Editor’s note: The
author of this article, Marc Farror TEP, director, Vistra (Jersey) Limited,
looks at how the wealth structuring misadventures of a Hong Kong business
tycoon went awry, and the lessons that can be learned from the saga. This
publication stresses that while it is grateful to share the insights here, it
does not necessarily endorse all the views contained in this article.
When you mention the high profile names of Dr Stanley Ho and
Nina Wang in Hong Kong, almost everyone will be able to regale you with stories
about how Dr Ho lost his $3 billion casino empire and how Nina Wang’s feng shui
expert allegedly tried to claim her rumoured $4.2 billion fortune.
In Dr Ho’s case, it was suggested that the main cause of the
trouble was when he fell ill, his share of SJM Holdings was then fought over
and divided up amongst his family comprising at least 4 wives and 17 children.
According to the media stories, it had reportedly been Dr Ho’s intention to
pass his share of SJM to his second and third wives.
For Nina Wang, media reports described how her feng shui
expert claimed that they had allegedly had an affair for years and it was Nina
Wang’s intention, it was maintained, to leave him a substantial share of her
wealth rather than have her family inherit it.
The problems arose in Nina Wang’s case because supposedly
her will made no provision for the feng shui expert. In Dr Ho’s case the
ownership of the assets was in personal names rather than through a more
established and reliable asset protection structure.
These two cases illustrate well how important it is for
successful and wealthy businessmen to have a clear and robust succession plan
that lays out how their own personal wealth is to be divided, when the time
arises. With complex international high value estate planning, structures such
as trusts and companies can be used to ensure that assets are protected and a
wealthy individual is able to determine exactly who inherits which assets going
forward. Such structures offer significant flexibility and solutions can be
designed to accommodate the most demanding of client needs.
In the case of the earlier example, one option for Dr Ho
might have been to use a range of companies to separate, hold and protect his
assets. Each company is then owned by a trust.
This structure works from an asset protection perspective
and offers the underlying client many benefits, the first of which is in the
distribution of an estate. Since the assets are separated into different
holding companies, the risk of losing all of them simultaneously is limited. If
an asset is going to be attacked and a company is sued, only the resources held
in that particular company are under threat.
The owner of the assets will achieve an additional level of
protection using such a solution through the separation of ownership. With a
trust owning all the assets and the underlying client becoming a beneficiary of
the trust, legal and beneficial ownership is divided. Therefore it makes it
difficult to take legal action against an individual who has settled their
assets in this manner.
Trusts can be used to override the local legal and cultural
laws which can be particularly important with, for example some countries
operating forced heirships, which can lead to an unplanned and unwanted
division of assets taking place. Jersey trusts do not recognise forced heirship
regimes and therefore it is only the named beneficiaries or class of
beneficiaries who will ultimately benefit from the trust’s assets as these are
effectively held and controlled from Jersey.
It is also possible with a Jersey trust for a
settlor to reserve the power to change the beneficial class and therefore rule
individuals in and out from receiving trust assets, giving an additional level
of ongoing control and flexibility with planning.