Trust location: Privacy matters less

When deciding where to locate a trust, privacy and innovative legislation surprisingly are not the relevant factors, according to a panel of trust experts at the recent Mourant Ozannes Private Client and Trust Conference.

When settlers of a trust are in the planning phase and have to decide on the trust jurisdiction, many factors, including tax considerations, come into play. But privacy and modern trust laws are no longer among them.


Joshua Rubenstein, a partner with Katten Muchin Rosenman in New York, said clients should not select a jurisdiction because it appears to be easier to keep information secret. While there may still be some jurisdictions where it would be easier to keep affairs confidential in the next 12 months or so, there will not be any in the medium to long term. “That’s gone. I don’t think that is a relevant factor any longer.”

The same goes for tax enforcement, Rubenstein said. “We are moving into an era of tax information exchange. I don’t think picking a jurisdiction because it is more tax favorable is going to be the basis upon which trust jurisdictions compete.”

It is a point of interest for clients whether their home revenue authorities can obtain tax information in a particular jurisdiction, said Brian Balleine, managing director at Butterfield Trust (Cayman) Ltd. But it is not raised as an issue anywhere near as often as one would think. In any case, even more extensive sharing of tax information globally cannot be ruled out in the future.

“I wonder whether we are going to have FATCA-type legislation in place across the globe with automatic reporting,” Balleine said. “I am certainly not going to put my hand up and say that would never happen.”

Although privacy concerns are very important for private clients, Rubenstein noted, the pendulum has swung from too much privacy – which “enabled people to do illicit things” – to the opposite direction, with regulators pulling out “a bazooka,” leaving virtually no privacy.

The question is, “Do you want privacy because of not wanting to report, not wanting to disclose your assets to governmental authorities, hiding your taxes? I am not horribly sympathetic. But if you want privacy because you don’t want your children to be kidnapping targets, or you don’t want them to know just how much they are worth during their formative years, I am 100 percent sympathetic,” he said.

Yet, he conceded that in today’s climate he cannot guarantee clients that they can maintain their legitimate privacy. “Everything is available, particularly with big data.”

Clare Maurice, senior partner with Maurice Turnor Gardner in London, agreed that clients want to keep their financial affairs confidential, and that jurisdiction shopping is unlikely to help. In many cases, clients or their family members were themselves the source of involuntary disclosure and to keep matters private, professional advisers would need the cooperation from their client.

State of the art legislation

Panelists also busted the myth that modern legislation is necessarily a significant draw for new trust business. Jurisdictions like to compete on the innovative nature of their legislation, but in practice, close proximity of the trustee, language capabilities and cultural affinity might override this factor, Balleine said.

Singapore’s legislation, for instance, is outdated compared to Cayman’s, yet its industry thrives on the basis of geographical location and proximity to the markets where the services are in demand.

“So although I think there may be situations where legislation becomes important, I don’t think it is the first thing on the list of priorities,” he said.

Panelists agreed that trust jurisdiction will largely depend on the particular circumstances and what the client wants to achieve. Trust administration should also be provided as a service rather than sold as a product, which often pushes the limits of trust legislation.

Rubenstein contrasted onshore trusts in the U.S., where trusts are taxed and generally not regarded as shams by the courts because they have not been used for some of the purposes as in modern trust jurisdictions elsewhere.

The trust, in its inception, could not last forever, it was not designed to avoid any tax other than a transfer tax and it afforded no protection from creditors. However, in many jurisdictions this is no longer the case, trustees have no liability for their actions and at times no responsibility, he said.

“I would think that putting all these bells and whistles on something, which originally and financially was completely unobjectionable, risks throwing out the baby with the bathwater,” Rubenstein argued.

“Trying to use a product that does everything has harmed the product.”


Maurice added the “bells and whistles” provided by the more sophisticated jurisdictions are very interesting but it all depends on the purpose for which the trust was established. While the jurisdiction should be commended for having dragged the regime into the 21st century, there are limits. “I think we can be a little too clever. Let’s get back to the basics why are we setting up these trusts and what is the long-term feature.”

Maurice noted she increasingly sees clients who want to be onshore in a tax efficient way rather than offshore and, for instance, U.S. foreign trusts are becoming much more attractive.

The relationship with the trustee is key, she said. “You need to select a pairing that is going to work for the client. Part of my job is a bit of a matchmaker.”

Rubenstein said the first thing to consider is the reputation of the trustee and the trust jurisdiction. From a U.S. perspective reputation matters, depending on whether the trust is inbound or outbound, he explained. If it is inbound, the home country of the client is important since regulators there may have preferred jurisdictions they are comfortable with.

“Colombians like to use Curacao or Netherlands Antilles trusts. If it’s for a Colombian and that’s the main tax authority, that’s OK with me.”

However, if it is an outbound trust, from a U.S. perspective, tried and proven offshore jurisdictions that are highly regulated and have 100 percent compliance are preferred.

Despite the prevalent tax transparency, there are still reasons to look at tax treaties that may help a client in a particular situation, said Rubenstein. For example, from the U.S. perspective it is important to consider whether a trust is revocable or irrevocable. The U.S. has an onerous taxation scheme for U.S. beneficiaries of foreign irrevocable trusts, so that a U.S.-based trust would have advantages for the beneficiaries. A revocable trust, in turn, would be best placed anywhere other than the U.S., he said.