Trustees are appointed to ensure that assets are managed on behalf of a beneficial class along guidelines contained in the settlor’s letter of wishes. Nevertheless, who checks that they discharge their fiduciary duty with a reasonable standard of integrity and skill? Conflicts of interest can arise between beneficiaries and trustees, particularly if the settlor has passed away. A protector with his role of oversight can ensure that the arrangement is managed ethically and competently.
When a trust is established, legal ownership and control of the corresponding assets is transferred from the settlor to the trustees. The appointment of a fiduciary protector, whose duty is to oversee the latter’s actions, can improve the balance of power in favour of the beneficiaries.
His position is not unlike that of a constitutional monarch. The protector’s duty is to oversee the good governance of the fiduciary arrangement in light of the settlor’s wishes and beneficiaries’ interests. He would intervene only if absolutely necessary, which may include replacing the trustees in extremis. His role should not disturb the fiduciary relationship between trustees and beneficiaries. To maintain a proper balance, it is important that the protector’s powers are clearly-defined and only exercised to ensure that the arrangement functions as it should.
The ability to dismiss and appoint trustees may remove the need for expensive litigation,
a reassuring safeguard for anyone considering the transfer of legal ownership of personal assets. If there were no protector, the courts could intervene but would only do so under specific circumstances. Such a process can be lengthy, involve prohibitive legal costs and provide little certainty as to the outcome. Should there be a need to resolve conflict amongst beneficiaries, a protector should be in a good position to act as an independent arbitrator.
Bender Brothers & Co is a leading Anglo-Swiss investment office of a family historically associated with a FTSE-100 publishing company. It specialises in the coordination of wealth structuring, particularly trust protector services, which has evolved from managing a multi-generational fortune over decades in different jurisdictions.
John Bender, chairman of Bender Brothers & Co, said: “Family offices are becoming increasingly aware of the importance of providing an additional level of protection for their beneficiaries in the event of disagreement with trustees. At times, service providers overcharge or offer sub-standard service.”
“As protector, I was recently obliged to replace a trust company for a complex fiduciary arrangement of seven structures. The process was completed within a matter of weeks as the rules had been clearly defined and only my signature was needed. When acting on their own, beneficiaries often face stalling tactics under the guise of compliance queries. They may also compromise their arms-length relationship with the trust assets if seen to be exercising too much control, which could have devastating tax consequences. An independent fiduciary protector can avoid these problems when acting on their behalf.”
As Mr Bender comes from a junior branch of an historic family governed by primogeniture, he tends to be regarded as sufficiently independent to mediate in disputes amongst beneficiaries. “There are occasions when a diplomatic approach can improve relationships between the individuals concerned. I was recently asked to chair a meeting concerning the sale of an office block owned by nine cousins through a Guernsey trust. It was fortunately possible to forge an agreement but only after a month of intense bilateral and multilateral discussion. We avoided what would have been very lengthy and expensive litigation through mediation. The family also relies on me to mentor its younger members from both a personal and professional perspective.”
The fiduciary arrangements of Bender Brothers & Co are administered through a regulated trust company and a team of qualified lawyers rather than administrators. The intention is to work with only a limited number of substantial relationships which
one can know well with experience managing both common and civil law structures. This personalised approach has made it possible to simplify due diligence procedures and to eliminate unnecessary costs. In order to ensure a happy and stable work environment, Bender Brothers & Co has never imposed internal revenue targets.
Sitting in his Liechtenstein office under a portrait of his great-great-great-grandfather, Mr Bender added: “Staff continuity is an essential ingredient for maintaining long-term client relationships and the discrete management of private information. We pride ourselves on having contented colleagues, who are part of the family in more ways than one.”
