Trust And Foundations Change For The Good

• To have a maximum specified perpetuity period of 100 years;
• To permit the accumulation of income throughout the continuation of the Trust;
• To provide for a statutory duty of care for Trustees, which can be contacted out of and which relates to the powers of investment, delegation, nominees and custodians, remuneration and insurance. This duty and these powers were modeled on the UK Trustees Act 2000;
• To permit reserved powers of investment and of investment management only to a Settlor; andTo provide for anti-forced heirship.

Hong Kong reacted to the changes in Singapore and its approach to the amendments to the Trustee Ordinance has been similar to that taken by Singapore.After some 9 years, Hong Kong will affect the changes from 1^st December 2013.These will be similar to those for Singapore, with the following differences:

• Trusts can be perpetual;
• Beneficiaries of full age and capacity can together require the Trustees to terminate the Trust

These jurisdictions rely upon the ability; expertise and infrastructure which they offer to attract business into them as a hub, rather than the scope of the features offered by their respective legislations.

Malaysia (for Labuan) decided in 2007 to provide substantially amended or new laws, which included those relating to Trusts, Foundations and Limited Partnerships.In considering change, Malaysia was prepared to consider all existing laws in any jurisdiction as well as innovation.It wished to provide those who would use the jurisdiction with as much opportunity as may be both legal and appropriate.Thus, examples of some additional features which are offered by Labuan are as follows:

• A perpetual trust period as a default provision but with the ability to choose any fixed period instead, which can be shortened or lengthened, and to change from a fixed period to a perpetual trust or vice versa;
• To permit accumulation of income throughout the continuation of the Trust;
• To provide the widest possible reserved powers to a Settlor, similar to those offered by Jersey and the Cayman Islands;
• To enable a Protector to be given any proactive or reactive powers and, subject to the terms of the Trust, to provide important but limited default powers;
• The introduction of "the Labuan Special Trust" ("LST"), which is similar to "VISTA" (the Virgin Islands Special Trusts Act.This permits a Labuan Trust to retain and not to diversifying the shares of a Labuan company and permit the directors of that company to control and manage that company's business and investments without the Trustees being liable for the acts or omissions of the directors;
• To provide a prudent man test for a Trustee's duty of care with similar provisions relating to Trustee's powers mentioned before;
• To provide for Purpose Trusts, this may benefit persons, as well as purposes both charitable and non-charitable.When the purpose ends, the Trust may benefit persons as well as other purposes; and
• To provide for Charitable Trusts, with a very wide definition of charitable purpose and the ability for the Settlor to enforce the charitable purpose.

Deep in the South Pacific, Samoa has long offered many wealth management solutions but has decided to amend its laws or to have new laws to modernize solutions and to be innovative.Its approach to change has been similar to that of Labuan.Apart from proposed amendments to its International and Limited Partnership Act, and to its Trust Companies Act, it intends to have a new Trusts Law and Foundations Law and these are drafted and being finalized at present.

The proposed Trusts Law will offer all that Labuan does and additionally (or by way of further example) will offer:-

The Samoa International Special Trust Arrangement ("SISTA"), which is similar to VISTA and to LST;

The statutory certainty of the benefits of a Trust combined with a Limited Partnership. This enables the Trustees of a Samoan Trust to hold as the asset of the Trust the interest of the Limited Partner in a Limited Partnership (whether or not governed by Samoan law) and not to diversify that and to permit the General Partner to control and manage the business and investments of the Limited Partnership without the Trustees being concerned day to day or liable for the acts or omissions of the General Partner;

• Samoan Trusts may be in any language, provided that the Trustees have and retain a materially certified English translation;
• Protected Funds Trusts, which, in trust form, will be similar to protected cell companies; and
• Business Trusts, similar to the concept in Singapore.

Jersey has Foundations Law and Guernsey has recently passed such law.Labuan has foundations Law which came into force in 2010 and the Cook Islands have passed Foundations Law in 2012.These are soon to be followed by Foundations Law in Samoa, which has benefitted from those previous laws and yet offers some innovations of its own.

• Some of the features of the proposed Samoan Foundations are likely to be as follows:-
• The ability of the Founder to reserve the widest rights and powers and to assign those to another or others who can equally assign them;
• Like Guernsey to differentiate between Non-Notifiable Beneficiaries and Notifiable Beneficiaries, the former not being entitled to information and the later being so entitled;
• To have a Guardian to enforce the interests of Non-Notifiable Beneficiaries and a purpose;
• If so desired, to have a Supervisory Person to supervise the actions of the Council, but not in lieu of the Council, as permitted in Labuan;
• To bring to Foundations Law benefits similar to those in Trust Law but here combining a Foundation with a Limited Partnership;
• To bring to Foundations Law, as in the Cook Islands and Labuan, the provisions for asset protection concerning fraudulent dispositions and also from foreign forced heirship rights and the enforcement of foreign claims or judgments, as would be found in the Trust Law of the relevant jurisdictions;
• To provide for a Resident Agent, which must be a licensed Samoan Trust Company, with particular duties but not to be a compulsory member of the Council as with a "qualified person" under Jersey Foundations Law;
• To be able to have the Charter and Rules in any language, provided that the Resident Agent holds a Nortarially certified English translation;
• To provide, similarly to Samoan Trusts Law, for a Protective Foundation (like a Protective Trust) and for "charitable purposes" to the same extent and scope

Samoa has already enacted the Special Purpose International Companies Act.A Special Purpose International Company ("SPIC") is a hybrid between a company and a Foundation.

Like a Foundation, it has no "shareholders" but it is a registered legal entity run by directors and governed by its Memorandum and Articles.It must ultimately be for the benefit of charity but during its existence it may carry on any business, licensed if necessary.Like a Foundation there can be Founder's rights, which are contained in a Founder Rights Certificate and the Holder of the Founder Rights Certificate with many powers and duties has to be a Samoan licensed Trust Company.

The Attraction of Asia International Financial Centres:

Having considered the main changes in Trusts and Foundations laws in Asia over the last decade, it is important to see what sort of interest they generate and why.

With problems facing the established Atlantic International Financial Centres and pressures placed upon them, Trust Companies and professional advisers have been looking East.Regulation, for example of Trust Companies, is necessary and welcome but, if regulation increases to the point where its nature becomes supervisory rather than regulatory, complex administrative requirements drive up costs.This economic affect has also seen business shift East.Seeking to establish Trust Companies and firms providing professional advice in Asia Pacific not only positions administrative ability and such advice to take advantage of the changes in legislation referred to but assists in servicing the burgeoning markets in Asia.The Asian International Financial Centres therefore not only benefit from legitimate European fall out but also as hubs to service Asian families who increasingly need Trust and Foundation structures for family succession, asset protection and avoidance of probate.Often Asian jurisdictions have low taxation and such structures are frequently set up for the reasons stated and particularly for ongoing control and family governance.Certainly there may be entirely legitimate tax mitigation for business, investments and family members situated in high tax jurisdictions but experience shows that tax mitigation is not the driver.

In this respect the view that International Financial Centres thrive on tax evasion or avoidance is incorrect and it might be more correct for those, who may put forward this view, to look more closely at their own jurisdictions for the symptoms of the perceived abuse they refer to.

Therefore, it is perhaps suitable to consider what is merely one example of a form of structure using the benefits of the wealth management solutions which are, or will shortly be available in Asia Pacific.The client is frequently the owner and controller of one or more operating companies, which may be of substantial net value.To achieve family succession and protection, asset protection and avoidance of Probate, the client is likely to insist upon retention of day to day control.

For the purpose of retention of control the consideration of a Trust with a Limited Partnership offers an example of the structure available to achieve this.In that respect, the use of a Samoan Trust will have the certainty of legislative protection for the structure.Control is retained by the General Partner under Limited Partnership law and not under Trust law.Unlike, say, VISTA, this structure is not jurisdictional specific; the Trust can be governed by the law of one jurisdiction, the Limited Partnership by another and corporate partners but others, if that is what is required.The General Partner will have total day to day control, even if it holds a small percentage interest in the Limited Partnership; if the General Partner is corporate, this will provide continuity and ongoing control may be provided through Limited Wills disposing of the shares, a shareholders' agreement and the appointment of reserve directors.Perhaps the law governing the Limited Partnership could be, say, that of Labuan, Samoa, Guernsey or New Zealand.The corporate General Partner has often been incorporated in BVI but may now frequently be Samoan.The Limited Partner is usually corporate and may be a nominee owned by the Trustee and holding its interest for the Trustee.The Trust will usually be discretionary and will often have a Protector, who may be the Settlor, and successor Protectors, with power to remove and appoint Trustees and other suitable limited but important powers as necessary.Some may prefer to have a Trust in a jurisdiction of perceived substance, such as Hong Kong, if conservative Trust law is believed to be sufficient.Often the General Partner will own the shares of a holding company for the partners of the Limited Partnership in the ratio in which they share the capital of the Limited Partnership.The holding company will hold the desired assets.

This is merely an outline of one example with endless permutations.As Cirque du Soleil advises, "do not try this at home" but rather seek careful and proper advice.

An example of the use of such a structure would be Chinese residents who have proper permission to externalise assets or funds outside China and wish to have a structure for operating companies outside China with retained control.This may save capital taxation later if this is introduced into China.It may also reduce Income Tax in China on distributions remitted from the structure.The client could really be from anywhere where without adverse tax or cost consequences, he is legitimately able to establish the structure.