At Legal Week's Private Client Forum Hong Kong, a panel of senior experts explained the risks of not having robust trust structures and the problem with entrepreneurs' perceived immortality, writes Elizabeth Broomhall

In recent years, there has been a surge in offshore litigation surrounding the transfer of wealth in Asia. Cases have arisen partly because of problems with the legacy trust structures set up in the 1980s and 1990s in jurisdictions such as the British Virgin Islands (BVI), and partly because of the global economic climate, which has exacerbated the fury of the beneficiaries of these trust funds, many of which have plummeted in value.

Indeed, many clients have become more aware of the litigation and protection options available to them. 

Experts say it has become more important than ever to structure trusts correctly at the point of creation, and to have sensitive conversations with settlors which would mitigate future problems. They say the choice governing law is also important, as is the need to balance trustee and settlor control of the trust.

At Legal Week's second annual Private Client Forum in Hong Kong in September, Bill Ahern, founder of Family Capital Conservation, chaired the debate on the issue. 

Alan Binnington (pictured), director for private client at RBC Wealth Management, believes much of the issues he sees are caused by previous advice and structures.

"The conversations that we have are heavily influenced by that legacy experience. We'll either be talking to people about restructuring – which will be getting rid of the cheap and cheerful BVI company which people thought was a solution to absolutely every problem – or we'll be talking about new structuring where you're dealing with new wealth.  

"But there is still that legacy experience. We see it firstly in the desire for settlor control as they were used to that in the simple company structure. They want to replicate it. They've seen that many offshore jurisdictions and indeed Hong Kong now allow settlor reserved powers. They see the list of powers that can be reserved and they want all of them."

Another area influenced by the legacy experience is compliance. According to Binnington, in the past the most clients were asked for was a passport and two utility bills, but, in today's more complicated society, a lot more questions are asked.

He added: "In this jurisdiction, privacy and confidentiality are important. The clients may not even have given their advisers the full picture of the family wealth and yet we have to ask the questions about family funds and the source of the wealth. That can often be a very difficult conversation for someone who was used to having not to disclose information." 

Another key issue in the Asian market, which is seeing burgeoning numbers of rich young entrepreneurs, is succession planning after death. "The problem is that most settlors regard themselves as immortal and they don't want to have that discussion," Binnington said. "They'll focus on what they're going to do and the powers that they're going to exercise, but they really do need to think about succession.

"One of the difficulties is say if your client is a young entrepreneur, they've built up a very substantial business – perhaps it's been listed – and there may not be any members of the immediate family who are ready to step into his shoes because he's probably just got a wife and two young children. 

"So again, you have to look at governance issues, whether you should bring in a trusted adviser, perhaps an immediate successor, depending on when the event happened." 

Andrew De La Rosa, from International Chancery & Trusts Chambers, added: "I'm convinced that in the mid-1980s and mid-1990s a lot of trusts were set up without any significant discussion of just these sorts of issues. 'It was tax-driven,' so the settlor says, 'the family constitution was ingrained in the culture, we don't need that, so we'll just set it up and it'll run itself and I'll be around forever'.

"It is only recently we started talking about sophisticated issues such as what happens when you are no longer on the scene. The advent and use of private trust companies has provided some answers to some of these issues, but I don't think it's a comprehensive answer to everything." 

• Related event: Legal Week Private Client Forum Americas 2014