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. 

The editors are pleased to share this analysis and invite readers’ responses. The usual editorial disclaimers apply. We urge readers who want to jump into the debate to do so. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

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 generations 
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.
 

STAR trusts lighting the way
The Cayman Islands also has specialist legislation under the Special Trusts (Alternative Regime) (STAR) which forms part of the Trusts Act. STAR trusts are attractive as dynastic or multi-generational trusts because they can exist indefinitely. Clients may use STAR trusts if they wish to benefit specific individuals, but also use the trust to further a purpose, such as the continuance of a business or philanthropic purposes. The rights of beneficiaries are restricted under STAR trusts, including no right to information, giving the settlor a greater degree of certainty as to the information about the trust which a beneficiary can obtain. It is also possible to ensure that the trustee does not interfere or have any supervisory function over the entity or business, and the settlor can appoint the director(s) of the underlying company.

PTCs
Private trust companies (PTCs), family office solutions, and Cayman Islands Foundation Companies are also available and can provide an effective alternative where there is reluctance to transfer significant family wealth and control of businesses to a third-party trustee.

PTCs in the BVI and Cayman follow the same framework and share the same key features as a standard BVI business company and Cayman exempt company, making it relatively easy to understand and maintain, especially for Asian families who are usually already familiar with those offshore vehicles.

A PTC may act as a trustee for multiple trusts holding different classes of assets, and each trust could cater for a different class of beneficiaries. Setting up a PTC allows settlors or their trusted advisors or family members to exercise a degree of control over the decisions made by the PTC. By sitting on the board of directors of the PTC the family can make decisions as and when required, and these decisions can be made expeditiously without having to wait for an independent trustee to deliberate on a decision in another timezone. Further, a PTC reduces trustee fees dramatically where families have more than one trust.

Beyond the trust?
Succession structures can go beyond trusts and may include funds or partnerships. The Cayman Islands fund regime remains popular due to its flexibility and few restrictions. The swift and simple registration process, with low setup and administration costs are attractive to the Asian Market. Domestic fund vehicles in Singapore – such as the Variable Capital Company (VCC) – can happily co-exist with offshore vehicles, and potentially feature in the same fund structure. A VCC could itself be held under a trust.

Another structure that is gaining traction with Asian family offices is the Special Purpose Acquisition Company (SPAC). A SPAC is a public vehicle almost always seeking to acquire a single vehicle; essentially an entity formed for the purpose of listing on a stock exchange to raise funds which will be used to make the acquisition. There has been exponential growth in the use of SPACs over the past 18 months, and the first quarter of 2021 saw around $80 billion raised, with around a third of these being offshore companies. Family offices might become involved with a SPAC via direct or indirect investment, selling a portfolio company to a SPAC, or launching or sponsoring a SPAC.

A global outlook with local comforts
Increasingly, UHNW and HNW families have a multi-jurisdictional presence, in terms of both assets and family members. Having cross-border expertise and capabilities is crucial to serving such clients. This also means that top international financial centres must be poised to manage the increasingly political and global regulatory climate. Professionals in this space must be capable of working with various other experts to ensure a harmonised approach to guide clients through even the most complex scenarios. Jurisdictions such as the BVI and Cayman Islands understand the importance of regulatory compliance and are in a prime position to deal with those issues. 

As Singapore continues to solidify its position as a sanctuary for Asia’s wealthy, no doubt it will continue to be a springboard for a multitude of wealth planning structures.