Private Trust Companies (PTCs) are a popular way for settlors/grantors to maintain an element of control over their wealth planning while being able to access the benefits of a Cook Islands international trust.
Typically, a PTC is formed by individuals or families who wish to establish and manage their own trust company, rather than transferring assets to a third-party trust company. A PTC can be incorporated in the Cook Islands with the sole purpose of acting as a corporate trustee for not more than three trusts.
A long-term benefit of this approach is that an asset can be held in trust and passed from generation to generation without the restrictions of a traditional trust structure.
While a PTC provides a good level of control, it is still a company. This means the company must have a shareholder, who typically has the voting rights to appoint and remove directors. As with any company, a PTC is managed by its board of directors, who make trustee decisions.
The board of directors is typically comprised of the settlor, their family members, trusted family advisors and at least one professional trustee. This balance allows the settlor and their family to retain an element of control and ensure that the wishes of the settlors of the trust are given proper consideration and make decisions affecting family assets, which may include family business interests.
When appointing directors, consideration should be given to:
- The physical location of the directors, due to potential management/control implications and possible tax and disclosure obligations
- The nature of the underlying trust assets
- The appointment of professional trustees as co-directors to provide continuity and assist with succession planning.
While PTCs are run by the board of directors, the PTC and underlying trusts are administered by a professional trustee, such as Southpac, which is experienced in carrying out trust and corporate administration and is licensed to provide these services.
PTCs can offer a range of key benefits for clients, including:
- Control: An important benefit of a PTC is that trust assets are owned by the PTC, as trustee of the trust, and are not directly held by a professional trustee. This enables the settlor and wider family to retain a degree of control over the ongoing management of the trust without compromising the validity of the trust.
- Succession: As board members, the settlor’s family members become familiar with the management of trust assets and contribute to trustee decisions.A PTC can provide succession planning opportunities, introducing the next generation to their wealth in a controlled, structured way, allowing younger family members to become involved in decision making without giving them too much power too soon.
- Timeliness: An advantage of a PTC is the ability to react quickly to changing circumstances. Directors of a PTC are often better informed than a professional third-party trustee and therefore more capable of reacting quickly.
- Flexibility: PTCs allow the opportunity to consider higher risk commercial transactions that can be restricted with a traditional trust.
- Change of Trustee: Where a change to the controlling persons of a PTC is required it isn’t necessary to change the trustee or transfer the title of trust assets as changing a trustee in a traditional trust structure entails. This avoids the requirement for legal deeds, indemnities and other documentation. All that is required is the resignation (or removal) and appointment of new directors, and notification of any changes in directors of the PTC to the local registry through Southpac.
Whilst there are a number of benefits to establishing a PTC, it is imperative that the PTC structure is run properly with the assistance of experts who know how to administer the structure in accordance with local laws.
A Cook Islands PTC can only be established if it is administered by a company licensed under the Cook Islands Trustee Companies Act, such as Southpac Trust Limited. As a licensed trustee company, Southpac is obliged to confirm to the Cook Islands Financial Services Commission that it will retain sufficient knowledge and information about the ownership and control structure of the PTC so as to effectively administer and govern it, and be satisfied that it complies with relevant laws and regulatory requirements. The input of the regulated trustee company is not only necessary from a legal perspective: they also provide a level of professional governance, technical expertise and better-quality decision-making.
Southpac has had over forty years’ experience of trust management as a licensed trustee company in the Cook Islands. Our team of highly respected experts can help you explore the potential of using a PTC structure and administer this for you. We can help you understand the benefits and whether it is the right planning solution for you. If you’d like to discuss the possibility of a Cook Islands PTC, please contact us.
Disclaimer: the above contains the opinion of the author and is for information purposes only. It is not intended to constitute legal or tax advice. If you are considering establishing or modifying an offshore structure, please consult with legal and tax professionals in your jurisdictions of residence, domicile and tax residence beforehand.