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Trust and estate practitioners resilient amid rising costs and complexity

Updated: Apr 9

STEP Cayman welcomed more than 300 delegates for its first international wealth structuring forum in three years after a hiatus caused by the COVID pandemic.

During that time financial services, and more specifically the trusts industry in the Cayman Islands, had demonstrated its continued resilience and innovation, said STEP Cayman chair Tamara Corbin.

The STEP Cayman conference showed that trust and estate practitioners are dealing with many of the same issues other financial services sectors are facing.

Increasing regulation is leading to higher costs that must be recovered through higher fees. This in turn, potentially, strains client relationships.

The gap between existing fee structures and the increasing cost base, as well as a trend towards more complex structures, calls for more efficient technology solutions and processes, which requires investment.

Meanwhile, because of increased compliance costs, smaller business is falling away and has to be replaced by higher value, more complex structures.

This complexity is challenging trust service providers to cater for all the needs of their large family clients and extends to staffing, training and professional development with a new line of practitioners who focus on compliance and reporting.

Regulation not going away

Speaking on a panel that highlighted the challenges and opportunities for the trusts sector, Stella Mitchell-Voisin of Summit Trust International in Switzerland said regulators and the industry continue to walk a tightrope between the global drive towards transparency and legitimate privacy rights.

This was exemplified by the recent European Court of Justice judgment that limited, on privacy grounds, the amount of taxpayer information that can be made public on centralised registers.

Mitchell-Voisin noted that registration with such registers, for example the UK’s register of overseas entities, takes “an enormous amount of time” and is costly. Filling in HMRC’s spreadsheets for foreign owners of UK property took on average about GBP3,500 (US$4,300) worth of time to register each individual entity, she said.

While clients understand the need for compliance, this added cost of doing business has to be communicated in a sensible way.

Greater complexity

Moreover, higher compliance costs make certain aspect of smaller business no longer economical and the attrition at the lower end of services must be compensated for by more complex, valuable structures at the top end.

These structures are truly bespoke and challenge those trust service providers that are still somewhat disjointed between front- and back office.

Further, trust companies need to be able to manage the intergenerational wealth transfer that these types of family clients typically require. And trustees must be able to manage exotic assets, such as art collections, Mitchell-Voisin said.

“So, you need to have an army of advisers in the wings that you can call on. Whether that’s about tax structuring, whether it’s about insurance, whether it’s about investment management, condition reports or whatever it is, you need to know who to call.”

Rose Chamberlayne of Wiggin Osborne Fullerlove said practitioner surveys showed that cost and complexity are the two most frequently mentioned threats to the industry. She argued that technology is needed to create efficiencies at all levels.

Perception issues

Reputational challenges have surrounded wealth structuring since the publication of the Panama Papers.

Recent press coverage of Russian billionaire Roman Abramovich rearranging his trusts for the benefit of his children only weeks before he was listed on the Russia sanctions list, or legal tax structures of other public figures are difficult to address, panellists argued.

“There is very little that we can actually do about it. Our story doesn’t sell newspapers,” Mitchell-Voisin said.

“Palm trees and beaches are always going to win over Hollywood producers for the movies for some time to come.”

Chamberlayne noted that perception is also an issue in the transition to the next generation. Many younger generation family members are inheriting a structure they may not understand, forcing advisors to manage expectations and to educate them on their trusts and the range of benefits they offer.

Advisor client relationships are about “developing agency” among the next generation of clients, she said.

Chamberlayne pointed out that despite the trend towards more complex structures there is a desire for more simplicity. “The next generation [of clients] wants simpler solutions.”

In this context it is necessary to make existing trusts relevant to a changing world. Keeping existing wealth structures under constant review is vital, she said.

No doom and gloom

Panelists agreed that these challenges are not at all doom and gloom.

Henry Mander, partner at law firm Harneys, said these were ongoing issues that the industry has managed to navigate successfully in the past. “I am always amazed at the agility and ability of IFCs [international financial centres] to flex and innovate and thrive in new environments.”

This type of innovation includes for instance the use of alternative vehicles, other than trusts, in wealth structures, such as Cayman foundation companies, foundations, partnerships and segregated portfolio companies.

IMS is one of the longest established company management firms in the Cayman Islands. IMS is licensed by the Cayman Islands Monetary Authority to provide independent directors, company management and incorporation, mutual fund administration, captive insurance and trust services. For more information about our services, please contact us.

Disclaimer: this publication does not constitute legal or professional advice and should not be relied on as such.

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