PRIVATE TRUST COMPANIES

"Never criticise a man unless you can stand in his shoes and see the world from his perspective" : This is excellent advice, and these words of wisdom are particularly required for digestion by trustees and their potential clients as they eye each other across the meeting room table.

Families owning significant assets often readily identify the benefits available in an inheritance passing untaxed generation to generation, by means of a trust, but then resist the key step entailed, i.e. that control as well as ownership of the assets must be given away in order to secure the benefits that are the object of the exercise. This reluctance on the client side to cede control may be understandable, but, if it is allowed to prevail, will negate any tax benefits and perhaps undermine the validity of the trust itself.

Businessmen from common law jurisdictions usually have broad familiarity with the concepts of a trust and are more ready to accept the mechanics of it. However, nationals of civil law jurisdictions often find that, despite their thirst for the potential benefits, the loss of control which is entailed is too great a step to take. So, how to resolve this possible impasse?

One method to meet such concerns is therefore to set up and individual, dedicated company, (a private trust company) to act as a trustee of the trust; this is as opposed to the more usual practice of the trustee being a company which is owned or controlled by the trust service provider e.g. "Alexander Grant & Associates".

The shares in the private trust company can be held within the family. There will need to be safeguards to ensure no fiscal disadvantage or interruption to the company's activities on the death of the shareholder. Of possible greater importance, viewed from the perspective of the beneficiaries of the trust, the management of the private trust company must not be conducted from any jurisdiction where to do so might expose the trust itself to taxation by virtue of a claim by the local tax authorities that it is also resident there. In many cases, the most effective solution will be found by arranging for the private trust company to be managed under contract by a trust company in a tax-friendly environment e.g. "Alexander Grant & Associates".

It can be argued that the assets of the trust are 20not as fully and effectively protected as they would be by using the services of an independent trust company. The government of the country in which the shareholders of the private trust company reside may be able to compel them to bring it, and consequently the trust under control. This risk may be minimised by not having a controlling share-holding in any one jurisdiction but this can cause problems of its own. There is the further consideration that adding the private trust company to the structure introduces an additional element of cost, but given that considerable assets are involved, this may be a price worth paying by clients who seek a structure with all the benefits of a trust plus the certainty of having the means to re-domicile the private trust company (and hence the whole structure) with alternate management should they so wish.

This private trust company approach is most likely to suit nationals from civil law jurisdictions, but a considerable element of mutual trust is still called for; the nature of trust structures and the responsibilities of the trustees should be understood and accepted by clients before signing on the dotted line.

NEWSFLASH

We have set up a CV / Company details / Website hosting service on our site for all the people who wish to put material on the Internet for all to see. Our charges have been set very reasonably, as we adhere to providing hosting space for our clients at the lowest possible cost.

In addition, our website has been updated to include:

• A newsletter indexing page to index the topics in all the newsletters we have produced since January 1997
• All the information you may need about our page/site hosting service mentioned above, created solely for use by existing/new clients and their associates
• Other links to different sites of tax planning and finance, all of which are the best financial sites on the Internet
• A new search engine to enable clients to search for businesses with Starting Point, the leading business search engine

Please send us your enquiries and we shall be pleased to assist you in the best possible way Email - Alexandergrant@btinternet.com

The following locations are frequently used:

• Mauritius
• Cayman Islands
• Liechtenstein

Family & owner-managed business

These are businesses in which the initiative to set up the business has been taken up by a family or by an individual. The individual soon invites in a close member of the family to join in such as a son or daughter or spouse.

From the point of view of the family or the single owner, the business is personal property.

Nevertheless, such owners still recognise the value of professionalism, and independent management. They therefore bring in other people as employees and allow a great deal of decision making.

It is also common to see original owners of the businesses of this nature train their family members, particularly children to acquire skills relevant to the nature of the business. How then, should these businesses be managed? The ideal answer is difficult to give in this brief. It is however adequate to state that the initiators must remain closely involved. This is because they appreciate the history behind the business, and developed the "fear of failure". They will therefore work extra hard to achieve success and create a legacy for other family members to follow. They genuinely want to become role models for the family.

It is therefore common to see a continuing growth in a family and owner managed business as a similar public organisation declines.

The concept of close involvement of the owner is therefore acceptable. However, the owner must accept to separate the business activities from his own personal activities, projects and wishes. He must not treat the business as being the same as him. If the business is that of transportation of goods, the owner must not treat himself as such as a person. He will only be expected to offer support to the business. In this way, he "borrows" from the business instead of "taking" from the business.

The other advantage of this separate identity concept is that the owner can objectively plan for the business instead of getting the business to fall into his personal plans. His personal plans must however include the assumption that he may not personally be there tomorrow but the business should continue to operate. The matter of succession is therefore crucial; and this is the area where the owner requires professional advice.

Historically, the huge multinational organisations as we know them today, started as family and owner managed business. They gradually outgrew the single or family owners, and some of them today have no relationship with their original owners. They are exclusively public institutions.

Your business which falls into this category has the potential that is well above your imagination. Allow it to grow. Allow it to overtake you, because it has life beyond your generation. Allow it to outgrow your imagination because there are other people ready to come in and join you.

Remember that the single most common reason for a family and owner managed business failure is the failure of the family or owner to separate the activities of the business from those of his own. Hence, the principle of separate identity must govern the family's or the owner's actions at all times.

We invite you to contact our International Liaison Partner, Mr. Bakul Kothari for further information and advice.

Our newly designed web site was constructed by Amit Kothari - (e-mail; amitkoth@yahoo.com)

ALEXANDER GRANT & ASSOCIATES

VICTOR HOUSE, 4^TH FLOOR, KIMATHI STREET, NAIROBI, KENYA

Telephones : 002542 221306 / 245694 Facsimile : 002542 224314

Although all reasonable care has been taken in the preparation of this news briefing, Alexander Grant & Associates cannot accept any responsibility in law for its contents. Clients are advised to seek independent professional advice before taking action in consequence of anything contained herein.