Guernsey has become a favoured jurisdiction for the establishment of trusts. A long history of political and economic stability, an excellent legal framework and the high quality and range of trust companies on the island have all played a part in bringing the island to the attention of professional advisers and their clients. The supporting services of legal and accounting firms and the ease of communication with London and other European cities have also been important factors.
Guernsey will be the first to admit that it never set out to be an international financial centre. However, low taxes applicable to residents of the island since the 1950's together with the security and stability which is felt when visiting have resulted in finance becoming the major contributor to the island's economy, replacing to a large extent the previous industries of tourism and horticulture.
A historical reluctance to change laws purely to attract financial business explains why Guernsey was not the first offshore jurisdiction to introduce a trust statute. Trusts had been established under Guernsey common law since the early 19th Century and certainly during the 1970's the trust industry had seen significant expansion.
After lengthy consultation with the professional community on the island, the Trusts (Guernsey) Law 1989 was introduced, and in practice has provided a simple and effective basis for administering trusts. The law requires the highest standards of conduct from trustees. It includes a unique concept of a trustee acting 'en bon pere de famille', that is, as a good father would act in the best interests of his children. What better way to explain the responsibilities of a trustee.
It will be no surprise that the majority of trusts, established both onshore and offshore are created for the purpose of saving tax. However, there are many other reasons for establishing trusts. A dilemma which faces many successful entrepreneurs is how to deal with the future of their company once they have made the decision to retire. Do they involve their children in the management of the business? Do they bring in professional managers? Do they sell the business?
If a decision is made to retain the business, thought should be given to placing the shares of the company into trust. The advantage being that the trustees will have the responsibility to ensure that the interests of all the beneficiaries are considered and prevent a situation occuring whereby one child decides that it is in their best interests for the shares to be sold, ignoring the interests of the remainder of the family.
Since the introduction of The Trusts (Amendment) (Guernsey) Law 1990, clients establishing a Guernsey Trust have the ability to leave their assets to whoever they choose without restriction. However, it is important to note that whilst the courts of Guernsey will uphold the terms of the trust and ignore any claims from individuals who consider that they have been disinherited, assets held outside of Guernsey may not be subject to Guernsey Law and could be vulnerable to legal action in the jurisdiction in which they are located.
Trusts established offshore may also provide an effective way of protecting assets from the imposition of exchange controls and other forms of government regulation. This may be particularly relevant for people working abroad who wish to place their assets in a politically stable jurisdiction.
Another circumstance where trusts are often used is when individuals wish to make provision for members of their family who, for one reason or another, are unable to manage their own affairs. These persons may be infant children, elderly relatives or persons suffering mental or physical disabilities.
With the increasing mobility of labour, providing a tax efficient pension scheme for employees can prove difficult. Often regulations in the home country of the parent company limit the period overseas employees can remain in the parent's own scheme and, therefore, such employees often become members of local schemes or are left to make their own arrangements.
A solution being adopted by a number of multi-national companies is the establishment of an international pension trust in a jurisdiction such as Guernsey which has modern pension provisions within its tax and trust laws but does not impose any withholding taxes on the payment of pensions from approved schemes. For similar reasons, offshore trusts are being established by companies with an international work force to hold benefits such as share option or bonus plans.
Trusts in Guernsey have developed into sophisticated structures being utilised by both private individuals for wealth management and multi-national corporations for employee benefits. The trust sector on the island is working together through The Association of Guernsey Trustees and a well established branch of The Society of Estate and Trust Practitioners to ensure that Guernsey continues to be regarded as a first class jurisdiction to establish trusts.
This article provides a general outline on the subject at the time of writing. It is not intended to be exhaustive nor to provide legal advice in relation to any particular situation and should not be acted on or relied upon without taking specific advice.