Private Trust Companies – Part 3
When Things Go Wrong.
This article, the third in our series on Private Trust Companies (“PTCs”), considers a practical example of what can go wrong in the administration of a PTC and the knock-on implications for wealth protection.
Recently, I was involved in the transfer of a large family wealth structure to our offices. At the heart of this structure was a discretionary trust (the “Trust”), established in the 1980s with a private limited company, a PTC, acting as its sole trustee. The Trust Deed provided that:
The beneficiaries were limited to charities and public charitable causes in a Caribbean Island.
The trustee (the PTC) held power to add or exclude beneficiaries.
Neither the trustee nor any shareholder of the trustee company could benefit from the Trust.
Such an arrangement is commonly known as a “blind” or “red cross” trust.
Where it went wrong?
Over the decades, the Trust and its underlying companies functioned much as expected: investing funds, receiving income and, it seems, advancing money to or for the benefit of the UBO (ultimate beneficial owner). Unsurprisingly, the UBO came to consider himself a beneficiary of the Trust.
However, in 2017, the then administrator, a multi-jurisdictional trust and corporate service provider (“ICO”) based in Jersey – took legal advice and resolved that the UBO should formally be added as a beneficiary. A Deed of Addition was drafted by Jersey lawyers and executed.
The problems?
Execution error – The Deed was signed by the ICO, which was never the trustee of the Trust. The PTC was the trustee. The execution, therefore, had no legal effect.
Fundamental prohibition – Even if executed properly, the UBO could never be added as a beneficiary. As the beneficial owner (via nominee) of the PTC, he was technically a shareholder of the trustee company, which the Trust Deed expressly excluded from benefit. This was later confirmed by two Jersey firms and English counsel.
The bigger picture
rom the UBO’s perspective, the Trust is not fit for purpose – despite being established with professional advice and administered for nearly 40 years by “blue-chip” service providers. Questions also arise over historic distributions, tax implications, and the responsibilities of past administrators.
The case highlights a key lesson: wealth protection structures only work when carefully implemented, regularly reviewed, and overseen by professionals who prioritise client well-being over profit margins. As this example shows, size and brand reputation are not always a guarantee of quality or diligence.
As with all trust structures, success depends on ongoing maintenance, regular legal review, and careful governance. In this instance, time will tell whether matters end up before the courts.
If you would like to discuss Private Trust Companies or other wealth protection structures, please contact us.