Some clients prefer more than one
trustee to be appointed to manage their trust and will insist that
co-trustees are appointed.
As we saw when considering the
duties of trustees, if more than one is appointed they must act
unanimously and unless the trust deed specifies, a majority decision
will not bind the minority.
Usually, a co-trustee is appointed
in those cases where a trust corporation is not involved. They are
therefore most commonly found in those where the client has
appointed trusted advisers to act (such as partners in a
particular legal or accountancy practice). Often a member of the
settlor's family is appointed alongside a 'professional' trustee
(which in this context has been taken to mean someone who provides
trustee services as part of their livelihood and who is paid for
their services).
More than one trustee can help in
the decision making process, usually by assisting discussions
concerning the merits of a particular distribution or the exercise
of an administrative power. This is usually the case where a family
member, who is aware of the settlor's intentions and wishes, is
appointed alongside a professional trustee.
However, they can also create
potential problems. For example, if one of the trustees is resident
offshore and the other is located onshore, the tax authorities in
the onshore centre might decide the trust is taxable in that
jurisdiction on the basis that part of the management and control is
exercised from that location.
In addition to possible taxation
problems, the settlor should also be aware of potential
administration problems which can stem from the duty of the trustees
to act together. Depending on the number and location of the
co-trustees, it could be a difficult task to obtain the consent of
them all before a particular action is taken. As a result,
distributions could be delayed, as could the simple appointment of
an agent, such as an investment adviser or banker.
The Appeal of Trust Corporations
Before moving on to the role and rights of the settlor, we
should consider the use and appeal of trust corporations in offshore
centres, as although it is possible for individuals to be appointed,
it is much more common for a corporate entity to be used for
offshore trusts.
Licencing requirements
In some centres a trustee has to be licensed and there would
usually be a capital adequacy requirement which often only a
corporate trustee could meet.
Continuity
Unlike individuals, a corporation can continue in perpetuity and
so the death or transfer of an employee will not affect the
continuance of the trusteeship, nor would one hope the quality of
the service.
In addition, a trust corporation
will seldom change location. It may move offices within the offshore
centre but it would rarely decide to relocate to another
jurisdiction. There will therefore be continuity in terms of
residence in the offshore centre chosen for their trust.
Multi-jurisdictional
Many trust corporations have operations in more than one centre.
This can provide a greater base of experience and knowledge of the
offshore industry and also provides an opportunity for the trust to
migrate to another office of the organisation in the event of a
trigger event under a flee clause provision. A flee clause is one
under which the law of the trust or residence of the trustees will
change on the happening of a predetermined event, such as civil
unrest, in the offshore centre originally chosen.
Expertise
Trust companies pride themselves on possession a high degree of
expertise as well as the necessary resources to service trust
business effectively and efficiently.
Many trust corporations also possess
investment departments which can be used to provide investment
management services. In some cases they will also be affiliated to a
bank or a company management function which can mean that the entire
management and administration of an offshore structure can be
conducted under the same roof. This is a factor which can create
certain efficiencies and cost savings.
Internal audit
Trust companies will usually be subject to external audit
requirements and in addition, they will also have in place internal
controls and checks to ensure that the service is being delivered
efficiently as well as effectively. Many of the larger institutions
will have internal audit departments which help police the various
offices and can play a very useful trouble shooting role.
Security
Many settlors favour trust corporations because of the security
aspect. If there was a dispute and the trustees were found to be at
fault, it would probably by easier for the beneficiaries to obtain
financial recourse from a negligent trust corporation than from an
individual who was acting as trustee.
The Rights and Role of the
Settlor
Many trustees believe that the settlor of a trust will retain
certain rights over the trust property. However, unless the trust
deed specifically provides them with certain powers, the settlor of
a trust will have no rights whatsoever over the administration of
the trust or the trust property.
The Rights of the Beneficiaries
It is sometimes possible for trustees to forget that the
beneficiaries of a trust have certain rights. Although most of these
rights should be a matter of applying common sense on the part of
the trustees, it is often the most obvious issues which are most
commonly missed.
The "common sense" rights are as
follows:
However, the area which can cause
the greatest administrative problems and give risk to the most
debate is the right of the beneficiaries to receive information
relating to the trust and their interests.
Disclosure of information to the
Trust Beneficiaries
It is generally accepted that trust beneficiaries have a right
to request and receive information relating to their interest under
the trust. For example, the life tenant of a fixed trust is entitled
to be told that the extent of his interest, of his interest, how
much income is being generated on the trust fund and also the
capital value of that fund. Similarly, the remaindermen has a right
to know what is the capital value is as one day he will receive a
capital benefit. Consequently, in fixed trusts, beneficiaries
usually receive copies of the trust accounts.
However, the position concerning
discretionary beneficiaries is not as clear cut because they only
receive a benefit at the discretion of the trustees. Once a payment
has been made to them they cease to have an interest, unless the
trustees decide to exercise their discretion in their favour again
in the future.
For example, the beneficiary might
require to accounts as part of an investigation by an onshore
revenue authority or the details might be requested to enable the
beneficiary to initiate proceedings against the trustee or settlor.
In such situations, the trustees should refuse.
Another consideration is whether
there are any statutory restrictions in place which restrict the
release of information, such as there is in respect of exempted
trusts in the Cayman Islands where it can be an offence to release
information to the beneficiaries
Apart from accounting details, the
discretionary beneficiaries might also request copies of all
paperwork which records how the trustees have exercised their
discretion. For example, they might want to know why the trustee has
acted in a particular manner
Similarly, the contents of a letter
of wishes might be requested. However, documents such as the letter
of wishes and minutes of trustee's meetings may have to be released
under the rights to discovery in hostile litigation.
The possibility that the contents of
a letter of wishes might become public knowledge has led to some
advisers suggesting that their clients request the trustees to
record their wishes in a file note which the trustees then sign.
This is often referred to as a memorandum o wishes and such a
document can, in some cases, fall outside a discovery order.
Objects of a power
Whist on the subject of beneficiaries, it is worth mentioning
that the persons who can benefit only as a result of the trustees
exercising power on their favour, such as the power to appoint
capital if the trustees so decide, will have less rights to
information that those discretionary beneficiaries who can benefit
subject to the trustees exercising a discretion in their favour.
Often you will find that an offshore
discretionary trust will only convey benefits to persons under a
power which makes those persons the objects of a power rather than
the objects of the trust. This is done primarily to reduce the
rights to information which those persons would otherwise enjoy if
they were discretionary beneficiaries.
The rights to Control the Trustees
Finally, unless the trust deed state otherwise, the
beneficiaries have no right to influence the trustees in the
performance of their duties or powers. Similarly, unless the deed
states otherwise, the beneficiaries will not have the right to
remove or appoint trustees.
In most instances they do
however, have the right to enforce the terms of the trust
against the trustees.
