The benefits of using a specialist company as protector, enforcer or guardian.

Avoiding conflicts of interest should be a primary concern for all those who accept the offices of protector, enforcer or guardian and no more so than where such offices involve fiduciary or fiduciary-like obligations which they often do.

It is a common situation for a settlor to establish a trust which holds interests in a family business over which the settlor may have control or influence. Alternatively a settlor may be named as beneficiary of a trust which they have established but which also includes other beneficiaries. Where the settlor is appointed as a protector to such trusts, it may be very difficult for the protector to avoid conflicts of interest arising in relation to carrying out it functions as protector to the trust. Equally well where a professional adviser (such as a lawyer or accountant) acts for the settlor and his immediate family personally but the beneficiaries of the trust include children who have not reached their majority, more distant family members and other persons for whom the adviser does not act; such advisers may not always able to avoid conflicts of interest in acting as protector and carrying out their other advisory duties.

It is also sometimes the case, particularly with purpose trusts, that the trust is marketed as a ‘packaged’ product. In the case of such a trust, the protector or enforcer may well be a subsidiary company of the trustee or perhaps an officer of, or a person closely connected with, the trustee company. In such circumstances, situations may well arise where it is difficult if not impossible for the protector or enforcer to avoid conflicts of interest in carrying out their duties.

Recent judicial decisions have clearly emphasised that protectors to private trusts should avoid conflicts of interest in carrying out their functions. It seems only a matter of time before similar judicial precedents are established in relation to the roles of enforcers to purpose trusts and guardians to foundations.

By using Fiduciary Protector Limited as a protector, enforcer or guardian the possibility of conflicts of interest arising in relation to carrying out these roles is completely eliminated.   

Succession

The obvious advantage of appointing a corporation over a natural person to the office of protector, enforcer or guardian is that the succession issue is dealt with automatically, as a company cannot die or become physically or mentally incapacitated. The succession issue with a natural person can be dealt with by including appropriate appointment provisions in the relevant trust or foundation instrument. However new appointments of protectors, enforcers and guardians can sometimes be problematic and divisive, particularly if the settlor (or founder) is not able to be involved in the decision making process through death or incapacity. Furthermore, where a settlor (or founder) chooses a professional adviser, a close associate or other family member to act as protector, enforcer or guardian and there is a falling out over matters unrelated to the trust or foundation in question, the protector, enforcer or guardian may need to resign their office.

As the only involvement of Fiduciary Protector Limited with the settlor (or founder) is in relation to the trust or foundation in question, it is unlikely that Fiduciary Protector Limited would need to be removed as protector, enforcer or guardian as a result of peripheral matters unrelated to the trust or foundation.  As such Fiduciary Protector Limited is able to build up the confidence of the settlor (or founder) and other interested parties without having concerns extraneous to the trust (or foundation). This gives greater ‘rigidity’ to the trust or foundation structure, particularly in difficult circumstances such as when the settlor (or founder) or other ‘key’ parties die or become incapacitated.

Ease of dealing and conflict resolution

From the point of view of both professional trust companies and a settlor (or founder) there will be particular peace of mind in appointing Fiduciary Protector Limited as protector, enforcer or guardian in relation to trust or foundation structures which they administer or have established respectively. Unlike a non-professional protector, enforcer or guardian, Fiduciary Protector Limited will have a clear understanding of the technicalities and practicalities of running a trust or foundation. In being able to give professional counsel to settlors, beneficiaries and trustees (or founders and council members) from within its role, the likelihood of inappropriate actions being taken in relation to the relevant trust or foundation is much reduced. Also, because Fiduciary Protector Limited will not be involved in the settlor’s (or founder’s) business dealings which may be connected with the trust (or foundation) nor will it be acting as an external professional adviser to the settlor (or founder); by communicating in a business-like way with the settlor and the trustees (or the founder and the council in the case of a foundation) Fiduciary Protector Limited can act as ‘buffer’ and an informal source of conflict resolution between the interested parties when difficult decisions have to be made.

Taxation issues

There may be taxation consequences concerning a trust or foundation when the settlor or founder (or someone acting under their control) is acting as a protector, enforcer or guardian to the trust or foundation in question. This is particularly so when significant powers concerning the trust or foundation have been reserved to them or they are involved with a business which may be owned by the trust or foundation in question. In these circumstances there may be issues as to the efficacy of the structure from a tax perspective in relation to ‘conduit’ type arguments under anti-avoidance legislation. At the very least, by appointing Fiduciary Protector Limited as protector, enforcer or guardian to trust and foundation structures, the cogency of any arguments raised by tax authorities seeking to ‘attack’ the trust or foundation are likely to be diminished, as compared to the situation where the settlor (or founder) or someone closely connected to them is appointed into these roles.

Value-added professionalism

As Fiduciary Protector Limited is operated by officers with extensive and diverse experience of the trusts industry, it is able to bring a high level of relevant professional knowledge to any decision making process concerning the trust or foundation. As such, unlike a natural protector, enforcer or guardian who may be either a non-professional or have a single professional skill base, Fiduciary Protector Limited is able to bring additional technical know-how to any decision making process, thus bringing an added-value service to the settlor and trustees (or founder and council members) alike.

A professional trust image

The desire to reduce risk in companies (and perhaps even more importantly the requirement to be seen to be reducing risk) has resulted in many more non-executive directors being brought onto the boards of companies. By using Fiduciary Protector Limited as protector, enforcer, or guardian (like the introduction of a non-executive director to the board of a company), this can indicate to regulators, revenue authorities and other interested parties that decision making at all levels in relation to the trust or foundation is being made professionally and independently. 

For all the above reasons, in an age of ‘transactional transparency’ and heightened scrutiny by financial regulators and tax authorities, it is suggested that the use of Fiduciary Protector Limited as a protector, enforcer or guardian to a trust or foundation structure will be of significant benefit to trustees, settlors (or council members and founders) and their professional advisers alike.