By Nigel Rotheroe

I am a great proponent of trusts for a variety of uses and in particular for wealth protection and caring for those that cannot look after themselves (readers of this article may wish to read other articles on this site in this respect), but I do get concerned with what some “professionals” say at times about trusts and their administration; no more so than when it comes to the use of a PTC.

Indeed, over the years I have read a number of articles or fact sheets, by well-known lawyers and trust and corporate service providers (administrators) bestowing the virtues of wealthy families using a PTC as part of their family structures asserting for instance that:

• “A PTC offers a robust structure to families and their trusted advisors, looking to retain control in the decision making process as well as an active role in the management of their family assets and trust affairs.”
• “A PTC arrangement will provide a robust structure to allow you and your trusted advisers to manage your assets.”
• A PTC is “a structure that will hold assets for the benefit of your family with the aim to protect the family bloodline while retaining the client control over assets settled into the trust.”

A PTC’s sole purpose, if operated in a reputable jurisdiction and in an appropriate manner, is to act as trustee in relation to a specific family trust(s) and not to provide trustee services to the general public.  The PTC usually relies on the professional services of licensed and regulated trust and corporate service providers for day to day operational support.

The attraction of a PTC, as marketed, for those with limited knowledge of trusts, or jurisdictions that do not accept the concept of a trust, e.g. France and Egypt, is that they still control the decision making process that is normally placed in the hands of independent trustees; this being done for instance by:

• A regulated provider of trust and corporate services being the trustee of a purpose trust or administrators and council members of a foundation and the settlor’s family acting as enforcer(s) (usually with the ability to appoint and/or remove a trustee) of the purpose trust or enforcer of the foundation (with the ability to remove and add council members).
• The Settlor and/or family members and/or Settlor’s nominees being directors of the PTC.
• The Settlor and/or family members and/or Settlor’s nominees being directors of any companies owned by the trust(s) administered by the PTC.
• The Settlor and/or family members being the protectors of any trust(s) with the ability to appoint and/or remove a trustee; although this may be considered to be “over kill”.

What is common to most PTC structures is that the directors of the PTC include the Settlor of the family and/or other family members and/or the Settlor’s nominees.  Whilst this is not an outright “no no”, it is important that the constitution of the board of directors is suitably balanced.

The articles or fact sheets then go on to say for instance:

• A protector’s role is only advisory, so as to not undermine the integrity of the trustee(s).
• It is crucial that management and control of the PTC and its assets is undertaken from outside of the client’s [Settlor’s] home jurisdiction.
• The level of control permitted usually depends upon the domestic tax regulations to which the client is subject.

At the outset, we therefore have confusion, not only for the person who is being enticed to establish a family PTC as part of any wealth preservation and protection structure, but also I dare say, to tax authorities who view trusts quite often as merely “tax planning vehicles” (which they are not) and who no doubt pay quite a lot of interest in PTCs operated through the offices of certain professionals; especially in their “marketing material” which is often sought and presented to Courts or Tax Tribunals in support of assertions by Revenue or others as to:

• Where a trust is actually managed and controlled in real terms.An individual(s) acting as a “Trustee de son Tort”[1].
• A breach of fiduciary duty.
• Reservation of benefit.
• Fraud on a power.
• A trust being a “sham”[2]

In essence, what is being put forward is just the same (from a control and decision making perspective) as the settlor of a trust being a trustee with a spouse or professional party and them controlling and deciding who benefits from the trust, when and to what extent; if at all.  However, that is not what a PTC offers, or should not be offering, if the trustees are fulfilling their fiduciary duties independently and any protector(s) or enforcer(s) equally so.

As a barrister friend of mine often says, “there is something in the word Trustee, that being the word “trust”.  If you, as the settlor/client, are not certain you can trust the person you are appointing as trustee to administer assets for the benefit of your family, such that you must be able to control the decisions they make, the assets they hold, buy, or dispose of, then is a trust right for you and your family and more importantly, is there a trust?

I am happy that a PTC is an appropriate vehicle for the right client.  But I do have some reservations as to how a PTC “fits into a structure” and more importantly who should ultimately own it.

I am not a fan of a PTC being owned by a Purpose Trust[3] which is say established in the Isle of Man (where I live) and subject to Isle of Man Law, as the legislation stipulates that a “purpose trust” means a trust for a purpose or purposes other than a trust that is for:

• The benefit of particular persons whether or not immediately ascertainable; or
• The benefit of some aggregate of persons ascertained by reference to some personal relationship; or
• Charitable purposes, and for this purpose a trust shall not be treated as being for charitable purposes by reason only of the fact that the instrument creating the trust contains a gift or bequest of any part of the trust assets to a charity.

Even if a Purpose Trust is set up to benefit a particular purpose, e.g. to further the public performance of music in the Isle of Man, I would argue that its role is primarily to ensure that no third party owns the PTC which administers one or more family trusts; those that administer and control the day to day operations of the Purpose Trust know that in essence it is there to benefit one or more particular persons (the beneficiaries of the family trusts); and the income stream derived from the PTC is likely to be disproportionately small to the income that the PTC generates; for most of that will usually be utilised in paying the professional fees of those providing administrative support to the family trust(s).

So who should own the PTC?  My preference would be for the PTC to be owned by a foundation and one preferably established in the jurisdiction in which the trust(s) themselves are administered with both the foundation and trusts being subject to the law of the jurisdiction concerned.