THE LABUAN FOUNDATION AS A WEALTH MANAGEMENT TOOL IN SUCCESSION PLANNING

Transcription

1 THE LABUAN FOUNDATION AS A WEALTH MANAGEMENT TOOL IN SUCCESSION PLANNING by P R E S E N T E D B Y D A T I N I S H A R I D A H I S H A K F I R S T F I D U C I A R Y ( L A B U A N ) L L P Datin Isharidah Ishak, TEP First Fiduciary (Labuan) LLP LLB (Hons) London University Barrister-at-Law Lincoln s Inn Dip. In Shariah Law & Practice, IIU

2 ABOUT THE SPEAKER Datin Isharidah Ishak, TEP First Fiduciary (Labuan) LLP LLB (Hons) London University Barrister-at-Law Lincoln s Inn Dip. In Shariah Law & Practice, IIU Datin Isharidah, as a Trust and Estate Practitioner (TEP), specialises in international wealth structuring and the procurement and provision of fiduciary services. Through First Fiduciary (Labuan) LLP, she advises her HNW and UHNW clients on the establishment of entities such as trusts, foundations (both private beneficiary and charitable), limited liability partnerships and/or a combination of the said legal entities out of Labuan IBFC. This P Ris E mainly S E N T Ein D respect B Y of their family and business succession planning as well D Aas T Iasset N Iprotection, S H A R I Dboth A H for I Muslims S H A K as well as non-muslims. She holds F Ia RDiploma S T F I Din UShariah C I A RLaw Y ( and L APractice B U A N besides ) L L P an LLB (Hons). She has been in legal practice for the past 27 years. For any enquiries please contact Datin Isharidah TEP at [email protected]

3 WEALTH MANAGEMENT AND SUCCESSION PLANNING Wealth advisory community wealth creation and accumulation succession planning asset protection alongside investment and taxation efficiencies

4 WEALTH MANAGEMENT AND SUCCESSION PLANNING A succession plan - Why the need for one The 4Ds -Death, Disability, Divorce and Dispute probate process takes time cross-border assets and beneficiaries fiscal efficiency inequality in talents and differing characters of family members family expansion multiple families forced heirship laws

5 LACK OF SUCCESSION PLANNING Lack of A Succession Plan Consequences family dispute inaccessibility of assets due to legal process breakdown of family legal costs negative publicity breakdown of family business

6 LACK OF SUCCESSION PLANNING Reasons difficult and sensitive subject, particularly in Asian culture takes time to make a plan - multitude of considerations involves the giving away of assets, reluctance to relinquish control

7 LACK OF PLANNING (CONT D) Advisors bring these considerations to the fore over time client consciousness to make a plan Address separation of ownership vs retention of control need for flexible vehicles bespoke to each client s needs to preserve wealth amidst social (family), economic and political changes for the passing down of not only wealth but also family values family discipline

8 TRADITIONAL SUCCESSION PLANNING TOOLS Comparison of the different succession planning tools Wills Trusts Powers of attorney

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10 MAINLAND FOUNDATIONS Mainland foundations different from Labuan foundations They are established by way of:- Act of Parliament federal legislation Tun Abdul Razak Foundation State legislative enactment Yayasan Sabah Company limited by guarantee under Companies Act 1965 Kuok Foundation Trustee (Incorporation) Act 1952 Yayasan Budimas

11 LABUAN FOUNDATION LABUAN FOUNDATIONS ACT 2010 Foundations originated in civil law countries used for multi-generational succession planning and asset protection Labuan first in Asia to have foundation laws Labuan Foundations Act 2010 Name of Labuan foundation shall end with Labuan Foundation or (L) Foundation

12 TYPES OF FOUNDATIONS Private beneficiary (family) foundation Charitable foundation Non-charitable or private purpose foundation (similar to Bill & Melinda Gates Foundation) Labuan allows for the set up of Islamic Foundation:- Under Labuan Islamic Financial Services and Securities Act 2010 Where the Foundation s aims and operations must be in compliance with Shariah principles Officer to appoint or consult Shariah adviser

13 LABUAN ISLAMIC FINANCIAL SERVICES & SECURITIES ACT 2010 (LIFSS 2010) Establishment of Labuan Islamic foundation 107. (1) A Labuan Islamic foundation shall be a foundation established under this section and in accordance with the Labuan Foundations Act 2010 whereby the establishment of such foundation is undertaken expressly with a view that its aims and operations shall be in compliance with Shariah principles. (2) Unless otherwise provided, the provisions of the Labuan Foundations Act 2010 shall apply to any Labuan Islamic foundation.

14 LIFSS 2010 (CONTINUED) Object and purpose 108. (1) The object and purpose of a Labuan Islamic foundation shall not include any object or purpose which are not in compliance with Shariah principles. (2) A Labuan Islamic foundation shall not carry out any activity which is not in compliance with Shariah principles. Charter 109. The charter of a Labuan Islamic foundation shall not include any element which is not in compliance with Shariah principles.

15 LIFSS 2010 (CONTINUED) Assets 110. The officers of a Labuan Islamic foundation shall ensure that the assets of the Labuan Islamic foundation do not include any property which is not permissible based on Shariah principles, and that the assets are managed and invested in a manner that is not in contravention of Shariah principles (3) The officers of a Labuan Islamic foundation under this Act shall appoint a qualified person as a Shariah adviser, or consult a qualified person, who shall advise the Labuan Islamic foundation on the management and operations of the Labuan Islamic foundation and ensure compliance with Shariah principles.

16 LIFSS 2010 (CONTINUED) Shariah adviser means a qualified person appointed by any licensed entity or entity pursuant to this Act to advise on matters relating to Shariah principles; Shariah principles includes principles and concepts of Islamic law as approved or adopted, by way of rulings or by any other means, by the Shariah Supervisory Council, or the internal Shariah advisory board of Labuan Islamic bank or takaful operator, or a Shariah adviser of any entity regulated under this Act, as the case may be;

17 WHAT A FOUNDATION IS TRUST COMPANY FOUNDATION It is a combination of the best features of a trust with the best features of a company No shareholders / owners Private wealth planning vehicle

18 WHAT A FOUNDATION IS (CONTINUED) A foundation is a hybrid between a company and a trust. Combines the best features of company - Separate legal entity - Can hold property in its own name - Can transact, sue and be sued in its own name With best feature of a trust: - Confidentiality NOTE:- Both are excellent succession planning and asset holding vehicles.

19 STRUCTURE OF A FOUNDATION Founder Council Member Officer Beneficiaries Supervisory Person Secretary

20 MANAGEMENT OF FOUNDATION Founder (can be joint Founder or nominee Founder) the person who subscribes his name to the Foundation Charter Beneficiaries the people who will benefit from the Foundation Supervisory Person monitors and safeguards the Foundation's affairs Council Members ensure compliance of the Foundation and its officers Officer administers the Foundation to achieve its purpose of managing the Foundation's assets Secretary a Labuan trust company

21 CONSTITUENT DOCUMENTS OF A FOUNDATION Charter (mandatory registration but not a public record) Articles (registration optional) Letter of Wishes Constituent documents are carefully crafted to reflect the bespoke Founder's needs

22 CHARTER Every Labuan foundation shall have a Charter signed by the Founder Purpose or object of a Labuan foundation has to be clearly stipulated in the Charter Purpose of foundation to manage its property. May include any purpose or object which is not unlawful, immoral or contrary to any public policy in Malaysia Purpose may be charitable or non-charitable

23 REGISTRATION OF A CHARTER Secretary of a Labuan foundation applies for registration to the Labuan FSA (Authority) in the prescribed form Upon registration of a Labuan foundation, the Authority shall issue a registration certificate signed by the Authority or any of its authorized officers and sealed with the Authority s seal The establishment of a Labuan foundation shall be complete when a certificate of registration in respect of such Labuan foundation has been issued

24 INTERNAL STRUCTURE OF A FOUNDATION SUPERVISORY PERSON COUNCIL MEMBER OFFICER SECRETARY FOUNDATION (new legal owner of assets ) MANAGEMENT OF ASSETS Benefits distributed to BENEFICIARIES Endows property (transfers ownership) FOUNDER

25 PROPERTY ENDOWED TO A LABUAN FOUNDATION Property endowed to a Labuan foundation shall be the property of that Labuan foundation with full legal and beneficial title It shall cease to be the property of the founder It shall not become the property of a beneficiary unless the property is distributed in accordance with the provisions of the constituent document and the Act Compare this to a trust situation; fundamental difference

26 PROPERTY ENDOWED TO A LABUAN FOUNDATION (CONTINUED) Can include Malaysian property with the approval of the Labuan FSA Property includes:- Assets of every kind, corporeal or incorporeal, movable or immovable, tangible or intangible, however acquired; and Legal documents or instruments in any form, including electronic or digital, evidencing title to or interest in, such assets as above, including bank cheques, money orders, shares, securities, bonds, bankdrafts and letter of credit. The property of a Labuan foundation shall be exclusively managed, including being realised, applied, administered, invested and disbursed in accordance with the constituent document and provisions of this Act for the attainment of the purposes or object of the Labuan foundation

27 FLEXIBILITY OF TRUST COMPANY COMBINATION separate legal entity can hold property in Foundation's name Founder endows assets to a Foundation, it becomes the legal owner of the asset separation of ownership allows for reservation of powers/rights by the Founder in the individualised constituent documents a body corporate that has no owners/shareholders managed by Foundation Council and supervised by a Supervisory Person can act, sue and be sued in its own name duration can be in perpetuity or for a fixed duration

28 FURTHER FEATURES Founder can assign some or all of his rights and powers to a third party revocably or irrevocably Foundation can be redomiciled to another jurisdiction which has foundation laws Arbitration can be provided for by the Constituent documents Confidentiality criminal offence to divulge information of Foundation fine of up to RM1,000,000 and imprisonment Dissolution voluntary or by Court Order

29 STATUTORY FIREWALL Section 58 of the Labuan Foundations Act fraudulent disposition test of solvency burden of proof crucial timing of accrual of cause of action and disposition of property to the Foundation limitation period presumption effect of disposition

30 IMMUNITY Section 61 of the Labuan Foundations Act 2010 against foreign claims or judgments divorce forced heirship creditor claims in insolvency

31 RIGHTS OF BENEFICIARIES 1) Right to information 2) Right to confidentiality 3) Court may order information to be made available to the beneficiary 4) They may only bring claims against the foundation council in case of the breach of the foundation constituent documents.

32 TAX TREATMENT Where the property of a Labuan foundation includes Malaysian property, the Income Tax Act 1967 shall be applicable to any income derived therefrom The income derived from any property which is not Malaysian property is subject to the Labuan Business Activity Tax Act 1970

33 ADVANTAGES OF A LABUAN FOUNDATION Effective succession planning and asset protection vehicle Separation of asset and ownership Founder able to reserve powers and rights Can be established for charitable or non-charitable purposes Unenforceability of foreign claims or judgements Confidentiality Fiscal efficiency

34 FURTHER ADVANTAGES Labuan as a jurisdiction on the OECD white list skilled wealth management industry strategically located, same time zone as many major Asia Pacific cities as part of Malaysia, Labuan follows the English legal system with a highly developed legal infrastructure

35 GUIDELINES ON THE ESTABLISHMENT OF LABUAN FOUNDATION INCLUDING ISLAMIC FOUNDATION Introduction The Guidelines clarifies the procedures for the registration and regulatory requirements for Labuan foundation and Labuan Islamic foundation (Labuan foundation) in the Labuan International Business and Financial Centre (Labuan IBFC). Effective Date The Guidelines shall come into effect on 12th July 2013 and would remain effective and applicable unless amended or revoked

36 GUIDELINES ON THE ESTABLISHMENT OF LABUAN FOUNDATION INCLUDING ISLAMIC FOUNDATION (CONTINUED) Labuan Islamic Foundation Labuan Islamic foundation can be established under Section 107 of LIFSSA and all the provisions of LFA shall apply to Labuan Islamic foundation unless specifically provided. The object, purpose and activity of Labuan Islamic foundation must be in compliance with Shariah principles. The officer of a Labuan Islamic foundation is required to appoint or consult a Shariah adviser to advise matters relating to the operations of the Islamic foundation to ensure compliance with Shariah principles. The foundation must have a clearly executed legal transfer of ownership of the property(ies) from the founder to the foundation. The endowment of the property into the Labuan Islamic foundation could be done through Hibah or Hadiah.

37 LIFSS 2010 (CONTINUED) SHARIAH SUPERVISORY COUNCIL Establishment of the Shariah Supervisory Council 7. (1) The Authority may establish a Shariah Supervisory Council which shall be the authority for the ascertainment of Islamic law for the purposes of any business regulated or supervised by the Authority. (2) The Authority shall have the power to determine the terms of reference and the functions of the Shariah Supervisory Council. (3) The Shariah Supervisory Council may determine its own procedure.

38 LIFSS 2010 (CONTINUED) Functions of the Shariah Supervisory Council 8. (1) The Shariah Supervisory Council shall have the following functions: (a) to ascertain Islamic law for the purposes of any business regulated or supervised by the Authority and issue a ruling upon reference made to it in accordance with section 9; (b) to advise on any Shariah issue relating to any business regulated or supervised by the Authority upon reference made to it in accordance with section 9; and (c) any other functions as may be determined by the Authority.

39 SHARIAH RESOLUTION OF THE SHARIAH SUPERVISORY COUNCIL OF LABUAN FSA ON LABUAN ISLAMIC FOUNDATION The Shariah Supervisory Council of Labuan FSA, in its meeting dated 28 March 2013, resolved the following relating to the Labuan Islamic Foundation (LIF) which is a Shariah compliant Labuan foundation that is established under Section 107 of the Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA). It is hereby resolved that: (a) The endowment of assets by a founder into a LIF may be facilitated by way of hibah or hadiah. This endowment must be done during the founder s lifetime. (b) Where the endowment of the assets into the LIF satisfies the following conditions, Faraidh, upon the demise of the founder, is not applicable and relevant on the endowed assets in the LIF. (i) The endowment has been made immediately and irrevocably; (ii) The endowment has been made without any reserve power of the founder; (iii) The transfer of the ownership of the assets is absolute; and (iv) The transfer has been accepted by the LIF. (c) Paragraph (b) would still be applicable where the founder manages the assets and receives remuneration for such management in the LIF. (d) Where the founder is one of the beneficiaries in the LIF, Faraidh would be applicable and relevant on the portion of the assets that the founder is entitled to.

40 HIBAH Endowments to a Labuan Islamic foundation by way of Hibah or Hadiah. Hibah Gifts during lifetime (inter vivos) Re Man bin Minhat (1965) Conditions: Intention Offer and acceptance Transfer of ownership

41 CASE STUDY: LABUAN ISLAMIC FOUNDATION FOR SUCCESSION PLANNING FOUNDER (Family Patriarch) ARTICLES CHARTER LETTER OF WISHES INVESTMENT COMMITTEE DISTRIBUTION COMMITTEE COUNCIL MEMBER OFFICER SECRETARY FOUNDATION MANAGEMENT OF ASSETS Benefits distributed to BENEFICIARIES

42 CASE STUDY: LABUAN FOUNDATION FOR SUCCESSION PLANNING FOUNDER (Family Patriarch) ARTICLES CHARTER LETTER OF WISHES SUPERVISORY PERSON COUNCIL MEMBER OFFICER SECRETARY FOUNDATION MANAGEMENT OF ASSETS Benefits distributed to BENEFICIARIES

43 LABUAN - A MIDSHORE CENTRE (The Star Newspaper article 8/8/2013)

44 THANK YOU THANK YOU For any enquiries please contact Datin Isharidah TEP at [email protected] This presentation should not be regarded as offering a complete explanation of the matters referred to and is subject to changes in law. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Labuan IBFC cannot accept any responsibility for loss occasional to any person acting or refraining from action as a result of any material in this presentation.