In the first of a series of articles that will take a look at all aspects of the Guernsey Trust, Mik Underdown of Blenheim Fiduciary Group, provides a brief overview of the types of Guernsey trust available and considers their underlying structure.
The Guernsey trust has long been considered a way of sheltering wealth, protecting assets and providing discrete succession planning for family assets. The keys to the success of the Guernsey trust have been the ease of creation, confidentiality, flexibility, a codified Trusts Law and, given the correct tax advice, beneficial tax advantages. They have also been used in situations where forced heirship rules may otherwise mean that assets would not devolve to the person of choice.
The law governing trusts established in Guernsey is the Trusts (Guernsey) Law, 1989 as amended and it is worth noting that, currently, the law is in the process of being updated. New legislation is expected towards the end of 2007 or early in 2008.
As would be expected, the Trusts legislation regulates the key aspects of trustees and their trusteeship including, among other things, defining the duties and powers (wide or narrow) of the trustees, the appointment of trustees, liabilities for breaches of trust and the duration of the trust. The trust deed does not have to be registered in Guernsey and so remains completely confidential, even on the death of the settlor.
Trust deed and letter of wishes
Given that most trusts will have areas of commonality, particularly with the powers and duties of the trustees, most professional trustees such as the Blenheim Fiduciary Group, will have a trust deed laid out in standard form. This deed can then be amended to meet the specific needs of individual clients before being engrossed. If changes are requested after execution, this is usually satisfied by the powers within the deed that permit trustees to make such variations. It is also worth noting that most trusts are irrevocable.
Certain powers within the deed, such as changes of beneficiaries and investment advisors, may be reserved to the extent that the trustees need to obtain the consent of a duly appointed Protector.
It is normal for a letter of wishes to have been lodged with the trustees by the settlor of the trust when the trust is established. This will, firstly, provide the trustees with guidance as to how the settlor would have dealt with the assets himself and, secondly, guide them as to who should benefit, when and to what extent during the lifetime of the trust and on its termination. The letter of wishes is not a legally enforceable document.
Types of trust
The most common form of Guernsey trust created is the Discretionary trust. Other types include Life Interest trusts, Accumulation and Maintenance trusts and trusts established for purely charitable purposes. For most private client planning Discretionary Trusts and Life Interest trusts are the most common.
This is still the most common form of trust and involves the legal ownership of the assets being transferred from the settlor (usually the client), to the trustees (typically a professional corporate trustee such as Blenheim Fiduciary Group), who will hold the assets according to the terms of the trust deed on behalf of the beneficiaries.
The beneficiaries may be named in the trust deed, added at a later date (powers permitting), or referred to in the letter of wishes.
The uses of the discretionary trust in financial planning are varied and will be discussed in a later paper.
Life Interest Trusts
A life interest trust will clearly state within its terms that the life tenant (a named individual) is entitled to the income from the trust fund for life. On his death the trust may be wound up and the trust fund distributed, or as is frequently the case, there will be a secondary life tenant (perhaps the wife of the life tenant) who becomes so entitled.
During the life of either tenant there is usually the power for the trustees, at their discretion, to make payments to them from the capital.
On the death of the successive life tenant the trust often becomes discretionary and the trustees will exercise that discretion, as appropriate in their favour.
The Guernsey trust remains an important part of international tax planning, particularly for the private client. The expected updates to the trust law will provide further opportunities, for example in the area of Private Family Trust Companies. Also expected, is the introduction of legislation that will allow the introduction of Guernsey Purpose Trusts.
This overview is, of necessity, a very brief run through of some of the aspects of Guernsey trusts and should not be considered as tax advice. Blenheim Fiduciary Group is able to advise at all stages and assist with the creation and trusteeship of trusts in Guernsey.
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.