Trust and estate planners going east and south

As wealth is today generated faster in non-traditional regions, the trusts world and its service providers have to change, speakers at the STEP Caribbean conference noted.

The regional shift in wealth is accompanied by cultural, legal and practical issues for trust practitioners, who already have to cope with increasing client demands globally, following the financial crisis.  

The conference titled ‘Going Global – boldly breaking barriers’ held in the Cayman Islands from 14 to 16 May, traced the developments associated with the shift in wealth from east to west. 

Former CIMA chairman Tim Ridley noted the fundamental shift in wealth generation away from traditional centres in the West and the economic fact that wealth today is generated at a faster pace elsewhere.  

The results of the PwC Global Private Banking and Wealth Management Report 2011 presented by Steven Crosby confirmed the projected growth of the wealth management and private banking business in Brazil and Asia is expected to overshadow Europe and the US. According to both Ridley and Crosby this means for trusts practitioners to “go east and go south”. 

Ridley highlighted the increasingly complexity of western and eastern wealth structures, which is also the result of the international outlook of the wealthy in Asia or Latin America, who often send their children to get educated in the US or Europe and tend to hold significant assets there.  

Wealth structuring needs to take these cross-border issues into account and the structure needs to be flexible and change in response to people moving their place of residence. 

Many of the tools applicable in London or New York will be used in the future, Ridley noted; but new cultural, geographic and technical issues emerge in the new regions of wealth.  

Such cultural issues can be as basic as the unwillingness of many patriarchs and matriarchs in Asia to discuss death in succession planning, said Nicholas Jacobs of Lawrence Graham. Jacobs also pointed to a strong ethic of confidentiality in Asia, which means that wealth structures outside of their home region, such as Caribbean trusts, would remain popular.  

Ridley agreed that offshore centres will have their role to play in the future, but he reminded delegates that OFCs should not forget about the basics of a strong homebase infrastructure, a stable, legal and political environment, cutting edge trusts legislation, and quality courts and judges.  

This was echoed by Walkers Partner Ingrid Pierce, who said the hallmarks of an OFC are political stability, the rule of law, an educated workforce and a sound sustained financial structure. “There is only one reason that people come to our jurisdictions. It’s the creativity that exists, the legislative framework, the flexibility and the speed with which the financial professions are able to turn things around. And they won’t come for any other reason.” 

Transparency is one of the areas where Ridley sees OFCs falling behind. He believes financial centres must strike a balance between legitimate privacy and the needs of law enforcement, but explicitly not the needs of the media. 


Although wealthy Chinese are increasingly international in their outlook, there is a huge shortage of private practitioners in China, he said.  

Singapore, which is touted as the future centre for private wealth business by the PwC report and expected to take over from Switzerland by 2014, has similar issues, according to Jacobs, who said that although improving, the ability to recruit good trust people is limited in Singapore and court judgments in trust matters are still rare. 

Staff turnover is another concern in Asia, where getting the client’s confidence is the biggest hurdle, said Jacobs. Too often trusts are sold as a product, which gives the impression that they are off the shelf rather than a bespoke service. This has an impact on pricing and the reluctance of the wealthy in Asia to pay for a tailored service poses a major problem when explaining the need for effective wealth planning, he added. 

Jacobs said the success depends on the ability of relationship manager. “You need to have people who can have a macroeconomic discussion and not just sell a product when discussing with a matriarch or patriarch.”  

PwC’s survey comes to the same conclusion, noting that for the first time customer service has eclipsed performance in terms of client priorities. “The problem is with the relationship managers,” said Crosby. Clients want a lot more than they did before, and while brand and reputation are the most important factors, you have to tie it to superior client servicing, he said. 

As a result extensive investments by private wealth firms in the front office are justified, but they should not be made at the expense of the back office, he added. 


A local presence is important not only in Asia but also in Africa, a market that has long been regarded as a hopeless case. This has changed considerably, said Harry Joffe of Discovery Life in South Africa. Countries like Angola have averaged growth rates of 11 per cent over the past 10 years, he said. Rwanda grew 7.4 per cent, Ethiopia 8.6 per cent and Ghana was the fastest growing economy in the world last year at 14 per cent. 

What has changed over the past decade is the decreasing number of conflicts, which allowed civil societies and economies to develop. There are many opportunities for trusts and estate planning because many potential clients are newly wealthy and the African market is largely underserviced, he said.  

The main issues in South Africa and other African countries are foreign exchange controls, know your customer requirements and the differences between English common law, the civil Roman Dutch law in South Africa and even local tribal law, which runs parallel with local Western law. Joffe pointed specifically to Nigeria and Kenya as “tough but lucrative” markets.  


In Russia the legal system was historically tilted heavily in favour of the state over the individual during the authoritarian Tsarist and Soviet regimes, said Olga Boltenko, partner at Withers LLP in Zurich. 

“Quite often you see that if you follow the law, you will not necessarily achieve the results. So many of the very successful entrepreneurs, they would not necessarily follow the rule of law,” she said. 

That makes it more difficult to set up lawful trusts to preserve Russian clients’ wealth, even as the Russian tax structure has grown and solidified in the past 20 years. 

Additionally, the concept of a Western-style ‘trust’ does not exist in Russian common law, meaning that it is impossible to know for sure how Russian courts will deal with a Russian client’s assets held in a trust, even one recognised as valid under, for example, UK law. Due to conflict of law issues and a lack of international agreements with Russia, court rulings in jurisdictions such as Cayman, BVI and London would not be directly enforceable in Russia, and vice versa, she said. 

Operational issues  

An often noted challenge in newly emerging as well as traditional markets is KYC. William Walmsey, partner at Rawlinson & Hunter and STEP conference chair, said the best safeguard for trust administrators is to actually “know your client” – going beyond paperwork requirements to fulfil legal KYC obligations, and actually taking time to meet with settlors and beneficiaries on a regular basis. 

Pearline McIntosh of Butterfield Trust (Bermuda) concurred. “It’s important that we move beyond the KYC, beyond the picture that we see on the passport copy and get to know the families behind the pictures,” she said. “We need to understand what motivates them, what’s important to them, and understand also that it’s important that we’re building a relationship.” 

When problems do occur, trust administrators can rack up costs not only for legal counsel and damage reimbursement, but also time spent by senior management attempting to rectify the situation. David Brownbill QC of XXIV Old Buildings said, “The loss of management time: this is an area which isn’t discussed often enough. It’s a ‘hidden cost’.” 

Mark Lowndes of Cooper Gay & Co. said the trustees’ insurers should be brought into the loop as soon as possible when something goes awry. “There’s no substitute for getting the problem in front of the insurer as soon as possible,” he said, noting that often when a problem is discovered, the trust administrators will “go into denial” or “run for the hills” rather than seeking a solution. 


The industry also faces regulatory challenges in the form of the Foreign Account Tax Compliance Act. Will McCallum of KPMG (Bermuda) said according to current US Internal Revenue Service guidelines on the January 2014 implementation of FATCA, “there is a real possibility” that offshore trusts, especially those where the majority of income is derived from investments, will be treated as foreign financial institutions under the law, and be subject to the same disclosure requirements as major banks and investment funds. McCallum said trust administrators, like everyone else, should be preparing to comply with the law. 

“The only way FATCA works is if it’s addressed smartly and efficiently. I’m really quite confident actually that this will become background noise four or five years from now. We’ve all seen regulatory changes which we thought were going to be very difficult to administer, and now it’s just part of our day-to-day job,” he said. “But this really has to be addressed smartly to get 
to that.” 

Pierce Ingrid

Walkers Partner Ingrid Pierce speaking at the STEP Caribbean conference.