By Mary Humphreys

With an increased interest in the ownership of luxury assets such as yachts, private aircraft, classic cars and art in offshore structures, it seems an opportune time to revisit the reasons why this is still a positive move for many of our clients.

Assets may be acquired for lifestyle or investment reasons, or perhaps as the result of inheritance. The motivation for acquiring or holding the asset is useful to understand so we can create an appropriate and efficient ownership structure.

Luxury assets often provide our clients with a great deal of joy, but we cannot lose sight of the fact that acquisition, ownership, maintenance and disposal can be complex and costly. Furthermore, ownership structures for assets such as artwork, jewellery, vintage cars and other collectables can be put to work as collateral for wider structure lending.

“PASSION” ASSET HOLDINGS

Luxury investments are frequently referred to as “passion assets” as there can be an emotional attachment by the family member who had the desire to make the initial purchase. Management of such assets requires a careful understanding of market sensitivities, asset characteristics and value and the family’s wishes in relation to retaining, building, selling and funding a collection.

The passion for these investments may differ between generations and the next generation may not be as knowledgeable or so keen to hold onto the collection of fine wine, for example, as its not to their “taste” or, perhaps, beliefs.

IS ESG A LUXURY DESIRE IN ITSELF?

In recent years, there has been a raft of government policies nationally and internationally to encourage responsible and ethical action on environmental, social and corporate governance issues (ESG). Luxury assets can be the ultimate in sustainability as they are invariably made with supreme craftsmanship and are often lovingly cherished so that they can be handed down from generation to generation.

With careful and expert management, these assets and collectibles can be protected and maintained so that their value is preserved and enhanced so they can bring joy (and investment returns) for many years to come.

ARE “FOUNDATIONS” THE ANSWER?

The structuring of luxury assets has not always sat comfortably with long established trustee investment principles; namely, to abide by the ordinary prudent business person test. So, should trustees invest in luxury assets? The pivotal point depends on the luxury asset class itself. We only need to look at the increase in value of fine wines and classic cars in recent times to understand that luxury and prudence can go hand in hand.

As with any trustee investment, the trustee must also monitor the performance of the luxury asset held. In certain instances, it may be appropriate for trustees to seek a release and indemnity from the settlor, adult beneficiaries, or both. Noting these investment duties, foundations may become the preferred vehicle for these assets in place of a conventional trust.

It is possible under the Foundations Law to establish a foundation specifically to hold these types of luxury assets. In doing so, the council that manages the foundation will not be subject to the same trustee investment duties. Instead, the council’s duty, and ultimately, the guardian’s, is in these circumstances to ensure the object of the foundation is achieved. Other structuring options for luxury assets might include a limited liability company or a limited partnership.

At Artemis, luxury asset holding structures will not only act to safeguard accumulated assets as and when they are acquired but will also ensure they are managed appropriately so that they can be enjoyed fully, whether aesthetically or financially, by future generations within the family or under curatorship.

STRUCTURE BENEFITS

Offshore structuring continues to provide many advantages for the holding of luxury assets such as:

Asset protection – whilst an over-simplified view, assets transferred to a trust no longer form part of the settlor’s property which can bring benefits.
Tax planning – as the assets are no longer considered to be owned by the settlor, the income and capital gains generated by those assets are taxed according to the rules governing the legal owner – the trustee. Inheritance tax would be eliminated because the trustee would continue in existence despite the death of the settlor. Anti-avoidance legislation in the home country of the settlor, or in the location of the trust assets, may seek to counteract this outcome but a correctly structured and administered structure should produce substantial tax savings.
Confidentiality – Proving a will is a public procedure. As such, the tax authorities will need to receive a complete list of all the property owned by the deceased to assess the amount of estate duty payable before the property can be transferred for distribution. This procedure is unsuitable for those who wish to keep details of their assets confidential, in which case a trust/foundation would generally save estate duty and keep the assets confidential.
Mitigating forced heirship – civil law jurisdictions and countries of Islamic tradition have “forced heirship” provisions, which prevent the deceased from leaving their property to whomever they wish. A trust or foundation will provide an option that allows for a wider or different distribution of the estate.
Estate planning – many do not want their assets to pass outright to their heirs and prefer to make more complex arrangements. These might involve providing a source of income, but not capital, for a spouse for life, making provision for the education of children but not letting them have access to capital until later in life, or providing a fund to protect members of the family in the event of sudden illness or other calamities. A trust or foundation could provide a flexible way of making arrangements of this kind, whilst offering ease of administration in a structured environment, as Artemis would take care of the financial controls, governance and, reporting to name but a few.
Protecting the vulnerable – mental health and private wealth are becoming symbiotic of the considerations of fiduciary practitioners. Offshore structures provide an alternative for those who may be unable to manage their own affairs such as infant children, the aged, the disabled or persons suffering from illness.
Flexibility – the best laid plans can rapidly become obsolete. However, a trust or foundation can provide a system of management of property that can adapt as circumstances demand.
Preserving family assets – Preserving or increasing the family assets is often a motive for setting up a trust or foundation. An individual may wish to ensure that wealth accumulated over a lifetime is not divided up amongst the heirs but is retained as one fund to accumulate further. Provision can be made for payments to members of the family as the need arises while preserving some assets for later generations.
Asset management – engaging an expert team to manage these assets can save time and money. This could include arranging specialist insurance, periodic valuations, accounting for the asset, managing personnel involved with the asset, identifying and managing the location and security of moveable assets, managing the maintenance programme and dealing with acquisitions and disposals.

HOLISTIC WEALTH MANAGEMENT

In the establishment of your offshore structure, you are buying a comprehensive approach to managing the family wealth which integrates the ownership of luxury assets into an overall wealth strategy. In doing so, we are able to tailor structuring requirements to meet your unique needs and goals, both now and for generations to come. Artemis pride themselves on a personalised service and the provision of on-going support through our relationships with wider intermediaries to service your wider wealth needs.

WHY USE ARTEMIS FOR YOUR LUXURY ASSETS?

Luxury and lifestyle assets come with their own specific governance and administration requirements. Our team at Artemis works with family offices, private clients and their advisors to identify opportunities to structure the holding of lifestyle and luxury assets.

Artemis is a privately owned and truly independent fiduciary services provider specialising in private client services including trust and company administration. We take a global view, navigating international regulations, compliance requirements and multi-jurisdictional structures for modern families. We provide bespoke, effective and professional solutions tailored to our clients’ needs.

THE VALUE OF INDEPENDANCE

Our independence means we can collaborate with trusted professionals such as lawyers, investment managers and tax advisers to offer clients a bespoke service without conflict. We are expert trust and estate practitioners, using our combined knowledge of complex family matters for the benefit of our clients.

The value of independence translates into quick, commercially minded decision making, underpinned by a philosophy of service and agility. We are committed to investing in people, systems, and technology to achieve value for money for our clients and to ensure we handle their affairs efficiently and effectively whilst meeting the highest standards of regulation and governance.

Our 20-year history, long-term relationships and an expert team combine to ensure our clients and partners feel secure and cared for, without losing sight of the need for objectivity and honesty.

We have experience of managing superyachts, aircraft, wine collections, classic car collections, art collections and bloodstock as well as luxury properties around the world. Artemis is committed to remaining as an independent firm with a focus on client service, efficiency and excellence.

COMMERCIAL SOLUTIONS

We pride ourselves on providing a forward-thinking, personalised, and commercial solutions tailored to our clients’ needs. Our experienced team, including our trusted pool of advisors, are focused on the preservation of family wealth and the long-term interests of our clients, ensuring structures are carefully tailored to suit both private and corporate clients. Good governance, financial intelligence and objectivity are integral to our business and provide a sense of security and peace of mind.

We at Artemis understand that trust takes time to build and can be broken in a moment, and we are therefore committed to always acting with objectivity, honesty, and transparency, therefore whether your assets are for personal enjoyment or part of an investment strategy, we will provide the highest level of governance and administration, while taking succession issues into consideration. Our team combines attention to detail with pragmatism and commercialism, enabling you to enjoy your assets free from the burden of administration.

For further information, contact Ian Domaille, Managing Director by telephone on (0)1481 729 466 or by email at ian.domaille@artemisci.com.