Simon Phelps
PRIVATE WEALTH INSTITUTIONS

The interactions between trustees and beneficiaries can bring about complexity and conflict. We will help you anticipate, prevent and resolve problems.

We act as fiduciaries

Below are some examples of the opportunities and challenges we respond to on behalf of institutions that advise or support wealth owners and their families.

Buying a trust company.

Legacy-issue risks need not scupper a deal

Our client asked us to carry out due diligence on a trust company. We found that there were issues with about 10% of the trusts –  from potential breach-of-trust claims and fees that had been incorrectly charged, to a small number of substantive compliance-breaches.

Once we had renegotiated the price, and certain warranties, and indemnities, our client proceeded with the purchase. Following the purchase, our client used our report to isolate the problem trusts so that they could be dealt with on a case-by-case basis.

Tying-in key personnel will help deliver value

Our client wanted to buy a trust company whose directors intended to step back from running the business. This raised the risk that key client relationships could be lost.

We advised on measures to manage this risk: earn-out provisions, restrictive covenants, and agreed with some of the directors that they would remain involved in the business for a period.

We are making a momentous decision. Should we make an application to Court?

Court approval for changes that are in the best interests of beneficiaries

Trustees of a valuable trust wanted to vary trust terms they had no power to alter. They were concerned that some beneficiaries would get extremely large lump sums when they turned 18.

We made an application to court to vary the trust. The court agreed it was in the best interests of the young beneficiaries and approved the application: the beneficiaries would get an income at 18, and larger sums when they were 30.

The court’s blessing for a ‘momentous decision’ contrary to the settlor’s wishes

The trustees of a trust that held a single Mayfair property wanted court approval for a sale of the property.

The beneficiaries agreed with the trustees that selling the property was the right decision, but the settlor of the trust had given clear guidance that the property should never be sold. On an application by the trustees the court agreed that this was a momentous decision, and approved the sale. The trustees were able to benefit the family more effectively using the sale proceeds.

Our client wants to set up a new trust, but retain some control.

Keeping some control over assets in trust

Our client, a wealthy Russian individual, wanted to set up a trust but keep some control over its assets.

With our client and the prospective trustees, we talked through different ways to manage the trustees' decisions – particularly investment and distribution decisions. We then drew up trust documents that gave our client the level of control he wanted, without jeopardising the validity of the trust.

Trust terms can mitigate trustees’ fiduciary risk

The trustee of a trust set up by a Middle Eastern businessman wanted a structure that enabled them to hold substantial private-equity investments, but were concerned that they currently had too little advice, and too much fiduciary risk.

We revised the terms of the trust to put the private-equity investments into a ring-fenced fund and created an investment committee that reported to the trustees. These changes limited the trustee’s fiduciary risk and allowed it to continue to make investments that carried significant commercial risk.

We want to introduce the next generation to the family assets.

Trustees: Get to know your beneficiaries

The settlor of a substantial family trust died suddenly leaving a wife and three adult children. The trustees had a broad understanding of the settlor’s long term wishes, but the question had not been addressed in detail. The family had had little involvement with the trust. 

We met with the trustees and the family to explain the purpose of the trusts and how they worked. In discussion with the family, the trustees put in place a short term distribution arrangement to provide some income to the family, while the wider estate issues were dealt with. This gave the trustees and the family some breathing space to establish a route forward, with the engagement of the family that had previously been lacking.

A few tweaks can transform how a trustee can distribute capital and income

A wealthy family with significant property interests held in trust wanted to keep their assets intact for the long-term.

We restructured the trusts, and their underlying finances, to protect the capital but still generate an income for the next generation beneficiaries. We then helped the family agree a short governance document which set out the income-distribution policy, and confirmed the aim to retain capital in a long-term dynastic trust.

Varying a trust to give a beneficiary time to learn about investment

Our clients, the trustees of a sizeable trust, were concerned that a beneficiary would receive half the trust’s capital when she turned 21.

We advised on changes that would give her a reasonable income, and a say in the trustees investment decisions, at the age of 21. Then, with the benefit of 14 years’ investment experience, she would get her share of the capital at 35. She was happy to agree to the changes.

We are concerned about the tax exposure to our beneficiaries.

Formalising arrangements with beneficiaries can reduce tax risk

The trustees of an offshore trust held shares in a UK property development company. A family member began to source deals for the company and the trustees were concerned about the possible tax implications.

We advised on the risks of the beneficiary being treated as adding value to the trust, and what steps to take to mitigate those risks. With these steps in place the beneficiary could advise on a more formal footing, with less tax risk.

The right structure can reduce tax and control information

The trustees of a substantial offshore trust asked us to review the tax position of beneficiaries who paid tax in France, Israel, and the US.

We restructured the trust, partly by dividing it so that it could – jurisdiction by jurisdiction – operate tax-efficiently. It also enabled the trustees to limit the amount of information that would have to be disclosed to each tax authority.

Someone has made a claim against us.

A determined response can quickly stop a claim

A beneficiary of a trust brought a claim against the trustees, our client, for breach of trust. She claimed that the trustees had gone against guidance in a letter of wishes when they paid out a large sum to another beneficiary.

We were able to show that the trustees had acted reasonably – and considered the interests of all the beneficiaries – when they made the distribution. The beneficiary dropped her claim.

Limited disclosure can convince creditors to drop a sham-trust claim

A creditor made a claim against assets our client had put into a trust, arguing that the trust was a sham.

We advised the trustees to disclose some information to the creditor despite the risk to confidentiality. The information made it clear the trust had substance and was not a sham. It worked. The creditor dropped the sham-trust argument and our client negotiated a deal with the creditor that left the trust’s assets intact.

“Managing the expectations of each generation is a key component to any long term wealth planning.”

Jonathan Kropman, Partner BLP - Head of Private Client

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