Navigating transfers

It is unfortunate that, in this age of converging international standards, with supposed global adherence to regulation and international compliance, trust administration standards still fluctuate as much as they do.  Like any trustee, over the years we have transferred trust structures away and also benefited from the inward transfer of structures, from local service providers and from other jurisdictions. 

With the UK’s ‘requirement to correct’ looming, and with the recent implementation of information sharing on a global basis, any professional trustee situated in a well-regulated jurisdiction will feel a degree of trepidation when approached to provide services to an older structure. 

This fear can turn into outright panic when a structure being introduced is not only older in nature, but also has been administered by a smaller service provider, or a provider that is known in the industry to have poor standards of administration.

In spite of the time honoured art of negotiating indemnities, (on which STEP has provided valuable jurisdiction specific guidance), the actual process of appointing a new trustee is relatively simple. Nonetheless, where historical weaknesses in administration are known, and there is evidence of potential breaches or liabilities, it is important that appropriate action is taken in context of any indemnities relied on. 

In our experience, the principal point of contention is often, the actual physical transfer of information and files from the outgoing trustee.  Naturally for a structure to be properly administered by the successor trustee it is important for the outgoing trustee to not only provide up to date financial records and all legal documentation, file notes and correspondence, but also to cooperate fully and answer all reasonable questions, as established by case law in the leading offshore jurisdictions.

Incomplete information will cause significant difficulties when dealing with ongoing queries, and any remediation including relevant tax and statutory filings, will either be behind or simply not have been completed.  This will result both in remediation being carried out by the successor provider, and in potential penalties and an adverse tax profile for the structure and potentially, the settlor/beneficiaries.   

The transfer of the structure will also invariably be considered a due diligence trigger event for the prospective trustee and existing third party service providers such as banking partners.  A relatively simple repapering exercise can unfortunately result in a time consuming and expensive process driven largely by new banking legislation.  Source of wealth and source of funds information will need to be properly substantiated and brought up to modern standards (this can be particularly challenging when dealing with long established wealth from an emerging market) even if the banking relationship remains with the existing institution.

A further complication may arise if an earlier trustee has ceased to trade or it has updated their systems/database and no longer have access to the required information.  What choices do successor trustees need to make?  Will the structure and its records require work to remediate a situation or should the trustee consider a complete resettlement?

The answers are very much case specific, as there may be tax restrictions which limit a successor trustee’s scope to start again with the structure, or the associated costs may be disproportionate to the immediate benefits achieved.

As part of the pre-transfer checks, the successor trustee should seek to identify any perceived gaps in information, outdated legal advice or delinquent tax filings, and also ensure that the advisors and beneficiaries are aware of the work, and costs, that will be required to remediate these.  Similarly, as noted above, an outgoing trustee should adopt a spirit of co-operation and engagement to work with the new service provider on any contentious issues rather than turning a blind eye and hoping that they will be unnoticed.

Given the complexities associated with working with families with a global footprint, trust administration requires ongoing attention to ensure it remains compliant with evolving legislation.  If this has not taken place, the transfer of administration and trusteeship will be more difficult and remediation work of some form will be required.  


Published in STEP Journal, February 2018


Michael Giraud
Client Services Director | Jersey Board Member
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Client Services Director
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