Protecting and controlling your assets around the world in an increasingly regulated banking environment is crucial and one of the most effective ways is via a trust instrument.
You can use a trust to manage your assets effectively while you are alive and it can also be a ‘remote control’ from the grave if it is well-structured, says Judy Ang, a Trust Consultant, Private Wealth and Management Practice at Dacheng Wong Alliance. She adds that the client can explore using trusts to organise his various assets across different companies and different countries. Further, the modern trust law enables the settlor (creator of the trust) to determine which powers to reserve over the trust.
Ang, who is based in Singapore, notes that due to Singapore’s political and economic stability, as well as its status as a private banking hub of Asia (in competition with Hong Kong), many wealthy individuals prefer to park their funds in Singapore. As these individuals have funds tied up in different companies across different jurisdictions, she always advises them to create a trust to better organise their individual and shared assets across the world. “This aids in family harmony and succession planning (which is no longer straightforward).”
For example, no one would have known that Wang Yung Ching, founder of the Formosa Plastics Group, the biggest manufacturing conglomerate in Taiwan, had set up several trusts during his lifetime and that a family member had challenged their validity upon his demise.
“A lot of our Malaysian clients, for example, have properties in the UK and US where they send their children to study. These kids may later become permanent residents in those countries. So, how do the parents give assets to these children?” asks the consultant. “This is where careful planning comes in. This is where people like us come in to advise them on how to arrange their cross-border assets,” she continues.
Ang also gives the example of a Malaysian businessman who owns a listed company in Singapore using proxies. While he is the chairman, his son is actually the one running the show as executive director. “The father may want to maintain family harmony by setting up a family trust and restructuring the organisation. The trust is perfect as a vehicle to organise his various assets across different companies and different countries.”
Assets that can be parked in a trust include properties, bank accounts, cash, investment assets and company shares, among others.
Source of your wealth?
Sometimes, for their own reasons, some clients may want to set up offshore companies or park their assets in offshore accounts. They would then need a bank account; however, with the Automatic Exchange of Information (AEOI and adoption of the Common Reporting Standards in compliance with the OECD and FATF by financial institutions, this would mean ‘discrete’ is no longer equal to ‘nobody knows’. In the new era of AEOI and CRS, financial institutions will obtain tax residency information from both new individual and entity accounts and similar information on pre-existing clients.
Each financial institution will be required to report the client account information to its local tax authority for onward distribution to tax authorities in the country where the client is tax resident. However, there is no withholding obligations.
Please visit oecd.org and search for Automatic Exchange of Information for infomation on commitment of various countries to implement the Common Reporting Standards starting in 2017 and 2018.
Again, this is where through careful planning and setting up of a trust instrument, the settlor could manage his affairs in a way that he desires. Trust planning inherently has to be tailor-made and customised to the client’s requirements.
What’s important is that the client has to provide a credible source of their wealth. Simply put, as long as he is a genuine businessman who has paid his taxes, there is nothing to worry about, says Ang. For example, a lawyer who has accumulated his wealth of RM10 million over the last 30 years – from lawyer’s fees, director’s fees and investments – and paid all his taxes, would have nothing to fear. “It is only if the cash comes from questionable sources that one has something to worry about,” says Matthew Yeoh, Managing Partner of Yeoh Mazlina & Partners, a legal firm based in Kuala Lumpur.
Whether the source of the cash is questionable or not depends on the circumstances of each case. A good example is Mainland Chinese buyers who come to buy properties bringing a wad of cash. Are those cash of dubious origin?
In Vietnam, it would appear that paying cash to buy properties is the norm. “After a series of banking scandals, Vietnamese have little trust in their banks; they prefer to keep their money in tins. It is not a surprise thus to see some property buyers come in a backpack loaded with hard cash. A USD52K house, for example, when converted to Vietnamese Dong would take up the space of a backpack,” says the lawyer.
Unlike a will — which only takes effect upon death — the terms of the trust can be effective immediately during the lifetime of the settlor depending on the type of trust the settlor has established. The client can also consider a Lasting Power of Attorney (LPOA) to deal with the affairs of the individual while the latter is alive. It could be revoked during the lifetime of the individual as long as he/she is of sound mind. This gives the client and family comfort to know a trusted person could manage the affairs if the client is medically unable to do so.
Without a trust or a LPOA, his family will be left in a limbo as a will only takes effect upon the death of the testator (maker of the will).
Judy will be speaking at the 2nd ASEAN Legal Alliance (ALA) Conference ’15 to be held next month in Kuala Lumpur. ALA was formed to bring together law firms from each of the 10 member states to provide a truly ASEAN-wide legal network. Despite economic integration brought about by the AEC (ASEAN Economic Community), ASEAN’s legal market remains separate and distinct, differentiated by different legal systems, languages, cultures and business practices. Firms within the ALA make a lot of cross-border referrals among each other and cover the entire spectrum of practice areas, from intellectual property, real estate to international trade.