A Purpose Trust is a particular type of trust which, unlike a conventional trust, can be formed to hold assets for a purpose without conferring a benefit on any specific person. An example of such a purpose is to hold shares in a company.
Purpose Trusts are currently used, among other things, in conjunction with asset financing transactions and securitisations.
They are also used to hold the shares in a Private Trust company (PTC) structure, where confidentiality and control issues are important. The advantage of using a Purpose Trust in such a scenario is that there are no registration or disclosure requirements of such trusts at law generally speaking. Therefore the ownership of the PTC will be confidential, and the shares in the PTC will be immune from an attack on the Settlor (ie the person who sets up the Trust).
A PTC is a privately owned company that acts as trustee, usually exclusively for a wealthy family trust or group of trusts. The board of the PTC can be populated with a mixture of professional advisers and a client’s family members. Often PTCs are at the heart of The Family Office. They have a number of popular advantages including:
- They provide a means by which a Settlor, or his family, can retain a greater degree of control over their trust affairs without compromising the validity of the trust(s).
- The Board of the PTC will have a heightened knowledge of the family’s business and financial affairs and be sensitive to the range of those interests, whilst also being empathetic to the needs of the beneficiaries, and having an intimate knowledge of the Settlor’s wishes. All of this should allow them to deal with sensitive family issues more freely and often with greater speed and flexibility;
- Having a PTC as trustee of family trusts will also avoid the need for future changes in the trusteeship;
- Professional trustees are often reluctant to take ownership of assets or participate in ventures where substantial risks may be present, and a PTC (due to the composition of the Board) can enable riskier investments to be included in the trust fund, (although the PTC will still have the usual trustee obligations).
Not all Trust jurisdictions enable the registration of Purpose Trusts. We can assist to register a Purpose Trust in Seychelles, Belize and the Cook Islands.
Though not as widely known a Purpose Foundation could also be used in lieu of a Purpose Trust. But more on that another time.
For more information on PTCs check my Blog Article of 25 October (scroll down to below my last published article)