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Asian Families' Succession Plans - The BVI, Cayman Islands Solutions

Lucy Hickmet, 4 February 2020

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What can jurisdictions such as the British Virgin Islands and the Cayman Islands do for HNW Asian families? Do these jurisdictions have all the tools that such clients want? This article addresses some of the issues?

PTCs, family offices and CI foundation companies
BVI and CIs private trust companies (PTCs), have also proven attractive to Asian clients hesitant about transferring substantial wealth and control of family businesses to third party trustees. However, PTCs can lose their appeal when clients understand the fiduciary duties and requisite standard of care imposed on PTCs, and the extra costs associated with a purpose trust or foundation holding the shares of the PTC. (4)

CFCs (5) offer another alternative, and are capable of existing indefinitely, are orphaned in nature, and can entrench their objects. They allow a greater amount of customisation, and since CFCs do not need to have members (6) whose interests may conflict with the wishes of the founder, they may be suitable for high-risk less diversified asset portfolios. However, the entrenchment of objects (7) may prove too rigid for CFCs to be an effective dynastic vehicle.

Family office services and products, such as family councils and charters, are also available and can assist Asian clients in consolidating existing structures in a single jurisdiction.

Footnotes:

1,      Although it should be noted that a BVI or CI’s will may not necessarily defeat forced succession laws where a deceased dies domiciled outside of the BVI or CI’s.
2,      BVI: Section 86 of the Trustee Act; CIs: Section 14 of the Trust Law.  It is worth noting that reserving too much power might lead to a challenge to the trust in another jurisdiction: JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2017] EWHC 2426 (Ch).
3,      Section 100 of the Trusts Law.
4,      For succession and tax purposes, it is recommended that the shares in PTCs be held in a standalone purpose trust or foundation.
5,      Recently introduced in the CIs by The Foundation Companies Law 2017.
6,      Section 8 of The Foundation Companies Law 2017 (The FC Law).
7,      Sections 9 and 10 of The FC Law.
 

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