Many families use trusts as an estate planning vehicle and for wealth preservation. Increasingly, instead of using a trustee company owned by a financial service provider, a private trust company (PTC) is appointed as a trustee. The use of a Liechtenstein foundation as such a PTC offers several key advantages.
Advantages of a private trust company
However, there has been a growing trend to create a so-called private trust company (PTC) to act as a privately held trustee company only for the trusts of one family. A key advantage of using a PTC is that instead of transferring the family wealth to a company that acts as a trustee for hundreds of trusts, the family has its own trustee which is not shared with others. This removes the risk that the trusts of a certain family are affected by problems that have nothing to do with it. In contrast, if a trustee company owned by a financial services provider is used as a trustee, there is a chance that reputational or other issues relating to a specific trust spill-over to the trusts of another family because they share the same trustee.
Moreover, in case of a PTC, the client determines who will act as the PTCs initial directors. If a trust company is owned by a financial services provider, the composition of the board of directors generally cannot be changed.
Furthermore, using a PTC facilitates the transition to another administrator of the family trusts, should this be desired. In a traditional set-up, the trust assets are registered in the name of a trust company which is owned by a financial services provider. If a new trustee is appointed, it is necessary to transfer the legal ownership of the trust assets to the new trustee. Additionally, in most cases the outgoing trustee company will request an indemnity against any liabilities it may have from acting previously as a trustee. If a PTC is used and it is intended to exchange the administrators of the family trusts, only the directors of the PTC need to be replaced.
A common set-up of a private trust company structure
In a common set-up, the PTC is a company limited by shares. While using a PTC has several benefits, it begs the question who should act as the shareholder of the privately held trustee company. In most cases, the shareholder cannot be the settlor of the trust because then the shares of the PTC would be part of his estate which would frustrate the estate planning purpose of the trusts. A common set-up to solve this problem has been to establish a separate purpose trust whose only purpose it is to hold the shares of the PTC.
The main drawback of this approach is that again a trustee is needed for the purpose trust holding the shares of the PTC. In most cases, a trustee company owned by a financial services company is used for this purpose. This means that the reasons for not using such a company as a trustee of the family trust are still present. However, they are moved to a remoter level and are mitigated because the only assets held by the trustee company of the purpose trust are the shares in the PTC.
Using a Liechtenstein foundation as a PTC
Using a Liechtenstein foundation removes entirely the need for a trustee company owned by a financial services provider and at the same time reduces complexity. The structure then simply consists of a Liechtenstein foundation acting as trustee of one or more family trust.
A Liechtenstein foundation essentially is a fund endowed for a specific purpose which acquires the status of a legal person. It has no shareholders and therefore the question who holds the foundation does not arise. Such a foundation can be established with the sole purpose to act as the trustee of one or more trusts for the benefit of a certain family.
An illustration of this set-up:
It should be noted that when a Liechtenstein foundation acts as a private trust company, generally no special business license is necessary in Liechtenstein. This was clarified recently by a submission of the Liechtenstein government to parliament dealing with an amendment of the Trustee Act. The Liechtenstein Trustee Act deals with the regulatory framework for professional trustees and trust companies. In this submission (BuA 42/2013, p. 40 et seq.), the Liechtenstein government clarified that a PTC does not qualify as a professional trust company and does not require a license under the Trustee Act.
The government noted that a Liechtenstein PTC, like all other Liechtenstein companies without a special business license, requires a member of the board who is licensed as a professional trustee or in an employment relationship with such a professional trustee. According to the Liechtenstein government, no separate regulation of the entity acting as a PTC is necessary. The government pointed out that the licensing requirement only applies to “professional” trustees and that a privately held trustee company typically does not meet this criterion because it is not used with the goal to create profits. The government also mentioned that the fact that the directors charge a fee to the PTC is not harmful either. Furthermore, the government stated that even if the Liechtenstein entity charges a trustee fee to the trusts, it still does not need to be regulated because the PTC offers its services only to a closed circle of persons. The government also specifically confirmed that a Liechtenstein foundation can act as a PTC.
In a summary, a Liechtenstein foundation can therefore be used as a private trustee company that acts as the trustee of the trusts for a certain family. This leads to a relatively simple and cost-efficient structure and does not require a special licensing or other regulatory procedure.
The only legal requirement is the need for a local board member of the foundation who has a special business license, i.e. at least one board member of the foundation must be licensed as a Liechtenstein professional trustee or must be employed by a licensed trustee.