Where spooked Mid and Far-East wealth is seeking a bomb-proof new home

15/06/2018 John Evans, international editor of thewealthnet,

Much of Jersey's new business in private wealth management nowadays  is coming from the Middle East and the Far East, driven by factors like political volatility and repressive inheritance laws. 

That represents a big turn-around from the channel island’s business base back in the 1990s, which was predominantly UK-tax driven and built on mitigating capital and inheritance taxes, according to James Campbell, a partner at offshore law firm Ogier.

In an analysis of latest trends in Jersey trust companies, he says, “Tax will always need to be considered for Middle East and Far East clients - many of these families are international in the sense of assets being held in multiple jurisdictions and family members being resident in multiple jurisdictions - but favourable tax treatment is rarely the primary motivating factor to structure."

Instead, the drivers behind foreign wealth inflows include, in recent times, protection of assets against seizure by political means.

Concerns with political instability and nation state sovereignty have acted as a catalyst in prompting the wealthy to scrutinise where and how they want to structure their assets, Mr Campbell notes.  

“In the Middle East this is particularly so following the Arab Spring and the continuing turmoil in Iraq, Libya and more recently Syria.  Recent events in the Kingdom of Saudi Arabia have also prompted new structuring and restructuring mandates.”  

Many wealthy who are resident in politically sensitive countries find that a trust, by removing the assets from their ownership, can protect against the risk of assets being seized by political means.  

In the Far East this concern is replicated in China “where there remains a residual concern about the seizure of assets by political means”.

Mr Campbell says that continuity of ownership is another primary driver to structure or re-structure existing structures.  

Increasingly the wealth want to ensure that family assets will remain in the same ownership for the foreseeable future.  Clients want long term dynastic structures built to last for generations to come and which will be able to provide for an orderly transfer of wealth to the next generations.  

Many do not want family assets, which might include a family business built up over many years, broken up and divided among the heirs. 

The wealthy in both the Middle East and the Far East are now “much more savvy in terms of planning for the future generations – in the Far East specifically high profile estate and trust litigation is having an impact in highlighting the risk of family wealth being materially eroded by settlors omitting to take simple steps to ensure an orderly transfer of wealth.”

Another key driver in the Middle East is the avoidance of forced heirship requirements.  Many systems of law, including many countries in the Middle East founded on Sharia law impose on individuals a requirement that upon their death they must leave a proportion of their assets to certain heirs.  

A Jersey trust can avoid this, Mr Campbell notes.  A trust can also avoid estate duties and probate formalities.  Assets transferred into a trust during the settlor's lifetime will not generally form part of his/her estate on death.

Likewise a Jersey trust can protect assets against profligacy by younger members of the family who might otherwise inherit large sums of money at an early age (e.g. under the Sharia laws of succession).  A settlor may want assets to be distributed to his children once they have achieved a certain age or perhaps displayed a responsible and mature attitude -- which the flexibility of a Jersey trust can achieve.

Among other trends, Ogier is also seeing a steady flow of private trust companies (PTC) mandates for very wealthy families where the desire for control and a bespoke structure tailored for the family is high on the agenda.  Rather than transfer assets to a service provider's corporate trustee, certain high net families may prefer to establish their own PTC entity. The board of the PTC can comprise of family members, trusted family advisers and third party professional advisers.

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