Trust Formation in Jersey
The Jersey Law on Trusts
Unlike England, there has never been a dual system of law and equity in Jersey and for a long time the validity and enforceability of trusts in Jersey was clouded in some obscurity, especially as regards trusts relating to immovable property.
There was a limited amount of case law on the subject of trusts dealing with the creation, subsistence and termination of trusts and on the rights and obligations of the parties to such trusts. Where the local case law was lacking the Court turned to English authorities for guidance and generally applied the principles of English Trust Law to such matters. It is not surprising therefore that Jersey Trust Law developed on very similar lines to its English counterpart and this similarity is evident from the codification of Jersey Trust Law in March 1984.
The Trusts (Jersey) Law 1984 removed many of the doubts and uncertainties which previously existed in relation to the establishment and administration of Jersey trusts; the law is not, however, entirely exhaustive and the courts of Jersey continue to accept judgements of the courts of England as being persuasive in relation to certain trust matters.
The Trusts (Jersey) Law 1984 provides a modern legal framework for the establishment of trusts in Jersey and for the protection of beneficiaries.
The duties of Trustees
The duties of a trustee can be particularly onerous. The law provides that a trustee:
– must act impartially in the interests of all the beneficiaries;
– must keep trust accounts and accurate records of distributions and administrative decisions;
– where there are several trustees they are under a general duty to act together;
– must preserve and enhance the Trust Fund so far as is reasonable;
– must not make speculative investments;
– must administer the trust with due diligence as would a prudent person to the best of his ability and skill and observe the utmost good faith.
Whilst various trustee duties are expressed to be subject to the terms of the trust instrument it is not open to the Settlor of a trust to be able, if he wishes, to relax these last mentioned basic duties that underline the essential nature of trusteeship.
The Powers of Trustees
During the lifetime of a trust and as long as he is a trustee, a trustee must exercise the powers set out in the trust deed. These generally will include the following:
– Wide investment powers which allow the trustees to invest in almost any kind of investment;
– Power to employ agents, investment advisors, nominees and custodians;
– Power to appoint new or additional trustees;
– Power to move the trust to another jurisdiction in the event of political upheavals, the election of an unfavourable government change the proper law and place of administration of the trust;
– Power to transfer the whole or part of the Trust assets to a new trust provided the beneficiaries of the new trust include beneficiaries who were intended to benefit from the original trust assets;
– Power to establish companies and to transfer any part of the trust assets to those companies. The use of a dual structure can provide taxation benefits;
– Other powers may include a power to borrow, to make loans with or without interest, to pay fees and expenses, to pay taxes, to carry on trade and to insure the trust assets.
Trusts and Companies
It is often necessary or appropriate for the trustees of a trust to hold all or a part of the trust assets through an underlying limited liability company. Such a company might be established offshore, in Jersey or in another low tax area, or it might be established onshore, in England or elsewhere. The trustees might own all of the shares of an underlying company or there might be other shareholders.
The reasons for establishing an underlying company are likely to fall into two areas: they will be either fiscal reasons or non-fiscal reasons. There can be a number of ways in which an underlying company may have fiscal, or taxation, advantages: for example, in order to change the effective situs of trust property, to make it excluded property for UK Inheritance Tax purposes, or to reduce taxation on royalty payments received on patent rights owned by the trustees.
Similarly it might be desirable for the trustees to establish a wholly-owned company for non-fiscal reasons, for example, if it is proposed that the trustees should undertake a certain trade or business, the trustees may wish to undertake that through a limited liability company and so avoid any personal liability arising from that trade or business.
Though the trustees would often be involved in the management of an underlying company this need not always be the case: the terms of the trust might provide that they need not interfere in the management of an underlying company.
- The Settlor passes legal ownership of the assets to the trustee once the trust deed is signed.
- The trust deed can be tailored to suit each client’s requirements. The trust deed itself does not have to include the Settlor’s name. There is no requirement to register the trust deed in any public register in Jersey, nor are accounts filed. Anonymity is therefore possible. A draft deed can be made available on request.
- The Settlor can request the trustee to administer the trust fund in specified ways, by a personal “Letter of Wishes”. The trustee refers to this for guidance, but it is not legally binding. This letter would normally include guidance on investment policy and the distribution of both income and capital.
- The Settlor can, in practice, exercise a further influence over the ultimate application of the trust fund by using a “Protector”, who is specified in the trust deed. Certain supervisory functions can be given to a protector: For example, the trust deed may provide that the trustee cannot appoint funds to the beneficiaries without his consent. The protector may also be given the power to remove and replace the trustee. The person chosen would normally be a family friend or trusted adviser. Using a Protector is more complicated, and liable to increase administration time, and therefore cost.
- Even though the trustee may be resident in Jersey, provided no beneficiary is resident in Jersey and no income other than bank interest arises there, by concession no Jersey tax is payable. Similarly, provided neither the Settlor nor the trustee nor any of the beneficiaries is domiciled or resident in the United Kingdom, the trust can be administered in Jersey in such a way that United Kingdom tax is not relevant.
- In addition to taxation advantages, trusts may be of assistance with inheritance and incapacity difficulties and may be used to make provisions for future contingencies.
Trusts are therefore a flexible and secure way of holding assets to suit the requirements of the client or his family.