Trust - Tax Planning - Estate Planning - Real Estate & Reits
Trust - Tax Planning - Estate Planning - Real Estate & Reits
Trust
Tax Planning
Estate Planning
Real Estate & Reits
Trusts
Section 1 : Introduction
Wealth Cycles
Who are your clients?
HNW individuals, Entrepreneurs, Professionals
Creation
Accumulation
Protection
Preservation
Distribution
Key words
Understanding Clients concerns & needs
Wealth Management
Personal Attention
Expertise
Experience
Assets
Assets
Different Types
Characteristics
Investment Areas
Non Traditional assets (viz art, livestock)
Ownership
Legal cf beneficial
For whom/What
Investment guidelines
Diversification
Short/medium/Long term needs
Trust - Concept
TRUST means vesting of property or placing property
under the control of a person in the confidence that he
will hold it for the benefit of a third person and/or himself.
Ingredients of Trust:
Settlor : Person who declares the confidence by vesting
property
Trustee : Person who accepts the confidence
Beneficiary : Person for whose benefit the confidence is
accepted
Trust Property : Subject matter of the Trust
Client (Settlor)
Trustee (Individual/corporate)-Illustration :
Line Trust Corporation: They have extensive expertise in setting up and
running all kinds of trusts in Gibraltar for private and corporate
clients around the world. They currently hold on trust assets under
management worth in excess of $10 billion. Wholly owned by the
partners of Hassans, the leading international law firm in Gibraltar, LTCL
is a professional trustee, licensed and assessed by the Financial
Services Commission of Gibraltar and a direct beneficiary of Hassans'
60 years of multi-jurisdictional expertise. LTCL not only executes all the
duties of a trustee, it is also able to structure the optimum trust
vehicle to suit clients' needs no matter how complex. LTCL's
licence from the Financial Services Commission of Gibraltar also covers
the provision of asset protection trusts which are governed by their own
specific legislation.
Beneficiaries (Individual/corporate)
Legal Ownesrhip
Asset
Beneficial Owner
Trustees
Trust
Asset
Beneficiaries (may or
may not include
settlor)
Trustees
Beneficiaries
Trust
Company. A
Asset
Company. B
Asset
Asset
Types of Trust
Private Trust: A Trust where the beneficial interest is
limited to specified individuals or definitive ascertainable
individuals.Ex : CS Poonawalla Trust or RDA Trusts.
Public Trust: A Trust formed for the benefit of the public
as a whole or a section of the public, and in its
permanence. Ex: The Poona Music Society.
Charitable Trust: This is a sub-set of the Public Trust and
is often considered synonymous with Public Trust. Ex :
The Duragdevi Charitable Trust.
Sub-Categorization of Trust
Revocable Trust: A Trust where the right to revoke /
close the Trust at any point of time is available with
the Settlor
Irrevocable Trust: A Trust which can be wound up
only on fulfillment of trust objective or with consent
of all beneficiaries
Specific/ Determinate Trust: A Trust where the
beneficiaries are determined and their beneficial
interest is also determined
Discretionary/ In-determinate Trust: A Trust where
the beneficiaries are indeterminate and/or their
beneficial interest is indeterminate.
Wills Vs Trust
Status
Coverage
Probate
Formalities
Control
Will
Creation of Law
Existing individuals
Mandatory in most cases
leads to delays in
effectiveness
Does not allow for control of
end use, monitoring etc
Trust
Creation of Equity
Possible to cover existing and
future generations
No need for probate
Provides for distribution and
monitoring
Contestability
Confidentiality
Easy
Public Document during
Probate
Difficult
Confidential
Bankruptcy
Remoteness
Not Possible
Revisits
Consequences
Unlimited
Invariably leads to
fragmentation
Structured Progression
Participative transition
Role of Trusts
Conventional
Safeguarding the interests of minors
Providing financial security
Educational, health care oriented
Philanthropy
Modern
Investment Purposes
Tax Planning
Mode of control : Generation Next
Illustration : ITCL
Fees
Structuring / Set-up fee :
One-time fee ranging between Rs 300,000/- to
1,000,000/- depending on complexity of transaction
Summary
When would a client need a Trust?
Assets which can be covered
Tools used for Wealth Protection &
transfer
Concept of Trust
Structures/Types/Sub Categorization
Wills vs Trust
Role of Trust
What is REIT
Entity which pools in money and invests in real
estate
Provide a similar structure for investment in real
estate
as mutual funds provide for investment in stocks
Can be publicly or privately held
Generally listed on exchange
Assets of the trust are managed by a Fund
Manager
Provide taxation benefit to investors
Pass through available in some countries like
USA if specified conditions are
Agenda
What is REIT?
Why REITs?
The Indian REITs opportunity
Challenges in implementing REITs
Favorable steps so far
Some Suggestions
Conclusion
Why Reits
Provide alternate investment class to
investors
High liquidity
Tax advantage of pass through status
Low transaction cost
Lower ticket size
Capital access and exit route to developers
Institutionalization of RE sector
Attracts foreign investors
Help develop a broader economy
Unit Holders
Investment in Reit
FUND OR ASSET
MANAGER
Distribution of income
Reit Vehicle
Acts on behalf of
unitholders
Trustee
Trustees fund
Ownership of properties
PROPERTY
MANAGER
PMS
PM FEES
Properties
Discussion Document
LAUNCHING OF REITs IN INDIA.doc
Private Equity
PE Funds in India
The PWCGlobalPEReport2008 (Pg33-34)
Private Equity
Roadmap
Private Equity As an Asset Class:
Definition and Rationale
Private Equity vs Public Equity & Other Asset Classes
PE Investment Model
Start-up firms
Mid- Stage firms
Mature companies
Troubled/Declining companies
Mean Returns
11%
7%
6%
10%
18%
Std De
15%
4%
3%
14%
17%
Public Markets
Private Markets
Priviledged
information adv
Few if any
Always Present
Price volatility
Limited
Always Present
Liquidity risk
Limited
Always Present
ST investment
Pressure
Significant
Reduced
S&P 500
1.00
0.45
0.20
0.65
U.S.Bonds
1.00
0.30
0.23
Real Estate
1.00
0.20
Private Equit
1.00
Higher Returns. Achieved through investing in good projects and top-quartile funds.
E.g. G/C co-invested US$100,000 in Cisco and made about US$7 million.
G/C invested US$25 million in Equant and sold it for US$368 million.
(Source: GIC year book 2001 Pg 108)
Methods of investing
Pension Funds
Funds
Insurance Co
Banks/Endow
ment
/Corporations/
Wealthy
Individuals
Direct Investing
Investees
Startups/Early
Stage (venture
capital)
Expansion
Capital
Buyouts/Later
Satge
Distressed
Firms
Direct Investing
Wealthy individuals financing a business in the start up/early stage (also
called angel investing)
Co-investing: investing directly into the company often with other
sophisticated investors
Sector Focus:
Technology, e.g. General Atlantic Partners,Silver Lake
Telecoms, e.g. Providence,Telegom Venture Group
Growth
PVR Ltd
PVR, the pioneer in cinema multiplex in India, is the leading cinema
entertainment company in the country. Beginning its operations with
4 screens at a single cinema in 1997, PVR currently operates more
than 70 screens at multiple cinemas spread across the country and
is the largest cinema exhibition chain in the country. Besides cinema
exhibition, PVR has also ventured into film distribution through its
100% subsidiary 'PVR Pictures' and is also making a foray into film
production.
Today, with its experienced team, systems and processes ensuring
the scalability of its business model, PVR is well positioned to
capture the opportunities created by the transformation in the
cinema industry in India. In Dec 2005, PVR had a successful IPO
and raised Rs. 1,282 mn (USD 29.2 mn).
Growth
Welspun is India's leading and among the top five manufacturers of terry towels in the
world exporting over 90% of its sales directly to leading retailers including Wal-mart,
Bed Bath and Beyond, Linen n Things etc. The recently launched bed linen products
have witnessed wide acceptance from well renowned customers globally.
Post the current expansion plans, its terry towel capacity will be 31,000 tpa and bed
linen capacity would be 45 million metres p.a. Welspun plans to foray into decorative
bedding including 'top of the bed' items with a capacity of 1.4 mn pieces of decorative
bed sets.
In 2006, Welspun acquired one of UK's largest terry towel brand 'Christy'. This
acquisition brings access to the premium-end of the UK and European market.
Christy has long-standing relationships with leading retailers across UK including
Marks & Spencer, John Lewis, House of Fraser, Selfridges and Debenhams. Having
established its credentials as a world class manufacturer of terry towel and bed linen,
the company intends to move to the next level in the value chain viz. 'Branding' using
Christy as its platform.
Buyout
PE Fund Managers
FOF
Hedge Fund
Fund Structure/Terms
Discussion
Valuation Methodology of Funds
Fund Manager Assessment
Organisational Mgmt/Deal Sourcing/Value
adding/Investment process/Track record
Corporate Life Cycle (firms life cycle)
Startup/Consolidation/maturity/Relative
decline
Process of investments
Categorization of Funds
Mezzanine financing is usually provided as debt to a
company, very often with features of conversion to equity
such as options and warrants. Such financing is usually
made to companies on the threshold of a initial public
offer.
Special situation funds look for investment opportunities
in companies that become attractive as an investment
opportunity because of an anticipated event such as a
turnaround in the operations of a distressed company
Buyout funds seek to take over a company with a
combination of equity and borrowed funds. The debt is
usually taken against the collateral of the assets of the
company being taken over. The loan is repaid from the
cash flow of the acquired company.
Categorization of Funds
Features of PE Funds
Long-term investment: The nature of investments made by PE
funds implies long investment periods. PE funds are typically set up
as 10-15 year closed-end funds with few or low redemption
provisions.
Valuation & transparency issues: The investments made by a PE
fund may be difficult to value since they are usually not traded.
Moreover, such funds have low levels of regulations which do not
require periodic disclosures to investors or regulate nature and levels
of investment. All this exposes an investor to manager risk and
investment risk.
In India operations of PE funds are regulated by Sebi(Venture Capital
Funds)Regulations,1996 and Sebi( Foreign Venture Capital Fund)
Regulations, 2000. The regulations specify the structure, activities
and nature of investments that the funds can undertake. See List.
Read More
event of:
new financing
Bankruptcy
Sale
Upper Quartile
Europe
Median IRR
US
Median IRR
Europe
Venture Capital
22.9
9.0
6.6
1.5
Buyouts
19.2
20.6
8.8
6.7
__________________________________________________________________________________________
Summary
PE funds offer investor exposure to unlisted equity investments. Exit optins
are a key parameter in evaluating opportunities
PE funds can be categorized based on the stage at which funds are
provided.
The returns from PE funds may either be distributed or retained by the fund.
Gold ETFs that can be bought and sold on the stock exchange have
emerged a popular method to invest in gold.
International commodity markets can be accessed through international
funds.
International funds are subject to elaborate Sebi Regulation. They offer
diversification benefits, but carry additional risks from currency exposure.
Real estate is a cyclical and high risk investment. Several new investment
vehicles such as private equity funds are tapping the potential of this
segment.