Wealth management is no stranger to an eye-watering number of acronymn entities that relate to different structures for holding, protecting and transferring wealth. What sort of tools should Singapore-based wealth managers consider? This article takes a tour.
The following commentary about Singapore and its status as a jurisdiction for private client wealth management comes from Nicola Roberts, partner at Harneys. It goes into detail about a number of structures that ought to be in the advisor’s toolbox.
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As the world continues to grapple with the global uncertainties and vulnerabilities due to the COVID-19 pandemic and various socio-political threats, the growing numbers of UHNW and HNW families in Asia are making it clear that the small island nation of Singapore is their sanctuary of choice.
Impressively, Singapore has managed more or less to keep COVID-19 at bay whilst its citizens continue to live relatively normal day-to-day lives. Consequently, wealthy families are flocking to Singapore for residency, lifestyle and wellbeing. Recent reports from Knight Frank and Bloomberg say that last year saw a 10 per cent increase in the number of UHNW individuals in Singapore, and a doubling of single family offices to around 400.
A natural knock-on effect of the COVID-19 pandemic is that the importance of succession planning has been brought to the forefront of people’s minds, with Singapore’s newest residents no exception.
Laying the foundations for future
Traditionally, a lot of private client work in Asia has always been undertaken in Hong Kong. However, since 2019 we have seen a shift due to concerns over social unrest and political and legal infrastructure stability and many internationally mobile UHNW families have been turning to Singapore.
Some say the stars are aligned in Singapore due to the suite of government incentives for family offices, it excellent lifestyle, political stability, forward-thinking regulations, rule of law and the wealth management structuring opportunities it can offer in the post-pandemic world. As we know, wealthy families plan ahead for the next 100 years, never for the short-term and succession planning both for family wealth and the family business is key.
Trust structures continue to remain popular with wealthy Asian families as there is an ever-growing continuing need for maintaining confidentiality and protecting wealth for future generations, with an emphasis on tax-efficient planning. However, many private client advisors will be familiar with the common cultural conflict in Asia between the desire for asset protection and successful succession arrangements on the one hand, and the reluctance to lose control over the business they have created on the other hand. Throw in intergenerational differences and it becomes clear that standard, off-the-shelf products will not suffice. Fortunately, offshore trust structures are apt to remedy this conflict. In particular, VISTA and STAR trusts specifically cater for these complex succession planning issues.
Creating the perfect VISTA
The BVI has specialist legislation, in the form of the Virgin Islands Special Trusts Act (VISTA), which caters for the needs of BVI trusts which hold BVI company shares, with the BVI company holding further assets if necessary.
The principal effect of the underlying statute is to remove the duty of trustees to monitor and intervene in the conduct of the directors and in the running of the underlying BVI company. Owing to the large number of companies incorporated in the jurisdiction, legislation was introduced to offer a vehicle which would do away with the need to obtain a grant of probate in the BVI (which would otherwise be a requirement on the death of an owner of BVI company shares) by implementing a trust structure, whilst at the same time allowing the owner to retain effective management and control of the company after having divested himself or herself of such ownership.
This is ideal for entrepreneurial HNW individuals, who believe
risk taking to be an integral part of business practice. Further,
settlors of a family business may have wider considerations than
pure investment return. Family tradition, ethical and
environmental issues, together with employee concerns may all be
relevant factors, which trustees under a standard discretionary
trust may not be able to take into account; nor would traditional
trustees necessarily have the appropriate skill set for the
underlying business activities.