TRUST ADMINISTRATION Paul B Davis, Higgs & Johnson THE NASSAU CONFERENCE | FINANCIAL SERVICES BOOTCAMP

WHAT IS A TRUST? A relationship allowing an individual or entity (a settlor) to transfer legal title of assets to a third party (the trustee)

WHAT IS A TRUST? Separation of legal and equitable ownership Administration of assets for the benefit of beneficiaries Financial and Non-Financial Assets

WHY USE A TRUST? 01 ESTATE PLANNING 02 ASSET PROTECTION 03 TAX PLANNING

ESTATE PLANNING 1 A trust instrument can address who, what, when and how much each beneficiary will/may receive Avoids the probate process 2 Avoidance of forced heirship (Trusts (Choice of Governing Law) (Amendment) Act, 2016) 3

ASSET PROTECTION Legal title transfers to trustee Fraudulent Dispositions Act 1991 S. 4(1) - Dispositions of property made with an intent to defraud creditors are voidable Burden of proof lies on creditor Limitation period of two years Trustees Act S. 39/40 – Protective Trusts /Spendthrift Provisions

FOREIGN GUARANTOR TRUSTS TAX PLANNING FOREIGN GUARANTOR TRUSTS SPLIT TRUST STRUCTURE

In case of Settlor’s death SPLIT TRUST Settlor Revocable (up to capital added adjusted by inflation Irrevocable Capital Trust Income Trust PREFERRED Shares without Voting right In case of Settlor’s death COMMON Shares with Voting right Beneficiaries of Settlor’s Estate Investment Company Investments Class of Beneficiaries

TYPES OF TRUSTEE INSTITUTIONAL TRUSTEE PRIVATE TRUST COMPANY INDIVIDUAL TRUSTEE

INSTITUTIONAL TRUST COMPANY Regulated by the Central Bank Risk management procedures Substantial Funds/Professional Indemnity Insurance High levels of expertise Full administrative staff – efficiency of service Variety of services/products offered

PRIVATE TRUST COMPANY Acts as trustee only for a single trust or a group of related trusts created by or at the direction of the designated person(s). Designated person - an individual named in the designating instrument. All other settlors under the PTC must be related to the designated person.

PRIVATE TRUST COMPANY Not required to be licenced under the Business Licence Act, 2010 Not required to be licensed by the Central Bank Must have a Registered Representative (and a Special Director) Benefits Control Flexibility Increased Privacy Continuity vs individual trustee

INDIVIDUAL TRUSTEE PROS Privacy Trusted friend/advisor CONS Personal liability Continuity

AVOIDING LIABILITY: BREACH OF TRUST Occurs when a trustee does any act which he ought not to do, or fails to do any act which he ought to do with regard to the administration of a trust or the beneficial interest arising under a trust. Examples: Failure to exercise a proper discretion Unauthorized investments Manipulating investments to benefit one beneficiary at the expense of another Failure to responsibly manage the trust fund

RESERVED POWERS TRUSTS TYPICAL STRUCTURES 01 02 03 PURPOSE TRUSTS DISCRETIONARY TRUSTS RESERVED POWERS TRUSTS

DISCRETIONARY TRUSTS Edge v Pensions Ombudsman [2000] “… unless they can be seen to have taken into account irrelevant, improper or irrational factors, or unless their decision can be said to be one that no reasonable body of trustees ….. could have reached, the judge cannot interfere.” Bartlett v Barclays Bank Trust Co Limited [1980] “A higher duty of care is plainly due for someone like a trust corporation which carries on a specialized business of trust management.”

RESERVED POWERS TRUSTS Trustee Act sections 3 and 81 Section 81(A)

Powers Reserved to the Settlor s. 3 Trustees Act – (any one or more of the following powers) Revocation; Appointment over any part of the trust property; Amendment; Addition or removal of trustees, protectors, or beneficiaries; and Powers to direct the trustee in connection with the exercise of any of their powers or discretions

Reserved Powers of the Settlor/Protector S. 81 Trustees Act - (without limitation) determine the law which shall be the proper law of the trust; remove or appoint trustees; exclude any beneficiary; add any person as a beneficiary; give or withhold consent to specified actions of the trustee;

Section 81(A) If a trust instrument provides that an investment power shall be exercised by the trustees as and when directed by another person and, in the absence of a direction, shall not be exercised; and that section 81(A) shall apply to the investment power, Trustees shall not be liable.

INVESTMENT RISK MANAGEMENT Scenario 1 Fully Discretionary Trust Trustee appoints Settlor to manage investment but trustee does not monitor investment performance Negligent appointment? Ongoing monitoring?

INVESTMENT RISK MANAGEMENT Scenario 2 Fully Discretionary Trust Trust Company appoints professional manager Less likely to be a negligent appointment Monitoring obligations?

INVESTMENT RISK MANAGEMENT Scenario 3 Directed Trust Statutory requirement - s. 81A Trustees Act Less frequent monitoring Trustees are not liable for losses arising as a result of: acting in accordance with a direction; or failing to do anything in the absence of a direction

Section 82 – Managing Trustee A trust instrument may contain provisions by virtue of which the exercise of any of the trustee's powers may be reserved to a managing trustee and no other trustee shall be liable for any of the decisions, acts or transactions of the managing trustee in so far as they amount to exercise of powers reserved by the trust instrument to the managing trustee.

PURPOSE TRUSTS A trust set up for the achievement of a particular purpose authorized by the trust instrument. Governed by the Purpose Trusts Act 2004 Used for holding high risk assets, i.e. trading companies, art collections etc.

AVOIDING LIABILITY - SUMMARY For each structure a proper analysis should be carried out to determine appropriate risk allocation and selection of the most appropriate vehicle/provisions. Diligent administration of the structure.

PAUL DAVIS PARTNER PDAVIS@HIGGSJOHNSON.COM