Setting the record straight on trusts
In January 2021, STEP published a report on the Social and Economic Benefits of Trusts (the Report), which concluded that trusts have far more positive uses than many might think. The Report’s findings are the product of work by a number of staff at STEP’s secretariat in London and STEP members spanning multiple jurisdictions. The Report aims to challenge a number of misconceptions that have impacted trusts’ reputation in recent years. It draws together existing evidence and research about the ways in which trusts can be used for wider societal benefit, and how they impact every facet of society. The Report provides a narrative for practitioners to use in their engagements with both clients and policymakers.
In part, the Report aims to do this by improving understanding and addressing common misconceptions, both by presenting the positive evidence base and shining a light on how and why trusts are used. It is for practitioners, regulators, policymakers and the public to determine how the use of trusts will evolve in future. In pulling together the available evidence, the Report seeks to create a more detailed picture of trusts and how they are used, and to demonstrate the important role that they play in what may be very ordinary contexts.
Uses of trusts
The Report highlights the variety of ways that trusts can be used in everyday life, namely:
- planning succession;
- supporting education;
- buying a home;
- protecting marriage and divorce;
- building a business;
- protecting the vulnerable;
- planning retirement; and
- giving to charity.
Common misconceptions
The Report takes an in-depth look at a number of misconceptions and aims to give members the material and support to address these when they encounter them.
Public perception
Broadly, trusts are still negatively perceived by the public, exacerbated by media coverage of high-profile tax evasion and money laundering cases. There remains a sense that they are shrouded in secrecy and, therefore, to be regarded with suspicion. However, the positive aspects of trusts are rarely broadcast, such as their common use for philanthropic purposes, which has been particularly evident during the COVID-19 pandemic.
Cost of trusts
Cost is not in itself a prohibitive factor in setting up a trust. Coupled with the rise of digitisation and the accessibility of information online, trusts are no longer something only the ‘elite’ or high-net-worth clients can afford.
Transparency of trusts
There is an increasing focus on transparency and tackling financial crime, with recent material changes to disclosure requirements ensuring that trusts are no less transparent that an individual’s bank account. This will assist in dispelling the notion that trusts are covered with a veil of secrecy.
Taxation of trusts
Trusts do not have de facto tax exemptions and there are already laws that govern tax planning.
Financial crime
There is no clear evidence that trusts are inherently more subject to abuse than other aspects of the financial system, with the evidence in fact showing that abuse is less likely compared to other financial vehicles. The UK’s National Risk Assessment of Money Laundering and Terrorist Financing 2020 states that there is little evidence that trusts are used for illicit purposes.
Next steps
It is STEP’s aim that the Report will both assist members to engage with policymakers and act as an aide-memoire for those already engaged with members.
If members would like further information or advice on engaging with policymakers, please contact policy@step.org. For those branches that would like to develop a variant or translated version of the report, STEP will work with them to develop this.
In order to increase the Report’s relevance locally and to build on existing content, STEP is gathering case studies from across the world to help bring to life some of the uses outlined in the Report. For example, trusts used for business succession, protecting vulnerable clients or charitable purposes. The case studies should involve real clients who would be happy to be the subject of a publicly accessible case study or, otherwise, a celebrity or company where the details are already in the public domain.
STEP would also like to feature short videos explaining how trusts are used in different jurisdictions and would welcome volunteers to record these.
In time, it is intended to bring all of this content: the Report, case studies, videos and other facts and figures together to form a new ‘Trusts Hub’ on the STEP website. The aim of this hub will be to provide easily accessible information, facts and figures for policymakers, media and others looking for information on trusts.
If members would like to contribute a case study or video, please get in touch at communications@step.org for further details.
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