DISCLOSURE AND THE FAMILY TRUST

30 / 06 / 2021

Once upon a time there were only two certainties, death and taxes – both highly relevant to private client legal advice. Now there is a third – ever increasing compliance related to those services.

The essence of this new compliance is disclosure: the disclosure of private, often very personal, information.

Until recently, that disclosure was primarily to your lawyer. The lawyer was and remains under a duty of confidentiality to the client, subject of course to some exceptions.

Under the new rules discussed below, this disclosure goes beyond the lawyer and into the world of online regulated mandatory disclosure.

In recent years, the UK has introduced, alongside international initiatives, a raft of regulations requiring disclosure of personal and other information regarding family trusts.

The first such measure was in response to the US-led Foreign Account Tax Compliance Act or (“FATCA”) which required registration of certain trusts and trustees with the US Internal Revenue Service. This was followed by the implementation of the Common Reporting Standard (“CRS”) introduced by the Organisation for Economic Co-operation and Development (“OECD”).

Then the UK Trust Register was established under EU anti-money laundering rules. This initially applied only to trusts with tax-reportable income or gains but, from Autumn 2022 (date to be confirmed), is being extended to include trusts that are not producing taxable income or gains, including bare trusts for children.

Information now to be disclosed includes full names, addresses, dates and places of birth of both trustees and beneficiaries, and UK tax reference and national insurance numbers (or equivalent). These must also be supplied on request to institutions with whom the trust has a business relationship, such as a bank or broker.

In addition, the EU initiative known as DAC 6, to which the UK has subscribed in part (following Brexit, as an interim measure until the expected introduction of its own regime based on the OECD’s mandatory disclosure rules (“MDR”)), imposes further reporting obligations where there are cross border elements to a transaction.

The consequence of all this (leaving aside the administrative hassle and cost) is that a huge amount of confidential data must now be disclosed to government and international agencies (which many will argue is as it should be), with much of it available on publicly accessible registers (which is arguably harder to justify). While strict data protection rules apply to these governments and agencies and the data they hold, track records in that regard have not always been reassuring. Cyber criminals are upping their game – hacking, phishing, ransom attacks are in the news daily.

It is clearly too late now to reverse the trend. Like the weather, there is little point in complaining. While there are data protection and security risks and a certain amount of disclosure discomfort as a result of that, these must still be weighed against the many benefits that families can derive from the use of trust arrangements.