulations in connection with trusts in Argentina. The new Code amends existing Argentinian trust law (Law No. 24,441, the “Trust Law”).

Argentine court hands down succession ruling; rules on applicable law: When deciding on the succession of Cesar Joaquin Porto (Porto, Cesar Joaquin s/Sucesion Ab Intestato) on May 10, 2015, Chamber H of the National Civil Appellate Court (hereinafter, the ‘Appellate Court’) ruled that if the assets of a deceased person were located in different countries, the succession regime applicable where those assets are located should be applied (i.e., the applicable succession law is that of the country where property is situated).

Chile: Tax authority issues circulars on tax evasion as part of reform: Chile’s tax authority (Sp: Servicio de Impuestos Internos, SII) has issued a number of circulars on tax evasion which will apply from September 30, 2015 – this is partly to implement the government’s tax reform. These include circular 51 (on the obligation of financial institutions to share information with the SII and other governmental authorities) and circular 55 (on the validity of the rules to combat tax evasion).

Executives of Panamanian Corporation and Aviation Company Arrested in Multi-Million-Dollar Money Laundering Sting: Michael J. Dodd, also known as ‘Michael Stanley,’  Kenneth Ardell Landgaard, and James Robert Shipman, Jr. were arrested today on charges that they conspired to launder over two million dollars of proceeds from what they thought to be a penny stock fraud scheme. The money was, in fact, provided to the defendants by an undercover law enforcement agent who posed as a criminal stock promoter as part of a sting operation.

Brazilian tax policy likely to increase taxes on financial institutions and high net worth individuals: Recent tax policy trends in Brazil are likely to increase taxes on financial institutions, dividends and high net worth individuals. First, a tax on the profits of firms in the financial sector is due to increase by a third, from 15% to 20%. This increase is scheduled to go into effect on 1 September 2015, and will likely affect the financial industry significantly. Second, high net worth individuals are also likely to be subject to higher taxes on their wealth. Specifically, there are discussions in the Brazilian Congress around targeting dividends, as well as proposals for a federal wealth tax.

The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: www.step.org/register.

Follow @STEPSociety for regular updates.

STEP US News Digest wrap-up – July’s top stories

paying-taxes---one-pays-anotherPresidential candidate, Senator Bernie Sanders’ bid to increase estate taxes for the wealthiest proved of particular interest to our US readers. The top five news items for July follow, in case you missed them:

US presidential candidate proposes increasing taxes on wealthiest: Presidential candidate, Senator Bernie Sanders of Vermont, introduced on June 25 the Responsible Estate Tax Act which proposes increasing estate taxes for the wealthiest Americans. Currently, the first USD5.4 million of an individual’s estate (almost the first USD11 million of a married couple’s estate) are exempt from the tax. The Bill, which aims to reduce “skyrocketing income and wealth inequality” recommends that the first USD3.5 million of an individual’s estate (the first USD7 million of a married couple’s estate) should be exempt from estate tax.

B.C. Supreme Court cures will that did not comply with legal requirements: In Re Yaremkewich Estate, the Supreme Court of British Columbia held that the testamentary documents the deceased left constituted a valid will under the Wills, Estates and Succession Act 2009 even though they did not comply “with the formal execution requirements” of the Act.

Court renders first decision on provincial residency of a trust: In Discovery Trust v Minister of National Revenue (2015 NLTD(G)86), a trust tax return was reassessed following a finding by an auditor that emigrating the trust to Alberta was abusive. In 2008, the Discovery Trust filed returns as if it was resident in Alberta (as opposed to Newfoundland) and thereby saved CAD9 million approximately in tax.

Presidential candidate to sue US government over foreign bank account reporting rules: Senator of Kentucky and Presidential candidate Rand Paul is to sue the Internal Revenue Service in pursuance of a court declaration that its Foreign Bank Account Reporting (FBAR) regime and the Foreign Account Tax Compliance Act (FATCA) are unconstitutional.

BC Supreme Court declares will invalid after son “failed to show” it was duly executed: In the case of Harshenin v Khadikin (2015 BCSC 1213) the Supreme Court of British Columbia held a will invalid because the defendant had failed to prove that it was “duly executed in compliance with the requisite statutory formalities” and therefore revoked a grant of probate issued to the defendant with regard to his late father’s estate.

The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: www.step.org/register.

Follow @STEPSociety for regular updates.

STEP International News Digest wrap-up – July’s top stories

Rope-and-anchorA focus on non-doms and offshore proved especially interesting for readers of our STEP International News Digests for July 2015. In case you missed them, here are the top ten worldwide industry items.

Non-doms’ UK property to be drawn into inheritance tax net: The British government’s summer Budget announced yesterday includes two momentous measures affecting non-domiciled residents from April 2017. The first is an end to the indefinite nature of non-dom status. At the moment, a qualifying non-domiciled resident can elect for the remittance basis of taxation, under which they do not pay tax on income and assets kept offshore.

Jersey fiduciary acquitted of failing to report ‘suspicious’ transaction: Jersey’s Royal Court has acquitted a director of trust and company service provider STM Fiduciaire of charges related to suspicious transaction reports, in the first criminal prosecution of its kind.

Appleby to sell fiduciary business: Offshore legal, fiduciary and administration service provider Appleby has announced ‘the management buyout of its fiduciary business (AFB) for an undisclosed sum, backed by private equity firm Bridgepoint’. AFB provides trust and corporate services (TCS) administering over 10,000 structures for almost 6,000 clients from nine locations.

Cyprus hopes to tempt foreign investors with sweeping tax reforms: Cyprus has announced a series of tax reforms to attract foreign investment. The most revolutionary is the introduction of the new concept of domicile. Foreign individuals classed as tax-resident under the usual day-counting basis can qualify as non-domiciled if they meet certain criteria to be set out in as yet unpublished draft legislation. Non-doms’ income from dividends will be exempted from the 17 per cent special defence contribution, thus capping the effective dividend tax rate at 12.5 per cent.

UK expected to renew pressure on British Overseas Territories over ownership registers: The UK government is expected to resume its pressure on British Overseas Territories to set up registers of company beneficial ownership, at the Joint Ministerial Council meeting in London later this year. Cayman Islands premier Alden McLaughlin made the announcement at a meeting of Overseas Territories (OTs) leaders in Bermuda last week. Although there has been a brief respite in the pressure from London since the UK general election, the matter has not gone away, he said.

UK ‘successful’ in attracting wealthy migrants since 2000: The UK has been far more successful at attracting high-net-worth migrants than any other country in the past 14 years, according to a report from the consultancy New World Wealth. There was a net inflow of 125,000 high-net-worth individuals (HNWIs) into the UK in the 2000-2014 period, the report found. The country’s main attraction is, of course, London, with its language advantage, international nature, ease of travel to EU countries, lack of restrictions on moving money and buying property, and high-quality education system.

European Succession Regulation – Selling French probate property from 17th August 2015: The European Succession Regulation will start to take full effect from 17 August 2015. After this date, French properties being sold by deceased estates will need to be handled with great care. British nationals who die resident in England with French property will, in most cases, have their French estate dealt with under English law. This means that the notaire selling the probate property has to do so under English law.

Facebook lets users appoint ‘heir’ to manage account when they die: Facebook users in the UK can now hand over administration of their profile to a friend or family member after their death.

Tackling offshore evasion: The UK government announced four consultations as part of its publication Tackling Evasion and Avoidance. These take forward HMRC’s strategy for tackling offshore evasion, No Safe Havens. An update on this strategy was published in April 2014.

Indian Revenue sets conditions of Black Money Act amnesty: The Indian federal government has set out exactly how the Black Money Act and its associated disclosure opportunity will work.


The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: www.step.org/register.

Follow @STEPSociety for regular updates.