Preserving the confidential nature of trusts

George Hodgson

I welcomed David Cameron’s recent letter to the President of the European Council, Herman Van Rumpoy, rejecting calls to include trusts in the public registries of beneficial owners that the UK is proposing for companies. In the letter the Prime Minister noted the need to ‘recognise the important differences between companies and trusts’ in this context.

Families are right to expect that the details of trusts should be kept confidential – it would be inappropriate to expose families’ financial plans to public scrutiny. Trusts are private matters for families, and just like other aspects of their finances, they have a right to expect that their details will remain confidential. Trustees quite rightly have a legal obligation to co-operate with any official inquiries regarding a trust, but this is very different to requiring families to make public their personal decisions on how best to safeguard future generations.

The risk of family trusts being used for money laundering is very low indeed. Moreover HMRC statistics confirm that in around a quarter of cases, trusts are used to help protect vulnerable family members. Publishing details of vulnerable beneficiaries would leave them seriously exposed to potential abuse, given the risk of such information falling into the wrong hands.

At STEP we fully support efforts to tackle tax evasion and money laundering, and note that the current arrangements where trustees must collect the information on trusts and, where relevant, make full reports to tax and other authorities, have generally been found to work well by independent international assessors.

Trustees quite rightly have a legal obligation to co-operate with any official inquiries regarding a trust, but this is very different to requiring families to make public their personal decisions on how best to safeguard future generations.

George Hodgson is Deputy Chief Executive of STEP.

Is financial privacy coming to an end?

In recent years, we have seen almost daily developments chipping away at long-established boundaries of financial privacy. Before the global recession gave this process real impetus, who would have thought that offshore financial centres would sign automatic exchange of information agreements?

The UK’s proposed public registry of company beneficial ownership may prove to be a game changer if, as the UK hopes, it becomes a de facto global standard. Whether each jurisdiction makes such data publically available, as the UK plans, or ‘consultable by request’ as planned for the new register of French trusts, is arguably less important than the fact that the data is collated at all. The Cayman Island authorities have already announced a consultation on a similar company registry and that they will ‘adopt standards that are practiced worldwide’.

These developments are driven by the goal of preventing tax evasion and limiting avoidance to raise additional revenue. Yet many clients coping with sensitive personal circumstances may have genuine reasons for fearing that their financial privacy is rapidly coming to an end.

Fortunately, the UK registry will allow ‘Limited exemptions from public disclosure … where it is necessary to protect individuals whose safety might be put at risk.’ While this is essential, it is unlikely to help those who seek privacy because personal family relationships are ‘complicated’.

The UK’s proposal to force disclosure of trustees that are beneficial owners of companies (and in some cases the trust beneficiaries) could also be significant if it signals the start of disclosure of trust relationships beyond corporate structures.

Advisors can still direct their clients to jurisdictions where privacy can be maintained but this is now a moving target. However, it is likely to be more productive to work with clients on addressing the underlying reasons for the need for privacy rather than to chase privacy to the ends of the earth.

Identifying the best global locations for clients is about more than seeking out the highest level of privacy. Striking a balance between attractive tax rates, quality of life and cost of living issues is a highly personal decision but advisors can, and should, support clients through the process. A recently published Global Opportunities report compares the benefits of key jurisdictions to illustrate the many options available.

Wendy Walton TEP, Chair of STEP Technical Committee for England and Wales