Growing Old Gracefully

WITH THE ORIGINS of trusts dating back to the Middle Ages, the use of a trust as an international wealth structuring vehicle could be considered to be in its infancy. There has, however, been a rapid evolution in the last 50 years that has principally been driven by changes to international legislation, increasingly robust working practices and
the commercialisation of trusts. As families and the assets they own have evolved, so has the nature of their estate and succession plans, which are now more complex and difficult to structure than ever before.

This presents a number of significant challenges to trustees who also have to manage potential liabilities in relation to incorrectly administered or invested assets. Despite the increased complexity and potential liabilities, there are too many examples of professional trustees continuing to administer structures in a manner better suited to a bygone era. With this in mind, and given the changes in legislation and working practices, how is the industry equipped to manage structures set up in the last century?

Older trusts were often drafted with more complex wording and restrictive terms and in a less familiar style, on account of there being less flexibility at the time in the governing jurisdiction's legislation. It is important to ensure that ancillary deeds such as variations, deeds of addition or exclusion, or changes in trustees or protectors are correctly drafted and effective. The risks of drafting errors are greater if trusts were not prepared by suitably qualified legal professionals, but instead using previously agreed, and often already outdated, company precedents.
If deficiencies are identified, a trustee will need to seek advice to understand how they can be rectified and whether there are any legal or tax implications from doing so. Aside from dealing with this as part of a structure's standard administration, many trustees carried out such an exercise in order to meet the UK's Requirement to Correct deadline of 30 September 2018.

Every trustee has had to deal with a generation of beneficiaries critical of decisions made many years ago and without their involvement. This should be considered in conjunction with the fact that, historically, record keeping was less comprehensive than it is now, partly due to less stringent working practices, systems, databases, and different tax filing and compliance requirements.

Needless to say, trustees that benefit from continuity and long-serving staff members in their business are better placed in dealing with such structures, as they are likely to have first-hand experience of the structure's administration at that time. Good-quality record keeping is also key to support the legal and commercial documents that the trustees may have entered into. For the avoidance of doubt, such records should include not only accounts and tax filings, but also the correspondence file and attendance notes.

Even before jurisdictions amended their legislation to allow trusts to exist in perpetuity, trusts were capable of outliving not just their settlors, but also the directors and administrators of the trust companies. This is one of the reasons that a trust company needs a healthy blend of experienced and younger professionals to ensure that the transfer of knowledge and culture within the firm occurs as a matter of course, rather than by exception. The newer staff, in tandem with regulatory and legislative changes, also challenge the norm, forcing a firm to reassess its policies, procedures and working culture, and so helping it evolve.

Almost all trustees that have seen their businesses evolve since the last century will advocate a business model that sees relationship managers working with fewer, but more complex, structures. This allows them to administer structures to the higher standards expected today and to ensure that they fully understand the workings, filing requirements, and relationship management and regulatory demands of modern-day trust administration. As with many industries, when looking back at previous performance and administration, a trustee will be judged by today's standards, which certainly makes the administration of older structures and the acquisition of older trust businesses a greater risk than a recently established structure or business.

Trustees would be failing in their obligations to their beneficiaries if they were not able to continue administering structures appropriately into the future, and evolving
to account for future changes in legislation or business practices. If they are already struggling to adapt with these structures, can they really say, with confidence, that they will be able to administer structures into the second half of this century?

Michael Giraud and Steve Gully, 'Growing Old Gracefully' STEP Journal (Vol26 Iss9), p.23, November 2018

Michael Giraud
Client Services Director | Jersey Board Member
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