A wealthy international family is looking for services in countries, where, apart from the political and economic stability of that country, the family is experiencing superior professionalism, where the family can protect their assets and do estate planning.
Liechtenstein financial products that mean foundations, trusts and trading companies are interchangeable, at the first sight, with structures of other jurisdictions. What is not interchangeable is the 89-year-old experience of the financial center of Liechtenstein in the international trust and foundation law fields, which started to develop already in 1926. Substantial key elements of the financial center of Liechtenstein are the customs agreement with Switzerland of 1924, the takeover of the Swiss franc as a legal currency.
- Are trusts and foundations in your jurisdiction the preferred structure for clients? Why do you believe that is? Do you expect any changes in that preference in the future?
Trusts and foundations are the preferred structure for wealthy families moving around in the world and preparing for the transfer of wealth from one generation to the next generation. In order to preserve wealth, assets need a stable and objective environment, free from personal short sighted interests or influence which is not in the long term interest of the overall family. Trusts and foundations are excellent tools as preparation for families who change their residences or nationalities if they are not familiar with the new laws in the host country, or simply want to make sure that the wealth has the destiny the family initially planned. If wealth is held directly or via offshore entities without appropriate trust or foundation structure, the families might be surprised with the outcome if assets are attacked by family members or creditors.
The family needs do not really change, so the preferences stay, although the complexities increase substantially above all in the light of the own tax laws, the CRS and increased scrutinity by correspondence banks. Asset protection quite often benefits from legal arbitrages from one country to the other, and the more there is cooperation between countries, the more difficult it may be to obtain the result. Here a professional trustee is the most important first step for the structuring, and it may be a big difference from trust/foundation structure to the other by giving an answer on how a court may consider the effectiveness of a structure.
- What are some of the biggest issues & challenges you come across when planning for Chinese or Asian clients in general? What are the solutions that your jurisdiction provides for these issues?
Chinese families and partially Asian families in general do not reserve sufficient time to understand the effects of a trust or foundation done in one way or the other. They listen, but finally decide on the basis of the price tariffs, the size of a bank or trust company or recommendation of a friend. However they do not sit down and think about their specific problems. And do not think about the problem that a solution for a family in country A is not a solution for a family in country B. A professional trustee needs an educated family who expresses their needs and is not jumping from one idea to the other within seconds. And wealthy families should avoid looking for return on investments and speak to bankers who in the same time sell them a trust or foundation in their trust department. Needless to say that such a trust or foundation is normally not worth the money the clients pay because the structure does not consider the problems of the wealthy family. There is not an easy solution to this, simply be patient, prepare booklets and material to address the specific needs and slowly dig into the market. That is what ATU with its 89 years of professional knowledge does.
- When was trust and foundation law introduced in your jurisdiction?
The respective laws were enacted in 1926, so what is not interchangeable from one country to the other is the 89-year-old experience of the financial center of Liechtenstein in the international trust and foundation law fields. When you look at the various foundation laws in different countries which introduced the foundation law in the last 20 years, you see that all of them studied the legal basis in Liechtenstein and copied to a large extent the Liechtenstein foundation law. Liechtenstein foundations have for Chinese families a big advantage compared to trusts as the owner of the assets is not the trustee/director but the foundation itself. So if you kick out the director/board of the foundation, the owner of assets is not changed, what is completely different from the trust concept.
- Are there any recent development in trust/foundation law in your jurisdiction that investors should be aware of?
There are no recent major changes in the trust/foundation law in Liechtenstein. However there are important changes which will have a deep impact on any wealthy family: The increased appetite of organizations and states for data and the readiness to exchange those between countries.
On 1 July 2015 China’s National People’s Congress approved the signature of the Multilateral Convention for Mutual Assistance in Tax Matters. The Multilateral Convention contains provisions for mutual assistance in various ways. These include exchange of information on request, spontaneous information exchange, tax examinations in other countries, simultaneous tax examinations and assistance in tax collection. The agreement contains provisions to protect taxpayers’ rights. The agreement allows the option to engage in automatic exchange of information where parties agree to this.
In case the account holder is a foundation/trust, then the information transferred will be on settlors, protectors, trustees, beneficiaries and other controlling persons. Here a professional trustee may outline to wealthy families the differences from one foundation/trust structure to the other and what this may have as consequence to answer which names and which data will be sent out or not (normally by the bank). Depending on the way a foundation or trust is set up, for example a participation and the capital gains out of a sale may be reportable or not. Family Foundations and trusts are a wealth planning tool, also in times of increased exchange as the main object of the Family Foundation/Trust is wealth preservation, succession planning, inheritance matters, creditor protection and tax optimization. Here a professional trustee can offer and recommend certain opportunities and demonstrate the effects by drafting the appropriate foundation/trust deed, considering the right country and bank network. And the trustee may be able to explain why a trust or foundation which holds a production company directly or via a Hong Kong company in China can offer a completely different solution with respect of the CRS compared to stuctures which only hold bank accounts. To define these elements, carve out the best solution to obtain asset protection, this is our daily business, in order the client can benefit in this world of transparency, from where nobody can escape.
Contributed by: Roger Frick, Member of the Board of Trustees, ATU