Personal Finance

Right trustees central to generational wealth

trust fund

Setting up a family trust is a popular and practical vehicle to preserve family wealth and create a lasting legacy. PHOTO | SHUTTERSTOCK

Setting up a family trust is a popular and practical vehicle to preserve family wealth and create a lasting legacy. What are the considerations that need to be made when doing so?

Setting up a family trust is not a walk in the park nor is it something that can be done overnight as may be the impression. It requires a great deal more, particularly from a regulatory perspective.

It makes sense, therefore, to approach this with caution and a carefully considered plan of action:

LEGAL REQUIREMENTS

Understanding the legal framework around creation and management of a trust is the first step in the process. Each jurisdiction has different requirements and understanding.

WHAT ARE THE REQUIREMENTS FOR A TRUST TO BE VALID?

Clear Intention: This means there must be a clear intention to create a family trust by all members involved. Clarity of the assets contained in the trust: local assets, offshore assets, property, shares etc

Who are the ultimate beneficiaries of the trust? While these may appear fairly simple requirements to meet, the most effective trusts are managed by professional trustees who are familiar with all applicable laws, regulations and ensuring you are compliant at all times. Many a time, we appoint family members, friends and associates as trustees as we believe they are known to the family and trusted, but this can also be fraught with risks and conflicts.

THE ROLE OF TRUSTEES

Trustees are central to the effective management of the trust while ensuring it reflects the evolving needs of the family. The needs today may evolve in the next couple of years for various reasons, death in the family, increase in assets, nationality status etc.

This long-term commitment is crucial if the original intention of preserving wealth through proper succession planning is to be realised. This role takes on greater significance if this plan includes vesting family business shares in the trust.

IT PAYS TO USE PROFESSIONAL TRUSTEES

One of the biggest threats to your family trust is a trustee who is non-compliant with the applicable regulations.

Given the level of scrutiny placed by financial services regulators, trust companies need to ensure that they abide to strict guidelines failing which they can be subject to regulatory sanctions ranging from penalties to licence revocation.

Given the risk of non-compliance, it makes sense to appoint a professional trustee able to effectively manage, preserve and enhance the family trust.

These responsibilities include the fiduciary duty to act in the best interest of beneficiaries and ensuring that all regulatory requirements are being met. There should be no personal benefit that the trustees could stand to gain which would be counteractive to their role of working for the interest of the beneficiaries.

Trustees have specialist skills often possessed only by professionals who are suitably qualified and accredited.

CHOOSE THE RIGHT JURISDICTION

Having found the right trustees, you can now consult on the most appropriate location for establishing your family trust.

The framework in different jurisdictions can have far-reaching implications especially from a regulatory perspective and will determine how the trustees manage the assets in the trust. Ensuring your trustee is accredited to manage structures in the jurisdiction of choice will be key.

In most jurisdictions’ professionals are able to handle family governance, trust law, estates and wealth management which may all be needed.

GOVERNING TRUST LAW

A consequence of your chosen jurisdiction is how trust law is applied there. This will dictate the structure and terms within which the trust is managed, which will directly influence the relationship with beneficiaries.

Choosing a tried and tested trust law helps to increase certainty and predictability for family members.

A TRUSTED PARTNER

Stanbic Bank is part of the larger Standard Bank of South Africa and the Standard Bank Trust Services team aim to remove the complexities of setting up a trust and ensure you remain compliant at all times.

Standard Bank has been providing corporate and fiduciary services for the past 130 years. Through our teams in Mauritius and Jersey, we offer a powerful combination of two leading international financial centres that bring together the best of both jurisdictions.

While Mauritius offers a local entry point to the African continent, Jersey provides world-class procedures, systems and technical capabilities as well as access to Europe’s financial markets. Our team of experts are at hand to help set up a trust and ensure that you meet the necessary compliance measures.

Aliya Khanbhai is the Head High Net Worth & Affluent Clients, Stanbic Bank.