- Tariq Aboobaker, managing director of Amicorp Trustees India, explains the role and value of corporate trustees, and discusses the most effective way for individuals to think about, and use, trusts.
- Amicorp Netherlands B.V.
When deciding on a trustee for a trust, the vast majority of the clients think or come with the understanding that they should appoint a close friend or a relative, which in most cases is not the best thing to do. Most of your close friends are probably in the same age group, and may not be in the best of health when needed most. When it comes to family members as trustees, they could be biased towards one beneficiary over the others. It is very important to choose the right trustee with the adequate skill-sets in managing the trust in an appropriate manner. Nevertheless, most individuals in India still prefer friends or family over a corporate trustee. The reasons for this is that the Indian mentality believes in control. But we should realize that while we attempt to maintain control we have overlooked other areas such as asset protection.
Today, if I have wealth in my own name and I am looking only to control and manage it until my death, I have overlooked that if some decisions go wrong in my life, which may lead to litigation, I have put all my wealth at risk. I have really not planned for asset protection. One needs to understand the advantage of moving assets to a trust. It is not about losing control as the trustees would manage the trust for you purely on the basis of your wishes which you clearly expressed in the trust deed. In other words, it is you who has decided what needs to be done.
It is important to identify what you should be looking for in a trustee. The most essential requirement of a trust, whether an asset protection trust, an investment trust or a succession planning trust, is the skill set of the trustees and their capability to manage the trust. For instance, if we look at an investment trust, there are others who play an important role. An investment committee is included so it is not the trustee alone who takes the decision on where the investment should be made. These are specialized people coming on board with specialized expertise to help the entire process flow in a much smoother manner. If you are appointing only an individual, you expect that individual to know everything. This is technically impossible. Therefore, having different people with different special skill-sets means the wealth is managed in a non-biased manner.
The trust would be governed by the Indian Trusts Act, 1882. This is flexible and allows you to manage your trust the way you wish. With the help of the expertise you can control, design and tailor your trust the way you would like to manage your affairs and wealth while you are alive, and also decide how it is managed in your absence. If that means you need to appoint certain additional parties to the trust, specifically for investments, you could appoint an investment committee who then takes care of the investment, and you can design the trust entirely the way you would like it managed.
Clients also ask why a trustee needs an understanding of investments if there is an investment committee. Whilst a trustee may not be an investment expert, he needs to have enough knowledge of managing wealth. It is always better to have different sets of experts – one party who is taking care of pure investments of the trust, whereas the trustee is an independent body overlooking the entire activities, for example how the succession would occur, how the wealth would be passed on, how the wealth would be managed whilst part of the trust assets, etc.
Without a trust, wealth would simply pass to the next generation. But this brings with it limitations and concerns. What clients require is something that is more fool-proof and which is available for them whilst they are alive, as well as a tool to pass the wealth to the next generation. The most appropriate tool is a trust which helps you to ring-fence your assets, consolidate, be the beneficiary of your own trust, make full use of your own wealth while you are alive, and use the same vehicle for succession planning without getting into the complications of changing ownership – without even passing on the wealth physically to the next generation by making them secondary beneficiaries or successive beneficiaries. Indians need to become more aware of the advantages a trust gives. Internationally, setting up a trust is very common.
Establishing a trust is not about losing control. It is about creating peace of mind. Furthermore, setting up a trust is not an expensive affair, although costs are dependent upon the scope of work and the complexity and effort put in by the trustees. Establishing a trust is not dependent upon how much wealth you have. It is how important your wealth is to you. For the larger families, for cross-holding families and for joint families, all this obviously is very important but it is equally important even for nuclear families. For example, you may not be the wealthiest individual but if you have one child who is a minor, and if you are interested in taking care of their interests you should provide for them in your absence. So we do not define the need for a trust based on wealth but on whether it fits the client’s needs.
We now see much more interest in trusts than in the past. We live in a fast changing society where things are evolving – lifestyles; increasing divorce rates; business risk has increased; and markets becoming more volatile. One should look at preserving wealth the right way before thinking about passing it on. Therefore, I would say succession planning is an incomplete phrase; it is more estate and succession planning because when I use the word succession planning it always means passing on wealth. When I say estate and succession planning I mean managing my estate while I am here. Making use of it for myself. Then we can talk about passing it on to the next generation.
Clients come to Amicorp – because of the five to six trust companies that are operational in India – we are the only one which is truly global. Amicorp has always specialized in emerging markets. We have the in-house capacity, not only to manage wealth and plan the succession for our clients based in India, but also to manage their requirements globally. If you have a client in India who has assets overseas, we have an in-house team with access to over 40 Amicorp offices spread across 30 countries.
We can also help in terms of being able to deliver what we promise because the dependability on a third party is not there and we remain in total control of the quality of output. Therefore, we add value for clients who have wealth spread globally.
We also add value in terms of clients who do not have wealth overseas, but do have beneficiaries who are settled overseas, or NRI (non-resident Indian) beneficiaries.