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FATF Guidance on Beneficial Ownership of Trusts and other similar legal arrangements: Essential reading for legal, financial, and compliance professionals
Its aim is to support stakeholders across both the public and private sectors in implementing the new requirements more effectively.
Who needs to read and comprehend the guidance
Professionals in the legal, financial, and compliance sectors, as well as entities involved in trust and company services, would greatly benefit from understanding and implementing the updated requirements outlined in the guidance. This guidance is designed to complement existing guidelines related to Recommendation 24 concerning legal persons.
To start, let’s examine some specific types of trusts: Express Trusts, Charitable Trusts, Legal Arrangements similar to Express Trusts .
Authors: Dorina Mastora, Deputy Compliance Officer, and Kyriaki Stinga, Senior Associate
- Express Trusts
- Purpose and Function
- Reasons for Establishment
- Asset Protection: Trusts are often utilised to shield assets from potential external risks, such as creditor claims or the threat of bankruptcy.
- Asset Management: They facilitate effective asset management, ensuring business continuity and stability.
- Privacy: Trusts offer a layer of privacy, particularly crucial for safeguarding the security and confidentiality of high-profile individuals.
- Overcoming Legal Hurdles: In cases where legal requirements or restrictions pose challenges, trusts provide a flexible solution to navigate such obstacles.
- Tax Planning: Trusts may offer tax advantages in certain jurisdictions, providing opportunities for tax optimisation compared to other entities or beneficiaries.
- Estate Planning and Succession: They play a vital role in estate planning, ensuring smooth succession and providing for vulnerable beneficiaries in the event of the settlor's demise or beneficiary misconduct.
- Investment Holding: Trusts serve as efficient vehicles for holding investments, including pension funds and other commercial assets.
- Charitable trusts
- Legal arrangements similar to Express Trusts
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- Firstly, they should examine whether their laws explicitly acknowledge express trusts or similar legal setups. This evaluation involves considering the likeness between arrangements, which may benefit from insights from contract law experts and trust professionals.
- Secondly, countries should delve into the structure and objectives of all legal arrangements present within their jurisdiction. This process may entail analysing relevant case law, which reflects previous judicial decisions and the recognition of specific arrangements. For instance, certain agreements evolving within the realm of contract freedom might have gained recognition even without explicit legal regulation.
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- The settlor(s)
- The trustee(s)
- The protector(s), if there are any
- Each beneficiary, or in some cases, groups of beneficiaries and individuals designated as objects of a power
- Any other individuals who ultimately control the arrangement.
- Understanding Roles and Responsibilities
- Understanding Trust Beneficiaries
- Adequate, Accurate, and Up-to-date Information
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- name
- country and date of incorporation and/or establishment,
- applicable law,
- termination date (if any),
- information on the country of establishment or residence of the trustee or other equivalent person as well as their residential address etc.
- Record Retention Requirements for Trustees
- Sanctions for Non-Compliance with R.25: Accountability for Both Natural and Legal Persons
Authors: Dorina Mastora, Deputy Compliance Officer, and Kyriaki Stinga, Senior Associate