One of the greatest strengths of Guernsey as an offshore jurisdiction is that the States of Guernsey liaise with and listen closely to, the requirements and needs of the Finance Industry. The introduction of the Protected Cell Company for the insurance sector in 1997 is an excellent example, much copied by the rest of the industry. The Incorporated Cell Company which followed offers similar advantages to non-insurance based business.
This time around, close dialogue and close consultation with the fiduciary sector has resulted in a review of the Guernsey Trust law. The final report was submitted in March 2006, the Projet de Loi was published this month and the resultant legislative changes will be enacted later this year.
Rather than producing a combined trusts and foundations law as originally anticipated, the proposals sensibly set out the trust changes only, with the new foundation law set to be introduced during 2008, after further consultation with the industry. Interestingly, the new Projet is laid out as an annotated correction of the old 1989 law, making the changes and updates easy to track within a single document.
The most significant change is the introduction of trusts for non-charitable purposes (as opposed to non-charitable objects, which formed the base-line of the old law). Whilst draftsmen will need to be sure that such trusts are correctly drawn, and practitioners to be vigilant that purpose trusts are not unwittingly converted to beneficiary trusts by error or lack of understanding, this new arrow in the quiver of Guernsey fiduciary business has been widely welcomed as useful and forward-thinking, if a little overdue.
The new role of Enforcer is introduced, bringing to mind images of Clint Eastwood as Dirty Harry Callaghan in 1976. The Enforcer has a defined fiduciary duty which must be actively fulfilled, and there are fewer restrictions than expected on eligibility to stand as Enforcer. The use of a .44 Magnum is not mentioned in the new law.
Guernsey trusts have always been subject to a 100 year time limit. This has been removed and subject to the terms of the trust, existing trusts can be made perpetual through a decanting process.
Not surprisingly given the amount of consultation with professional trustees in Guernsey whilst drafting the changes, the old Section 70 has disappeared. This held the Directors of corporate trustees personally liable for losses due to breach of trust. This contingency is now covered by the obligation under the fiduciary licensing arrangements for corporate trustees to carry professional indemnity insurance; so professional fiduciaries in Guernsey are breathing a collective sigh of relief.
A non-statutory lien over trust assets for retiring trustees is also introduced, and recent case law on disclosure of information to beneficiaries has been taken into account in revising the statutory requirements. Arrangements for the granting of certain powers to settlors and third parties have also been clarified, and a long-standing anomaly whereby a Guernsey Trust could not own Guernsey real property has been removed.
All in all, the changes are seen as introducing further flexibility to an already competitive area of business, keeping Guernsey at the forefront of fiduciary development. Whilst the delay in introducing foundations is regrettable, it makes no sense to further delay the trust law update whilst foundation law is finalised, and it makes huge sense to separate the legislation of foundations from that of trusts to assist with updating both disciplines further down the road.
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