The Asian private client market is gearing up to witness a massive transfer of wealth from one generation to the next. Speakers at this year's Legal Week Trust & Estates Litigation Forum asked what impact this will have on the global trusts market. John Malpas reports

The next 10 years are set to be a pivotal period for the private client market in Asia as the first generation of successful entrepreneurs pass on their assets to their children, the Legal Week Trust & Estates Litigation Forum heard.

During the closing session of this three-day conference, which took place in Provence, France, on 13-15 March, speakers and delegates asked whether this transfer of wealth would be an orderly process and one that would take place largely in private, or whether it would fuel a rise in the kind of bitter public disputes that periodically occur within the Western world's wealthiest families. 

According to research by Capgemini and RBC Wealth Management, the Asia-Pacific region is poised to become the largest private wealth market by as early as this year, with the number of high-net-worth individuals (HNWI) based there having doubled in the five-year period from 2007-12 and their wealth having tripled. In 2012 the region's HNWI population increased by 9.4% to reach 3.68 million and their wealth by 12.2% to hit $12trn (£7trn).

"Asian practitioners say that over the next decade about 90% of the private wealth in Asia is going to change hands," Andrew De La Rosa, of ICT Chambers in the Cayman Islands, told the conference.

"I don't mean it will be the subject of initial public offerings or anything like that. Instead, there is going to be succession from the founding generation to the successor generation or generations. That is a vast amount of money."

"The growth of disputes from Asia has been such a feature of my practice," said conference co-chair Shan Warnock-Smith QC (pictured, below), of 5 Stone Buildings in the UK and ICT Chambers in the Cayman Islands. "We are getting to the stage when the generation of settlors of trusts back in the days of estate duty in Hong Kong in the late 80s/early 90s are dying and losing capacity. Hong Kong no longer has estate duty so the tax planning aspects of those trusts are of essentially no significance, which shifts focus to succession issues." 

Warnock-Smith said her experience of dealing with Hong Kong disputes had led her to believe that the number of family disputes in Asia would increase. "The one cultural change that I think is more significant than anything is the apparent willingness of Chinese families to fight in public," she said. "As I understand it, that was not a traditional way in which Chinese families resolved their disputes."

She put this change down to "increasing globalisation of manners and cultural approaches to matters of money".

The future for trusts

The Hong Kong-generated disputes noted by Warnock-Smith are the result of a particular phenomenon – the existence a generation ago of a tax that wealthy people believed they could avoid by establishing offshore trusts.

Such disputes will inevitably die out. In order for trust disputes to continue into the future, trusts must continue to be relevant.

"To what extent are trusts used by Western families for tax purposes?" asked conference co-chair Anthony Poulton (pictured, bottom), the head of Baker & McKenzie's trusts disputes group in London. "If you are trying to seek advantages on the tax front, then arguably this is proving harder and harder to achieve. There is an ever-tightening grip on the offshore world as far as Western governments are concerned. So there is certainly an erosion of advantage to Western families in that respect. With Asian families on the other hand, there seems to be a general desire for greater control and settlor autonomy, which may not sit easily with the traditional trust model as we would know it."

While delegates and speakers alike agreed that the tax advantages of trusts were diminishing, there was plenty of evidence of their durability and adaptability across the world.

"We are seeing some expansion in the use of trusts in the West, predominantly related to succession for businesses, including in some jurisdictions that you might not immediately think would be keen on trusts," said Dawn Goodman, a partner at Withers in London. "The Italians seem to be increasingly keen on them in relation to succession of family businesses."

Basil Zirinis, a partner in Sullivan & Cromwell's London and New York offices, added: "In the US they are booming for all kinds of purposes: legitimate tax planning, asset protection, philanthropy and passing wealth from generation to generation. I don't see any drop off in the popularity of trusts in the states, and it is probably the opposite."

Simon Weil, a partner at Bircham Dyson Bell, told the forum that there was support growing in the UK for the concept of a family business foundation that would be enshrined in statute and encompass both a common law trust and a civil law foundation. "It would be designed to strengthen business property relief and remove all the current uncertainties and ambiguities that surround it," he said.

Meanwhile, offshore lawyers reported that they had not witnessed a falling off in the number of trusts being set up in their jurisdictions, although they agreed that the majority of interest in trusts was coming from wealthy people based outside North America and Europe.

"We are setting up a lot of trusts in the Cayman Islands," said Carlos de Serpa Pimentel, group head of private client and trusts at Appleby. "Fewer are coming from the West, but we are seeing a lot more from other parts of the world – increasingly Asian and South American countries, but they could come from anywhere. It is a lot less for tax planning reasons though. It is for all the elements that have already been mentioned, such as philanthropy, estate planning and business – there has been significant growth in the use of trusts in the commercial world."

Challenges of the unfamiliar

Any rise in the number of super-rich Asian individuals who are prepared to use Western-devised legal vehicles for the structuring of their wealth will not be without its challenges, according to De La Rosa.  

"Custom in Asia plays at least as important a part in family dynamics as law and finance," he explained. "It is something that is alien to our largely English-based common law system and we are going to have to confront that."

But he also urged the delegation not to "pigeonhole" Asian families and assume that their attitudes to wealth and inheritance were fundamentally incompatible with the trust structure. "Many wealthy people are looking to emigrate out of China – and perhaps surprisingly the US is thought to be the number one destination of choice," he pointed out. "Wealthy families are international and they have international problems. Trusts provide an important means to address such problems"

There seemed little doubt among the conference delegation that the ever-resilient trust has a healthy future, despite the challenges it faces both in the territories where it originally thrived and within jurisdictions where it is a far less familiar legal instrument.

• Legal Week Trust & Estates Litigation Forum 2015 will take place on 12-14 March at the Terre Blanche Hotel and Spa, Provence. For details go to legalweek.com or email [email protected]