The extension to Guernsey in 1993 of the Hague Convention on the recognition of foreign trusts has given further impetus to the expansion of trust services in Guernsey. Under the Convention any jurisdiction which ratifies the Convention must recognise trusts which have been duly established under the laws of countries which have ratified the Convention.
Besides their private use in family situations, increasing use has been made of trusts as public investment vehicles (unit trusts) and for company pension schemes.
A trust is a contractual relationship entered into between a settlor, a trustee (or trustees) and one or more beneficiaries.
The reasons for which trusts are created are various but can include:
- Fiscal and exchange control protection;
- Easing the administration of assets upon death;
- Avoiding potential disputes amongst heirs;
- For traditional trust reasons, e.g. the protection of a spendthrift child;
- To preserve confidentiality.
The Trust has been recognised by English Law for many centuries, the concept arising in the English Courts of Equity. The distinctions drawn in English Law, which make possible the divisions between legal and equitable rights and obligations, are not in general known in Continental legal systems.
The Trust was a creature of the English Courts of Equity and in that respect rights and obligations thereunder were distinguishable from those developed in and recognised by the Common Law Courts.
Guernsey, with its tradition of Norman customary law, stands apart from the English tradition, including the English Statute of Uses of 1535, but by the early 19th century it is clear that the Trust had been imported into insular jurisprudence and the first mention of a Trust in Guernsey statute law occurred in 1840 when provisions for certain types of very restricted trust were incorporated in the inheritance laws.
Throughout the whole period of development of law and custom in Guernsey, there has been one main court, the Royal Court. This was and is regarded primarily as a Court of Common Law, i.e. a Court of Custom but it has not been restricted by statute or otherwise in applying principles of equity as and when the need has arisen.
The absence of enacted law did not prevent the Trust from becoming an extremely useful mechanism for certain types of transaction. As the development of trust services in Guernsey become more rapid, and in order to avoid one or two doubts which had arisen as to the precise way in which Courts might deal with certain matters, The Trusts (Guernsey) Law was enacted in 1989 with a subsequent amendment in 1990.
This modern law reflects the practical approach which is taken in the Island and is quite different from the Trustee Act of 1925 in the United Kingdom. The Guernsey Law, which broke new ground in several areas, was amended in early 1990 to deal with the question of forced heirship.
The Royal Court of Guernsey also has jurisdiction in respect of a foreign trust where the Trustee is resident in Guernsey or where any of its assets are situated or administered in the Island.
Except for charitable trusts, Guernsey Trusts have a maximum period of 100 years. Where the trust deed permits, there are no limitations on the accumulation of income. Except for Guernsey real estate, any asset may be held on trust and accepted from anybody during the trust period. Any number of persons may act as trustees with a minimum of two or a corporate trustee resident in Guernsey acting alone, unless the trust deed provides otherwise.
To establish the trust in, or to transfer a trust to Guernsey, a resident trustee must be appointed. Additional trustees from other jurisdictions are also allowed. Provided that the Settlor and Beneficiaries are not resident in Guernsey, there is no local taxation on trust income other than from Guernsey sources (except that interest on deposit with Guernsey banks is also tax free). There are no Capital Gains, Capital Transfer, Wealth, Estate or Gift Taxes in Guernsey.
CONDUCT OF TRUSTEES
The law imposes stringent standards of conduct on trustees. They must at all times observe the utmost good faith and act impartially (unless the deed provides otherwise) and strictly in accordance with the terns of the trust. They are not permitted to benefit personally except to the extent permitted by the trust, e.g. the payment of trustees' fees and must act at all times to a standard known as 'en bon pere de famille' which is a phrase particular to Guernsey Law meaning that a trustee must in all cases act as a good father would act towards his children.
Trustees can be removed from office by the Court. A trustee who commits or concurs in a breach of trust is liable for any loss or depreciation in value of the trust assets resulting from the breach.
Where a breach of trust is committed by a corporate trustee which:
- is a trustee of a Guernsey trust;
- is resident in Guernsey; or
- is carrying on business in Guernsey or from an address in Guernsey.
Every person who at the time of the breach was a director of the trustee is deemed to be a guarantor of the trustee in respect of any damages and costs awarded by the Court against the trustees of personal liability in respect of a breach. However, the Court can relieve trustees of personal liability in respect of a breach of trust where particular circumstances justify the granting of such relief.
Trusts may be revocable or irrevocable and the governing law of the trust may be changed to the law of another jurisdiction. There is a duty to keep trust accounts and (unless the terms of the trust remove the obligation) the trustee must give information to the beneficiaries.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Peter Crook on Tel: +44 (0) 1481 712706 or visit the Guernsey Financial Services Commission Web Site at: