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In this new column, Howard Bilton explains the advantages of setting up your own Private Trust Company

It has been said that there are only two things in life that are certain: death and taxes, although some say death and nurses. We all need to plan against inheritance taxes. Hong Kong abolished Estate Duty some time ago but if you have assets abroad, as most of us do, then they may well be subject to estate duties overseas.

Additionally, and perhaps most importantly, no responsible head of a family will leave his loved ones to sort out his estate and affairs after his death with all the cost, delays and heartaches that this involves. Just ask Nina Wong's heirs how well that works!

The delays and expenses of proving a will and obtaining probate, asset protection, considerable tax advantage during your lifetime and avoidance of estate duty on death can all be obtained by having all your valuable assets around the world held in trust.

So trusts are fantastic, right? Yes they are but the disadvantage is clear in the title. The setting up of a trust involves the transfer of assets to trustees and... you have to trust them. Many potential settlors love the potential advantages of a trust but are quite naturally wary of losing control of their assets. But consider this: the alternative to a trust is a will. A will involves the appointment of executors who take possession of your assets after your death and then distribute them to your heirs. So the executors are like the trustees and the beneficiaries of the trust are like the heirs under the will. One way or another you have got to trust somebody but it's a lot easier to get assets transferred while you're still around. You know where the assets are and can sign them over to the trustees rather than leaving executors to try and find them.

Leaving everything to devolve tinder your will does give you the comfort of having all assets in your name during your lifetime but does leave your family with problems on your death. The assets are blocked until probate can be granted and the family are left to correspond with the executors at a time when they are most vulnerable and emotional. Far better, then, to have it all sorted out before you go. So is there a solution to having to trust these trustees? Yes there is.

Under the usual trust scenario the assets are transferred to professional trustees but the alternative is to set up your own Private Trust Company (PTC). The trust company should he incorporated as a company limited by guarantee with a cascading chain of ownership through memberships rather than shareholdings. This allows for continuity of ownership and therefore administration. A guarantee company has the advantage that the membership expires on the death of the owner leaving the remaining members to carry on the good work. Most private clubs in Hong Kong are based on companies limited by guarantee and members do not have a transferable interest. The membership expires on death and can't otherwise be transferred. The same applies with membership in a PTC. Different members of the PTC can be given different voting rights so ownership can be arranged in such a way as to give the settler the majority vote - and therefore control - during his lifetime; but on his death control passes to the spouse or younger generations as required. Any desired result can be achieved with careful structuring and thought. It is important to ensure that the PTC has sufficient substance so that it and the trust it administers cannot be attacked as a sham. One of the fundamental principles of correctly setting up a trust is that there must be a movement of assets away from the settlor to a third party. A company is a third party but it is not advisable for the settlor to be the sole member and director.

The board of directors can consist of the settler, spouse or a trusted friend but they should serve alongside a professional director with trust experience giving the PTC substance and expertise.

In short, whilst you lose ownership of the assets you retain the control of the company which owns them and you can be involved in the day-to-day administration of the trust assets.

It would be wrong to oversimplify the various legal and practical considerations involved in setting up your own PTC but it does present another possibility which might appeal to those who have been put off trusts previously. If you care about your family, a trust is a way to show it - and now you have no excuse for not doing it. And don't delay. You never know what is going to happen or when.

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