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Are You Covered For Succession Planning?
Share Succession Trusts, or SSTs, can hold the secret to protecting your wealth or business when you’re gone. Our BVI expert explains.
No one can predict the future. Anything can happen, anywhere, anytime. The question is: have you ensured your wealth and your business will be looked after when “anything” comes calling? Have you got your succession planning sorted?
Succession planning ensures you have set up your life, your wealth, your business in such a way that if you are no longer around, the structures that hold and manage your wealth and business continue as seamlessly as possible; this in turn can help to avoid unnecessary disruption and distress to your loved ones and business partners.
Shareholder rights do not automatically transfer to next of kin
Take, for example, the case of a BVI company. Many shareholders of BVI companies simply hold the shares in their personal name, but this means that when that person dies, the shares can’t be used until the estate and its administration is settled either through a Grant of Probate (where there is a Will) or Letters of Administration (where there is no Will). In both cases, an application must go before the BVI courts to confirm administration of the estate, this is a public process and this can take anywhere from six months to literally years and cost many thousands of dollars. And all of this time the shares are in effect “suspended”, and your wealth or business could be left without available management until estate administration is concluded.
Many people think that by holding Bare Trusts or naming Nominee Shareholders that any issues with shares upon death of the shareholder will be resolved – but that is a misconception. When the shareholder dies, these sorts of trusts and arrangements terminate, resulting again in the need for court applications. Similarly, signed but undated stock transfers have been erroneously relied upon in the past for this purpose, with the beneficiaries or advisor adding a date just prior to the shareholder’s death (typically after the date of death). There is also a misunderstanding that you can rely on the operative provisions of the company’s Articles of Association, which allow the directors to re-issue shares on death which, while addressing the corporate mechanics of reissue, ignores the requirement to apply to the BVI Courts to affect valid disposition.
If the correct procedures are not followed then any share transfers are void – and your estate may be subject to penalties and possible action. Furthermore, any legal opinion required by the company, to open and bank account, borrow money or enter into a contract or transaction, should identify that the shares have passed hands invalidly and a clean opinion should not be issued until the appropriate applications have been made and formalised. There is also a risk that service providers attempting to assist are held to be intermeddling in the estate, thereby accepting significant responsibility and risk for dealing with the estate’s valid disposition, but also risking Regulatory fine (in BVI) of up to USD100,000 if they are not suitably licensed.
Other Succession Planning Measures
There are other regularly used and effective methods of planning for succession, although none are without issue. Joint ownership, for example is a time honoured technique, although it can cause significant problems should a serious dispute arise between the partners. A life-time gift is commonly used for tax mitigation and succession purposes as well, but sadly this relies a very accurate crystal ball and tends not to account for surprises. There is growing interest in the use of cascading rights through share classes and the use of companies limited by guarantee, but both of these are to some extent public and tend to have high initial costs.
Protecting your wealth or business for the next generation
There are several ways you can ensure your wealth and your business remains operating in your best wishes after your death:
- Ensure that if you have entered into Bare Trusts or Nominee Shareholder ships you put appropriate succession planning tools in place.
- And importantly, investigate the possibilities held by a full trust structure. These can vary from an enduring complex trust arrangement, looking after the family assets for generations to come, to simple Share Succession Trusts, which provide certainty of succession from one generation to another, without the costs, and potential publicity and delay of an application to the BVI courts.
Successful succession planning is about preparing and getting everything ready for the unexpected in the future, which matters as much for BVI company shares as any other asset type, and a BVI trust can help to give you peace of mind. TMF Group’s BVI office is happy to talk through possibilities for succession planning –get in touch here.