Trust Estate

Trusts, New Swiss Rules And The Wealth Toolbox - Conversation With Stonehage Fleming

Tom Burroughes, Group Editor, London, 18 March 2019

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The world of trusts, foundations and rules in IFCs are changing constantly. A country where new regulations are coming out, not always under much publicity, is Switzerland. This publication recently spoke to a prominent wealth firm about developments.

A possibly unavoidable aspect of the Brexit drama is how it has dominated the media, business and political attention, leaving important developments in the shade. One such development is the work to shape a new regulatory landscape in Switzerland. The Alpine state’s authorities are shaking up how funds and financial structures are regulated. There are also moves from some quarters to push Switzerland’s credentials as a trusts jurisdiction. 

And the market for wealth structures such as trusts and foundations continues to develop, and it also faces pressures from campaigns for ever more transparency around beneficial ownership, for example. At a recent Swiss conference hosted by the Society of Trust and Estates Practitioners, this publication was struck by how concerned industry figures are about assaults on privacy, but also how they think there may be signs that the pendulum could swing the other way. 

WealthBriefing recently interviewed Philippe de Salis, head of fiduciary, Switzerland, Stonehage Fleming, about these issues. 

This publication will be producing more reports and features on the changing world of trusts, foundations and other structures, and how they evolve in different jurisdictions. We invite comments and ideas. Email tom.burroughes@wealthbriefing.com

Can you briefly explain what you do?
De Salis: I am responsible for the fiduciary services of the Stonehage Fleming Group in Switzerland. We administer structures – mostly trusts – to hold a wide range of assets across several jurisdictions to assist in preserving the wealth of our clients and ensure the smooth transition of assets from one generation to the next.

The world of trusts is in constant flux, it seems, with new types of trust, attacks on trusts from certain quarters, etc. What would you describe as being the most important trend for trusts worldwide at the present time?
Transparency is one of the most important trends for asset-holding entities, including trusts and companies. There is a growing expectation that the private affairs of people who hold assets through structures should be made transparent - accessible, certainly by law enforcement agencies and, some contend, by the public.

At the same time, there is a pull in the opposite direction in the form of increased data protection legislation, brought to the fore with the advent of the General Data Protection Regulation (GDPR) which came into force in May 2018. 

The result is that there is a tension between requirements for transparency on the one hand and data protection on the other. With luck, the trend towards the greater protection of personal information heralds an approach to questions about people’s financial affairs which balances the public interest against the interests of individuals to keep them private.

There is also a trend towards trusts returning to what might be called their “roots”. While practitioners recognise the potential tax advantages of a trust structure, there is a renewed inclination to set up trusts first and foremost for succession planning and asset protection purposes.

Where in terms of jurisdiction do you see the most growth and innovation around trusts and where are things becoming more difficult?
I see two regions for growth potential. One is Southeast Asia, powered particularly by the well documented growth of personal wealth in China. The other area is the Middle East where asset protection considerations are becoming increasingly important.

In general terms, we are operating under increasing scrutiny from all quarters and attention from regulators can make the organisation of clients’ affairs more complex. The result is, as advisors, you have to be completely on your game, focused on answering client needs in a challenging environment. 

Global jurisdictions are innovating but it is the established fiduciary service centres which are leading the charge: Jersey introduced foundations a few years ago and Switzerland is looking at introducing a trust law. 

There has been debate in the Swiss industry about the case for developing a home-grown trusts law regime, and of course there are moves in the country to license the trusts industry and streamline the rules. What do you think could or should happen in Switzerland? Does there need to be a home-grown trusts law there?
I am the vice chairman of the Swiss Association of Trust Companies, which has been lobbying for a comprehensive business regulation of trustees for some years. Having only a light-touch AML/ATF regulation could be perceived negatively by clients considering Switzerland as a jurisdiction. We would rather be proactive and have a say in the process of introducing full regulation so that we can have influence over what form it takes, rather than wait for others to decide and impose the terms of such regulation on us.

For Switzerland to have a succession planning vehicle would make a lot of sense. It would put an end to the current situation whereby Swiss residents looking for a succession planning vehicle are required to go elsewhere to find, say, a Liechtenstein foundation or a Jersey trust. Removing the restrictions around the use of Swiss foundations and making them available as private maintenance foundations would solve this.

As to whether Switzerland should have a trust law on the model of other mostly Anglo-Saxon jurisdictions, it certainly can be seen as another string to our bow, which is a good thing. 

Foundations are different from trusts in some ways – more akin to companies in the governance, etc – do you see them as becoming more important vs trusts in the future?
There are certainly some areas where foundations can be more useful than trusts because, unlike a trust, they have a "legal personality". In other words, the foundation itself is the subject of rights and obligations, whereas for a trust, it is the trustee which owns the assets and is the debtor of the liabilities.   

In the civil law tradition, foundations are intended to last forever, so you have none of the questions about perpetuity periods that exist with trusts. With a foundation, if the beneficiaries want to terminate the foundation, they do not have an enforceable right. By contrast, following Saunders vs Vautier, all beneficiaries of a trust who are adult and have capacity can force the termination of a trust even if it is against the will of the trustees.  

Having said all that, there is a place for both trusts and foundations which are used in slightly different contexts so there is no obvious reason why foundations will necessarily become more important than trusts in the future.

A big issue for wealth management still is cross-border control of wealth structures, transfer, etc, particularly when there might be different legal codes (common law vs civil law, shariah, other). Do you think this is actually why offshore/international financial centres have a continuing important role to play in facilitating wealth transfer?
As families globalise and become more mobile, moving between different jurisdictions, international financial centres have a role to play in ensuring that they are not operating in a “vacuum”. We are seeing the emergence of something like an international standard - a sort of equivalent to the “lex mercatoria” in the commercial sector - underpinning the transition of wealth. 

Another important feature of these financial centres is that it offers a degree of freedom and flexibility to business people and their families in structuring their affairs. That is not to say that they won’t pay taxes where they are resident, but it allows families to be able to arrange their affairs in an environment without necessarily triggering tax consequences or being restricted by less flexible local statutory rules.

The wealth protection/transfer toolbox does not just include trusts or foundations, but also insurance “wrappers” and the like, such as private placement life insurance. This area has become more visible recently – is that an area you know about and would like to comment on? Any views on this?
This is a trend that is gaining momentum. As an example, in October last year, Stonehage Fleming entered into a partnership with Lombard International – one of the leaders in life insurance solutions – which enables us to offer our clients life insurance solutions either as a standalone wealth planning solutions or in combination with other planning solutions like trusts.

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