Trust Arrangements Research Articles

A proper headache: trust drafting and the proper purpose rule after Grand View v Wong

Abstract The decision of the Board of the Privy Council in Grand View v Wong has given much greater prominence to the proper purpose rule in the context of the exercise by trustees of their powers. This article argues that, while the apparent desire of the Board to control abuse of trust arrangements is understandable, the judgment risks undermining trustee decision-making and encouraging litigation and unnecessary court applications.

An Overview Concerning Certain Recent Changes for Foreign Compensatory Trusts: 402(b) Trusts, Grantor Trusts and "Rabbi" Trusts

Foreign companies and their U.S. subsidiaries employing U.S. persons have devised a wide range of executive and other deferred compensatory arrangements in order to be an incentive to their workforce. Because of matters relating to administrative ease, or in some cases, certain foreign legal or accounting issues, these incentive awards are often contributed to trusts by foreign employers or foreign parents of U.S. employers, and most notablyforeign trusts described in section 7701 (a)(3 1).Under the Code, special rules govern the U.S. federal income taxation of trusts. In particular, under sections 671 through 679, a grantor of a trust who retains certain powers over or interest in the trusts is treated as the "owner" of the trust, with the result that all of the trust's income is taxable to the owner. Certain special vehicles, so-called "rabbi trusts," whose assets are subject to the claims of creditors of the employer, are also subject to these rules. Additionally, under section 402(b), certain compensatory trust arrangements result in a separate level of tax on the trust entity, along with the additional result that participants are often taxed on their vested interest in the trust.In 1996, the Small Business Job Protection Act amended portions of sections 672 and 679, among others, and in September of 1996, and again in June of 1997, the Internal Revenue Service (the Service) issued proposed regulations which dramatically affect the foreign trust deferred and incentive compensatory world. In February 1999, and again in August 1999, the Service issued certain final regulations affecting foreign trusts. The cumulative effects of the statutory and regulatory changes are broad, involving changes in the treatment of both "inbound" and "outbound" compensatory trust arrangements.

Valuation and Service Trusts

The oblique nature of control over assets of a trust has always been challenging when personal asset distribution is at issue. This is no more apparent than in the context of Family Law. Complex organisational arrangements may make sense when considering tax planning or asset protection strategies, however, they may present difficulties for the application of sections 79 and 75 of the Family Law Act 1975. Specific difficulties are experienced when dissecting the economic structures of professionals, where the issues of professional and business intangible assets and tangible assets are held within service trust structures, intertwined with personal professional wages, incorporated professional entities, professional distributions and family distributions. Service trust arrangements have become popular for Australian professionals, such as, doctors, accountants, lawyers and engineers due to their tax effectiveness which passed the court’s test in the 1978 case FCT v Phillips. The Australian Taxation Office (ATO) has issued ‘safe harbour’ rules for the operation of service trust arrangements which may provide some, in principle, assistance to Family Law decision making. This paper investigates the Family Law issues with respect to partner distributions where a service trust structure is in place. In this regard, the paper considers the business structuring concepts including the rights and roles of those associated with trusts, particularly the exercising of control. Secondly, the paper reviews the courts decisions with respect to looking through business trust structures with reference to the reasoning expressed in past judgements. Finally, the paper considers the Family Law distribution effects of tangible and intangible assets when professional services are encased within a Philips Trust type structure. This paper should be of interest to those involved, or potentially involved, in Family Law asset distribution. Specifically, legal and professional advisors, such as lawyers, accountants and valuation professionals. The paper’s objective is to assist in clarifying the complex issues of understanding business structures underpinning the transaction based cash flows between entities and their potentially intertwined equity.

Trust Arrangements in Relation to the CFC Rule and Anti-Tax Treaty Abuse

A newly issued regulation on the CFC rule expands the scope of definition of “CFC” to include an indirectly owned CFC. As such, investor(s) (in this case, the Indonesian taxpayer, settlor and/or beneficiary) owning a CFC through a trust arrangement will be subject to the CFC rule. Depending on the type of the trust, the investor(s) as well as the trust may be subject to tax under this rule. The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI) stipulates several provisions related to trust arrangements, including with regard to taxation treatment of capital gains derived from alienation of shares or interests of entities deriving their value principally from immovable property (real property). In particular, Indonesia uses the MLI to focus on modification to taxation regulations on permanent establishments to prevent tax abuse and treaty shopping.

The Strategic Management of Government Affairs in Brussels

This article explores the strategic management of government affairs in companies active in the EU. The article relies on a unique large- N dataset on the functioning and staffing of EU government affairs. The analysis shows that companies delegate government affairs functions to in-house managers with specific competences, who stay in office for long periods and who have an extensive knowledge of the core competences of the company, thanks to their educational background and work experience in the private sector. These findings suggest that how companies strategically manage and staff government affairs in Brussels rests on the distinct structure of business–government relations in the EU, which are based on the exchange of technical information and the establishment of credibility and long-run trust arrangements.

THE STRANGE CAREER OF INDEPENDENT VOTING TRUSTS IN U.S. RAIL MERGERS

Voting trust arrangements have a long history at both the Interstate Commerce Commission and the Surface Transportation Board as devices to protect the incentives of acquiring firms and maintain the independence of acquiring and target firms during the pendency of regulatory investigation of the merger proposal. However, they are not without problems. The STB argued in 2001 that as Class I railroads have become fewer and larger, it may be difficult to find alternative purchasers for the target firm if the STB turns down the proposal. The Antitrust Division argued in 2016 that joint stock ownership creates anticompetitive and/or otherwise undesirable incentives, even if the independence of the voting trustee is complete. On the other hand, the functions served by voting trusts in railroad mergers are served by merger termination fees and other contractual “lockup” mechanisms in other parts of the economy, without the same incentive problems as voting trusts. Thus voting trusts may no longer serve a useful function in railroad merger deliberations.

The Strange Career of Independent Voting Trusts in U.S. Rail Mergers

Voting trust arrangements have a long history at both the Interstate Commerce Commission and the Surface Transportation Board as devices to protect the incentives of acquiring firms and maintain the independence of acquiring and target firms during the pendency of regulatory investigation of the merger proposal. However, they are not without problems. The STB argued in 2001 that as Class I railroads have become fewer and larger, it may be difficult to find alternative purchasers for the target firm if the STB turns down the proposal. The Antitrust Division argued in 2016 that joint stock ownership creates anticompetitive and/or otherwise undesirable incentives, even if the independence of the voting trustee is complete. On the other hand, the functions served by voting trusts in railroad mergers are served by merger termination fees and other contractual “lockup” mechanisms in other parts of the economy, without the same incentive problems as voting trusts. Thus voting trusts may no longer serve a useful function in railroad merger deliberations.

Four years on: foundations in the Isle of Man

The Isle of Man foundation is a flexible and robust legal entity that can be used for charitable giving, stewardship of private wealth, and structuring commercial transactions and ownership. For a trust jurisdiction, the foundation seems to have less importance, but this may in part mean that providers and clients are missing out on possibilities, in favour of standard discretionary trust arrangements. Manx foundations should not be overlooked when structuring any of the above. They are not merely trusts for civil law clients and may provide better solutions than traditional planning. It would be a pity to let a foundation be a missed opportunity.

Sovereign Debt Contracts: Implications of Trust Arrangements for Financial (In)stability

Market mechanisms alone seem to be insufficient to facilitate an effective interplay between sovereign debt actors in order to readjust their commitments in times of crisis. In this regard, the legal structure of finance has the potential to remedy the state of affairs. More precisely, this paper suggests that the trust arrangement can serve as an effective and efficient safety valve, within the meaning of the Legal Theory of Finance of Katharina Pistor, to overcome coordination problems, thus benefitting the sovereign bond market and debt restructurings in particular. In this sense, one might expect the trust arrangement to be properly structured in terms of rights and obligations of the parties involved. However, as this paper demonstrates by using the 2005 Argentine debt restructuring case study, the current flaws of the contract design and regulation preclude the optimal use of the trust arrangement. As a result, while most coordination problems are resolved, the agency problem emerges, amounting to a similarly dysfunctional debt restructuring mechanism except that the main negative outcomes are shifted from sovereigns to bondholders. In its main reasoning, the paper elaborates on the lack of fiduciary duties for trustees under New York law, which in turn hampers the correct application of the systemically important safety valve—the trust arrangement,—and hence legal intervention is necessary. Therefore, this paper suggests imposing higher fiduciary standards on trustees under sovereign bonds governed by New York law. One possible way of addressing the issue is to enact new regulation. Alternatively, private organisations, like the International Capital Markets Association, might be better suited to swiftly put the contractual framework in order.

Consumer trust in different food provisioning schemes: evidence from Beijing, China

Consuming safe and sustainable food requires trust. Consumer trust in food can be established in different ways, including through personal relationships or various institutional arrangements established by government, private companies and/or civil-society organisations. The recent increase in food-safety incidents and sustainability concerns in China suggests a dwindling trust in the current government-dominated food governance arrangement. This paper investigates whether emerging alternative trust arrangements and modes of food supply are better able to build consumer trust in contemporary China. Based on a survey of urban middle-class consumers in Beijing using various (i.e., alternative and conventional) food-supply modes, the role and importance of personal and institutional trust arrangements are compared. We found that even among the wealthier and more educated consumers in Beijing, only a small proportion regularly use alternative food-supply schemes; most rely on conventional wet markets and supermarkets. Buying food is primarily constrained by convenience, freshness and the price of food and less by food-safety concerns. In Beijing, trust in food-safety information remains largely derived from the government and less from the market (private certification schemes) or civil society. These findings contribute to the increasing body of knowledge on the embedded character of food consumption and on the relevance of designing policy strategies that connect institutional context and particular consumption practices. In our conclusion, we argue that to secure safe and sustainable food provision, the present government-based trust regime in China requires strengthening through linking up with market- and civil society-based trust regimes, complemented by elements of personalised trust.

Mapping the implementation of Children's Trust arrangements

PurposeThe purpose of this article is to explore findings from the children's services mapping (CSM) policy monitoring exercise on the implementation of Children's Trust arrangements in England in 2008 and 2009. It outlines progress made in implementation in the context of debates on Children's Trusts and partnership working, considering where progress was being made and where implementation was less well developed. The future of partnership working in children's services and the role of the data collection in public service policy monitoring are discussed.Design/methodology/approachResponses are from a sub‐set of 74 local authorities to a self‐completion questionnaire on Children's Trust implementation in 2008 and 2009 as part of the CSM annual policy monitoring exercise.FindingsFindings, presented within the context of Government policy on children's services reform and literature on partnership working, indicate increases in the number of Children's Trusts implementing joint and strategic working. However, not all agencies under a statutory duty were represented on the Board and joint commissioning arrangements had declined.Research limitations/implicationsThe findings and discussion consider the limitations of the method of data collection.Originality/valueThis paper presents the most recent information on implementing Children's Trust arrangements, drawing on responses from 49 per cent of local authority areas. Data from two years of the CSM collection alongside earlier research findings indicate progress at the strategic level, but careful reading of the data and literature also suggests an increasingly challenging environment for establishing and maintaining partnership working within children's services.

Voluntary Pension Funding in Germany and the Effect of International Accounting

This paper empirically analyzes voluntary pension funding. Using data of German company pension plans from 1998 to 2006, it documents that traditionally unfunded plans have been increasingly replaced, especially by funding Contractual Trust Arrangements (CTAs). International influences such as pension funding abroad are a major determinant of this shift in corporate financial policy but financial factors such as profitability are not found to have an important effect. We also investigate the consequences of applying IAS/IFRS or US GAAP instead of German GAAP and find evidence that supports the hypothesis that international accounting has a positive effect on voluntary pension funding in Germany.

The classification of private foundations for US federal income tax purposes

The classification of private foundations for US federal income tax purposes

Mainstreaming Learning from the Children's Fund: As Easy as A, B, C?

This article examines the mainstreaming potential of learning, potential which has arisen from The Children's Fund initiative in Knowsley, Merseyside, in order to support the development of its Children's Trust. Desk‐based analysis and a series of in‐depth interviews were conducted with services funded by Knowsley Children's Fund. Interviews took place with Children's Fund Managers and with Knowsley Local Authority Departmental Managers. The research demonstrated that: (1) there is no single definition of ‘mainstreaming’ (though it has been defined as the take‐up of learning into mainstream agencies); (2) some learning has occurred from the Children's Fund model. However, the extent of this learning has been exaggerated; and (3) a number of issues need to be addressed if ‘learning’ from the Fund can be taken into Children's Trust arrangements. In conclusion, no clear model of learning was in place at the start of the Children's Fund. As such, agencies may struggle to ‘mainstream’ learning into new Children's Trust arrangements.

Costs of saving for retirement in South Africa

How much are South Africans paying for their retirement funding? Whether in occupational plans or private supplementary arrangements, workers pay for the opportunity to save for retirement through a variety of charges that erode the prosperity of the retirement years. This paper analyses the administrative charges paid by South Africans saving for retirement in three tax-effective vehicles: occupational retirement funds, individual life products and unit trust arrangements, using a model designed to evaluate the lifetime impact of these charges. The analysis presented here suggests that retirement funds are cheapest, followed by unit trusts and then individual life products. These results are consistent with the flexibility of the more costly products. Overall, however, charges appear to be high. Comparison with international benchmarks confirms these concerns. Policymakers should be addressing this through stronger disclosure requirements and consideration of a standardised national product and potential charge ceilings.

Lessons from small-scale forestry initiatives in Australia: the effective integration of environmental and commercial values

Due to growing environmental awareness and increasingly difficult economic conditions, much small-scale forestry policy is characterised by the often competing objectives of generating adequate commercial returns on the one hand, and on the other, achieving of environmental benefits (e.g. reforestation of degraded farm land). Within the current paper we outline the small-scale forestry initiatives that have been launched in Australia at the national, state and regional levels to develop a viable forestry sector that successfully balances commercial and environmental considerations. The initiatives include national reforestation schemes, joint ventures, sharefarming schemes, trust arrangements and regional programs supported by federal, state and local governments. From this review, it is evident that all of the initiatives — encompassing schemes with solely conservation objectives to those marketed from a purely commercial perspective — result in some environmental benefits (e.g. restoration of degraded land, provision of wildlife habitats). However, at this stage a particular program has not emerged from the confusing tapestry of often overlapping forestry initiatives in Australia as the most viable approach to the development and maintenance of multi-use forestry, private sector forestry.

The distribution of mental health services within NHS trusts

From April 1994, over 95% of health care services will be provided by NHS trusts. Mental Health services have a choice of remaining within the acute hospital trust or forming part or all of a community trust. Using data from trust directories, the distribution of mental health services within the first three trust waves is described. Forty per cent of acute hospital trusts currently do not include mental health services. Unlike other specialities, a significant proportion of mental health services are choosing to form specialist mental health trusts. The implications of the alternative trust arrangements for psychiatry are discussed.

Contract and Fiduciary Duty

During the last two centuries, courts have been adapting this duty of loyalty and its remedy to other agency relations, under the title "fiduciary" duty.1 That is adaptation, not extension. The many agency relations that fall under the "fiduciary" banner are so diverse that a single rule could not cover all without wreaking havoc. Courts have applied the term to relations as diverse as guardian-ward, attorney-client, and bank-borrower. Does anything other than the word "fiduciary" and an appeal to a duty of loyalty (in its strong form, a duty that the agent work for the "exclusive benefit" of the principal) unite these situations? Principles of ethics? Is the fiduciary morally bound to act in a particular way, perhaps? Or are the different situations wholly distinct, so that a union's fiduciary "duty of fair representation" in labor law is unrelated to a corporate manager's fiduciary obligations to investors?

Leveraged Leasing: An Example of the use of Investment Appraisal Techniques.

The origins of leveraged leasing are the trust arrangements used in the 1870's in the United States of America by railroad companies to finance the acquisition of rolling stock (Fritch, 1977, p. 98). A trust was established to purchase the equipment. The trustee issued trust certificates to investors who provided the funds for the equipment acquisition. The trust certificates provided for the repayment of principal and interest at specified dates. The trust then leased the equipment to the railroad company and the rental paid by the railroad company was used to repay the trust certificates as they fell due. These arrangements were in reality conditional sale agreements and not leveraged leases. Leveraged leasing as we know it today was introduced in the U.S.A in 1963 after the Comptroller of the Currency permitted national and state chartered banks to own and lease personal property (Weston, 1983, p. 271). The arrangement was used initially by railroad and airline companies to finance the acquisition of large items of capital equipment. Companies within capital intensive industries could not absorb the tax benefits of ownership whereas the banks could. Leveraged leasing meant that the banks owned the equipment and claimed depreciation and other tax deductions associated with ownership. These benefits were passed onto the railroad companies through lower rentals which reflected the value of these taxation benefits.

Floodplain Management: A Flood and Land Planning System

The trauma and loss which we experience from flooding is a measure of the effectiveness of a society's leaders, for the results of land and flood management configurations can be predicted. Floodplain Management (FM) is the only approach that can control excessive runoff and tides in the long term. It is a system for turning flood-plains to needed uses— ‘open’ uses such as farms and parks—and for either floodproofing buildings in flood zones or keeping them out of the floodplain.FM tends in most situations, and indeed in general, to be more economic and less socially costly than other flood-management formats. It allows lands to play more appropriate roles, generally does not fight natural water-cycles, decreases at-risk populations, deals effectively with flood hazards, tends not to destabilize soil and biological systems, and does not require great commitments to maintain.Unfortunately the structural approach is often preferred, and an important, perhaps pivoting, reason is that it is part of a system of largess used by governmental leaders to aid financial constituencies. Political reform is accordingly required.FM tools include citizen intervention; regulation; property rights purchase; flood-control structures; relocation of settlements; weather forecasting, warning, and modification; governmental loan and guarantee activities; government flood insurance; private and governmental disaster aid; banking regulations; farm preservation, erosion control, and water-quality management; parks, refuges, scenic streams, and open spaces; coordination of ‘delivery’ of services; trust, cooperative, and other private arrangements; legal redress; and special planning and executive devices, each of which is considered briefly.