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Drafting of documentation / establishment of the entity (Letter of wishes,…
Drafting of documentation / establishment of the entity
After the customers due diligence documentation has been collected or whilst the process of collecting it is being undertaken, the documents required to create the entity (eg the trust deed or the memorandum and articles of association) will need to be drafted
It is common for law firms to be consulted at the stage where trusts or companies are established and a lawyer will almost always be included in the process of drawing up the documentation
Well drafted documentation will ensure that the powers, duties, discretions and obligations of the OSP are clear and therefore can help to avoid problems later on
Some law firms have franchise or licence arrangements with OSPs whereby they provide the OSP with template documentation on an annual basis and allow them to use it either free of charge or for an annual fee. The OSP is more likely to contact the law firm that provided the documentation should a future legal issue ever arise
For companies it is often the case that the OSP uses a standard set of articles for the company that it incorporates for its clients. The standard articles will have drawn up with the assistance of legal advisers and will be used for most clients. Such standardisation assists the OSP to become familiar with the article for the companies which it administers. Other OSPs will choose to simply adopt their jurisdictions equivalent of the model articles
Checklist - taking on a new trust
Enquiry stage
Has the client (e.g the settlor or principal beneficiary) completed a trust questionnaire?
Has the client signed and returned the letter of engagement including terms and conditions?
Have the fees been agreed with the client?
Have full details of the proposed trust been received (eg beneficiaries, details of any protector, name of the trust etc.)?
Does the rationale for the structure make sense?
Has the purpose of the proposed trust structure been established?
Has all the necessary customer due diligence information in respect of the settlor and beneficiaries been received?
If there is a protector, has due diligence been received on them?
Has the customer due diligence documentation been verified by two reliable and independent sources?
Has sufficient tax advice been received and reviewed, if required?
Has sufficient legal advice been received and reviewed, if required?
Has a customer profile been established and documented?
Has a risk assessment been undertaken and documented?
Has approval to accept the client been obtained from the new business acceptance committee?
Have all of the compliance department's queries been answered and compliance approval been given to proceed?
Has the trust establishment fee been received?
Entity establishment
Have the initial funds been transferred by the settlor (and received by) the trustee?
Has the draft trust deed been reviewed and does it meet the objectives of the client?
Has the trust deed been correctly executed by all parties concerned?
Have minutes of the first trustee meeting been prepared?
Post entity establishment
Has the entity been set up on the TSPs database?
Have the bookkeeping ledgers been set up and the initial assets book kept ?
Have all necessary diaries been created (eg diaries to make trust distributions, diaries to monitor receipt of income etc)?
Have all of the proposed assets been transferred from the settlor to the trustee?
Has an invoice been raised in relation to the trust establishment?
Have bankers and other agents been appointed by the trustee?
Has a letter of wishes (if required by the settlor) been received?
Has an initial review been carried out (usually between 60 and 90 days after the establishment)?
Letter of wishes
Takes the form of a letter usually from the settlor or whoever they have appointed addressed to the trustee.
Not considered a legal document, it is though by some to be highly probable that as the use of letter of wishes increases within discretionary trusts this perception may change
Should be no more than guidance provided by the settlor to his trustees as to how they should exercise their powers and discretion in managing and dealing with the trust assets during and after the settlor's lifetime. They should perhaps always include a line to the effect that the author does not wish to fetter in any way the discretion of the trustee
Whilst the trustee may find it helpful to be guided by a letter of wishes, it is under no obligation to follow any request or guidance set out in the letter.
Typical items included may be
Full name and address of sender
Full name and address of the trustee
Date of the letter of wishes
Name of the trust
Date of the trust deed
Disclaimer clause
A statement that the settlor is to be the main beneficiary during their lifetime
A statement that circumstances may change
A statement that this letter is to supersede any previous letter (if not the first one) in either full or in part, to be specific
The type of additional assets (if any) to be transferred into the trust and signature of the sender
Investment guidelines
% capital / income payable to named beneficiaries
Age at which the beneficiaries could claim benefit from the assets of the trust
Excluded parties
Additional beneficiaries
Full names and addresses of beneficiaries
Dates of birth of beneficiaries
The purpose of drafting a trust deed or will trust is to carry out the requests of the settlor or testator. This is difficult to anticipate when administering a discretionary arrangement as it is likely to have been constituted using a template trust deed which will not indicate any specific requests or desires of the settlor. In this case a letter of wishes and consultation with the client / settlor is imperative but not an obligation
It is usual for the trustee to assist in the drafting of the letter of wishes to ensure that the correct phrases are included to avoid any misconceptions of its status
Taking on a new company
Before accepting an appointment for the position as a director of a company, the CSP will need to establish the usual CDD in relation to any beneficial owners or controllers that are not provided by the CSP
If the entity is a company, the establishment will involve the usual company incorporation procedures which involve
An application form for the incorporation of a company
The registration of the memorandum of association
A copy of the articles of association (if the company has not adopted the model articles)
A statement of compliance
The relevant fee
It is imperative the CSP receives funds before they arrange incorporation of the company in case the client changes their mind and the CSP has to pay for the incorporation of the company
Checklist - Taking on a new company
Enquiry stage
Has the client (eg beneficial owner) completed a company questionnaire?
Has the client signed and returned the letter of engagement including terms and conditions and confirmation of the services to be provided (eg reg office, directors, secretary, nominee shareholders and resident agent)?
Have details of the proposed company been received (eg jurisdiction of company to be incorporated, full names of the subscribers, details of the share capital and proposed share classes, company name etc.)?
Have the fees been agreed with the client?
Does the rationale for the company make sense?
Has the purpose of the proposed company been established?
Have details of the anticipated turnover been received?
Has all necessary customer due diligence information in respect of the beneficial owners and shareholders been received?
Has the customer due diligence documentation been verified by two reliable and independent sources?
Has sufficient tax advice been received and reviewed if required?
Have sufficient legal advice been received and reviewed if required?
Has a customer profile been established and documented?
Has a risk assessment been undertaken and documented?
Has approval to accept the client been obtained from the new business acceptance committee?
Have all of the compliance department's queries been answered and compliance approval been given to proceed?
Has an invoice for the company incorporation fee been raised and settled?
Entity establishment
Has the draft company constitutional documents been reviewed and are they appropriate given the objectives of the client?
Have the company incorporation documents been correctly executed by all parties concerned?
Have the incorporation documents been submitted to the company's registry?
Post entity establishment
Have the inaugural minutes of the first directors meeting been held?
Has the entity been set up on the CSPs database?
Have the bookkeeping ledgers been set up and initial assets book kept?
Have all necessary diaries been created (eg diaries to monitor receipt of income or to arrange the filing of future statutory returns?
Has payment for the shares been receives from the beneficial owner or has a debtor been recorded in the books of the company to account for the payment of the shares?
Have the share certificates been issued?
Have declarations of trust been issued in relation to the shares, if applicable?
Have letters of acceptance been prepared in relation to the appointment of the secretary and directors?
Have bankers and other agents been appointed?
Has an initial review been carried out (usually between 60 and 90 days after the establishment)?