Jersey Trusts: A Comprehensive Guide
Overview
This article is written to help individuals who are considering the creation of a trust in Jersey to manage wealth, for businesses, or charitable purposes. The author chaired the trusts law steering group for 10 years with the aim of improving the trusts law in Jersey.
The aim of this article is to provide an overview of the key legal requirements and general principles involved in establishing and managing trusts.
Jersey’s Legal Framework and Constitutional Position
Jersey holds a unique constitutional position as a self-governing crown dependency. It is not part of the United Kingdom, and has its own parliament which gives it autonomy in internal matters, including critically matters relating to taxation. The legal system borrows from other systems of law. In the area of trusts law it is significantly influenced by English law while removing out of date concepts and complexity. The main trusts law is the Trusts (Jersey) Law 1984, which provides a modern and outstanding framework for trusts without the complexities of many jurisdictions.
Why a trust?
A Jersey trust may be used for many purposes including:
Estate and succession planning: The trust separates ownership from the settlor enabling the efficient transfer of beneficial ownership following the settlor's death. This potentially avoids stamp duty or inheritance taxes. It ensures continuity of asset ownership within a family, avoiding the division of assets and the application of forced heirship rules, where applicable.
Businesses: It is commonly used for employee benefit trusts, pension funds and unit trusts by businesses.
Protection of a family business: An entrepreneur who has built up a business will often be concerned to ensure that it continues after their death. If the shares in the business are transferred to trustees prior to death, a trust can be used to prevent the unnecessary liquidation of a family company while providing for payments to be made to members of the family from dividend income. This may be particularly advantageous where family members have little business experience of their own or where they are unlikely to agree on running the business.
Asset protection measures: such trusts shields assets from risks, including taxation, financial claims, and political instability. Assets transferred to a properly constituted trust fall outside the settlor’s property and so generally they cannot be seized if a settlor gets into financial difficulties.
Protecting the weak: A trust enables provision for those who are unable to manage their own affairs, such as infant children, the aged, the sick or disabled.
Philanthropic and charitable purposes.
Non-charitable purpose trusts have a valuable role to play as "quasi charitable" trusts where a client wishes to create a trust for good causes which are not strictly charitable.
Trust Concept and Components
A trust is an arrangement created when a person (called a settlor) transfers assets to a person (called a trustee), to hold legal title for the benefit of beneficiaries or for a specified purpose. The trust instrument which is legally binding sets out the terms, rights, and duties of the parties. The settlor determines in the trust instrument the rights of the beneficiaries, and the powers given to the trustee. The Trusts Law imposes duties on the trustee so that they must act in good faith in the best interests of the beneficiaries, regulates the manner of trust administration, and sets out rights to beneficiaries in order to allow them, when appropriate, rights to information which in turn will assist them in making trustees follow the terms of the trust.
A letter of wishes will normally be entered into by the settlor setting out his wishes as to the manner in which the trust assets are to be administrated and how beneficiaries are to be treated. This is followed by trustees and considered of persuasive effect (though not legally binding) when a trustee is performing its duties.
Jersey is blessed with an outstanding court – the Royal Court - which can be used to ensure that a trustee is held to account for the manner in which it discharges the trustee’s duties. A distinguished court, it is recognised globally for the quality of its decisions and the application of the rule of law. Compared to many alternative “offshore” jurisdictions the number and quality of judgements gives greater certainty to beneficiaries who can ask the Court for assistance if issues arise.
Jersey does not require trust documents to be placed in a public register of trust documents and this means that trusts are not open to the views of the public.
Key parties and parts of a Trust:
Settlor: The settlor settles assets on the trust, and by doing so passes over their legal ownership of the assets. Substantial rights of control may be retained by a settlor over the trust such as approving distributions of funds, the power to add or remove trustees or to revoke the trust. The settlor may also choose to be a beneficiary. They cannot retain full control over all aspects or they will not have relinquished ownership as a matter of law. This means that the settlor cannot be the sole trustee and beneficiary.
Trustee: The trustee holds the legal title of the trust assets and carries out the administration of the trust. The trustee must act with due diligence as would a prudent person, to the best of his ability and skill and must observe the utmost good faith acting in the best interests of beneficiaries. The trust assets do not form any part of the trustee’s own possessions and the Trusts Law establishes that they are segregated from any claims against the trustee that are not related to the trust.
Beneficiaries: Beneficiaries are individuals who are entitled to benefit in respect of the trust property. The trust instrument will specify their rights. The settlor may also be a beneficiary. It is also possible to exclude certain people from benefit. Beneficiaries can be given specific rights or may be given equal rights as set out in the trust instrument. A trust may be fully discretionary allowing the trustee to determine what actions to take with the trust assets acting in the best interest of the beneficiaries.
Trust Assets: Assets subject to a trust may be moveable or immovable property (though there is an exception for Jersey land). They are often set up with a token amount and additional assets may be added to the trust over time.
Protector: A protector may be put in place to act as a counterbalance to the rights and powers of a trustee. Often when a professional trustee is appointed then consent may also be required by a protector (normally a trusted person – friend, adviser or the settlor). The aim is to ensure trustee decisions align with the best interests of beneficiaries.
Forms of Trusts
The trust is a flexible arrangement. Many trust structures may be adopted in accordance with the wishes of the settlor:
Discretionary Trust: This is the most common form of trust utilised because it offers great flexibility. It gives the trustees consideration discretion in distributing income and capital among beneficiaries after considering their best interests.
Life Interest Trusts: These are trusts which grant a principal beneficiary a vested interest in trust income for life, and are adopted in order to give limited trustee discretion. Afterwards assets may subsequently pass to named beneficiaries thereafter (such as to the settlor’s children or family).
Charitable and Non-Charitable Purpose Trusts: The Trusts Law allows trusts to be set up for specific non-charitable purposes, requiring an enforcer to ensure compliance with the purpose who holds the trustee to account. Purpose trusts do not have beneficiaries, and assets are used to further a particular purpose. These are often used in securitisation and financial transactions to hold the shares in an “orphaned” special purpose vehicle. A charitable purpose trust is set up for charitable purposes. It may gain registration as a Jersey charitable trust with the Charities Commission or with an overseas charities commission.
Accumulation Trust: In this type of trust Trustees can accumulate the Trust’s income until the beneficiary is legally entitled to the property or the income generated by the Trust.
Asset protection and firewalls
The Trusts Law contains "firewall" provisions which were written to stop provisions of a Jersey trust from being considered void in Jersey because it is considered that they avoid a claim under foreign matrimonial, civil partnership or forced heirship laws. The same provisions also defend Jersey trusts against attack by courts in foreign jurisdictions by providing that (subject to the terms of the trust) all questions arising in relation to a Jersey trust or any disposition of property to or upon such a trust are to be determined in accordance with the law of Jersey, without reference to the law of any other jurisdiction including, for example, questions as to:
the capacity of the settlor
the validity, interpretation or effect of the trust or disposition or any variation thereof
the administration of the trust, including the powers and the appointment and removal of trustees and enforcers, and
the existence and extent of any powers in respect of the trust, including powers of variation, revocation and appointment, and the validity of the exercise of any such powers.
These terms are given extra force by ensuring that a foreign judgement which is inconsistent with the Law is not recognised or enforced by the Jersey courts.
Rights of beneficiaries to information & of trustees to restrict information
Settlors are often concerned about junior members of the family becoming aware that great wealth will be available to them in the future with consequential negative effects possibly leading to underperformance or a lack of “get up and go”. Or in business trusts such as the case of a pension scheme, it is not appropriate that the entitlement of each member is available to the other members.
Restrictions on rights to information are therefore set out in the terms of the trust. The Trusts Law, also states that subject to the terms of the trust and to any order of the Jersey court, a trustee is specifically not obliged to disclose to any person information or a document which:
discloses the trustee's deliberations as to the manner in which the trustee has exercised a power or discretion or performed a duty;
discloses the reason for any particular exercise of a power or discretion or performance of a duty or the material upon which such reason shall or might have been based; or
relates to the exercise or proposed exercise of a power or discretion, or the performance or proposed performance of a duty.
In each case it is important that a trustee carefully considers whether information can and should be disclosed to beneficiaries. The Jersey court may grant beneficiaries an order requiring the provision of certain information. Accordingly a trustee should be careful to exercise its discretion when deciding whether to refuse any such request for information.
Reservation of powers
A settlor of a Jersey trust may grant a number of powers to themselves or to another person often known as a protector. A settlor may reserve powers including the power to:
revoke, vary or amend the terms of the trust in whole or in part
advance, appoint, pay or apply the income or capital of the trust
act as, or give directions as to the appointment or removal of, a director of a company wholly or partly owned by the trust
give binding directions to the trustee to purchase, retain, sell, manage, lend or charge any assets of the trust
appoint or remove any trustee, enforcer, protector, beneficiary, investment manager, investment adviser or other professional
change the proper law of the trust, and
restrict any trustee power by making the consent of the settlor or a third party (such as a protector) a prerequisite to the use of such power.
Limitations on length of trusts
A key part of the law of Jersey is to permit trusts to be constituted forever – i.e. an unlimited period of time. The law has developed separately from many other countries such as the United Kingdom which have extremely complicated rules limiting the length of trusts. The benefits of a longer term approach is that the Jersey trust can be used for multiple generations of wealth planning.
Taxation and Confidentiality
Jersey trusts offer many tax advantages, with exemptions for income arising outside the island. No inheritance, wealth, gift, or capital gains taxes are levied in Jersey, enhancing confidentiality as trust arrangements are not public.
Recognition of Trusts
The Hague Convention on the Law applicable to Trusts and on their Recognition is the key international convention. It states that Jersey trusts must be recognised by all the courts of those countries who are signatories to the convention. At present these include many jurisdictions including: the United Kingdom, France, Italy, Netherlands, Luxembourg, United States of America, Canada, Cyprus, China, Switzerland, Hong Kong, Liechtenstein, Panama, Malta, Monaco, San Marino and Australia.
Conclusion
The flexibility and confidentiality afforded by Jersey trusts make them a versatile tool for financial planning, wealth preservation, and philanthropy. The richness of uses means that they can be tailored to suit a myriad of purposes by prospective settlors.
While this article is an overview of the law, it is strongly recommended that clients seek legal advice before proceeding with any trust-related transactions.
This document is based on the law as in force on 17 January 2024.
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