Public register puts basic concept of trusts in question

On 11 March 2014 the EU parliament voted in a plenary sitting to pass proposals to establish public registries of trusts in the EU. The register forms part of a broader draft of the EU's fourth anti-money laundering directive.

The draft rules call on settlors, trustees and the ultimate beneficiaries of trusts to list their names in publically available registers that will be interconnected across EU countries. UK MEPs have worked hard to limit the amount of information made available on trusts - and unsuccessfully tabled the suggestion that only trusts relating to those individuals considered high risk should be listed - but the general concept of a public register calls the whole usage of trusts into question.

Common law

Within the EU it is really only the UK and Ireland, as common law jurisdictions, that use trusts with any frequency (although the problem now extends also to Cyprus and Malta). They have long been a central part of common law and are used in numerous standard arrangements such as co-ownership of property, administration of deceaseds' estates or employee share plans, but all with the principle of maintaining privacy for the participants. This may not be fully appreciated in the rest of the EU simply because of a lack of familiarity with trust structures, but with existing 'know your client' rules for all legal and financial advisers, there would seem to be adequate protection against suspicious money sources.

Despite these basic questions about the utility and necessity of public registers, the draft directive is forging ahead through the EU legislative process. The next stage is likely to come when the Council of Ministers debates the draft after the European Parliament elections in May 2014, but advisers should consider the implications of the directive now. We don't realistically expect that everyone will abandon the use of trusts, as many people will not be unduly concerned by having their name appear, but what are the options for those who do not want to share the basic details of their trusts?

Basic privacy

The alternative structures we expect will be most commonly adopted are Family Limited Partnerships, LLPs or life insurance solutions. These will all provide some of the basic privacy protections currently offered by trusts, but will require further advice and expense. As another alternative, people could transfer their trusts outside the EU, for instance to New Zealand, though we expect that the widening net of inter-governmental automatic information exchange agreements would soon target these jurisdictions too.

There is still some way to go before the proposed public registers are passed into the laws of each EU country, and we hope that there will be further amendments to protect privacy along the way. However, sensible advisors will give serious thought to the potential impact should the proposals become a reality.

Filippo Noseda is co-head of Wealth Planning at Withers LLP

www.withersworldwide.com

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