Jersey Trust Insights: A Collection of Asia Case Studies

Praxis were approached by a Hong Kong-based law firm in relation to the formation of a private trust company (PTC) structure, in accordance with advice from a Jersey-based law firm, for one of their long-standing clients (the Client).

The Client requiring the structure is a Hong Kong national, who still resides in Hong Kong.  His wealth originates from family business, which was started by his father over 70 years ago.  The business was subsequently listed some 30 years ago, with the family still holding c.51% today.

The structure, as per the below, will see the shares in the listed business held by a British Virgin Islands double company structure which will in turn be owned by the Jersey PTC structure.  The board of directors of the PTC will be the Client, his close family members, and Praxis, as professional services providers (a requirement of Jersey regulation). This board composition gives the client and his family a degree of control in the decisions of the trustee.  However, anyone taking on the role of trustee must be aware of their fiduciary duties in this respect. The Client will reserve the power to direct investments in the discretionary trust (the Family Trust), with a life interest to the Client and his wife (as co-Settlors).

The benefit of reserving the power of investment in the Family Trust is to give the Client control of when to sell or acquire shares in the listed business.  This is a business that has been created over a significant period of time, is the majority of the family wealth, and the Settlor will likely feel that the trustees do not have the requisite degree of understanding of the business, and the environment it operates in, to give advice in terms of the timing of future sales and acquisitions of company shares.  Therefore, the Client will relieve the trustees of this duty, in accordance with the terms of the reserved powers clause in the trust instrument.

In addition to the reservation of investment powers, the Client and his with, as co-Settlors, have created a life interest in the Family Trust, which will provide them with an income during their lifetime.

The client was a wealthy UK individual, who inherited significant assets when his father, who lived and generated his wealth in Hong Kong, passed away.  The client set up a Jersey discretionary trust (the Trust) for Philanthropic purposes to support worthy causes in the Asia region and give back to the region where the wealth originated.  In order to fund the charitable projects, the Trustees placed funds in an investment portfolio, as well as owning a property portfolio in the UK, which generated income which could be donated annually.

Each year, the Trustees would set aside an amount for the projects and would consider requests from worthy causes for funding.  As part of the consideration process, the trustees would review the requests and, where required, visit the organisation, or project, that required funding.  This enabled the trustees to properly assess the needs of each project, but also help from a due diligence and authenticity perspective.

Examples of the initiatives are as follows;

• bursary funding for students to study at university at the University of Hong Kong (receiving reports annually to ensure support could be continued);
• building of schools in mainland China (and providing further maintenance funding in subsequent years);
• establishing a sanctuary / veterinary for endangered animals in Borneo.

This structure was established for a wealthy Asian family who had grown their family business and subsequently listed it on the Hong Kong Stock Exchange.  The family created a number of typical discretionary trusts, one for each branch of the family, to hold their respective interests in the listed entity.  However, in order to preserve the principle ownership of the family business in the family there was one bespoke reservation of power included in the Deed, namely that the Trustees could not sell the shares in the family business without the prior consent of the matriarch of the family, as she wanted to have control over the timing of any sales of the listed shares and ensure that in the event of a rift in the family, the shares could not be sold to third parties.

In addition to the holding in the listed company, each trust also held an equal share in various non-listed BVI companies (via a BVI holding company).  These companies were managed by the family office based in Hong Kong, and the investments held were diverse in nature and global in geographical reach.

The purpose of this structure was to keep the listed company primarily in the family for generations to come whilst allowing each branch to deal with the income from that holding as they saw fit.   It provided a mechanism to keep control over the timing of the sale of any shares in the listed company, as this was clearly a business the family knew well, so they felt they were best placed to know when these corporate transactions should occur.  Finally, it also meant that the investment experts in the family office were able to properly utilise their knowledge and skills to buy and sell a variety of global assets to fit with the investment objectives of the overlying trust structures.