Originally published in Wealth Management Review, 2008 Volume 1
Guernsey can justifiably claim to have the most modern trust law of any major international finance centre, The Trusts (Guernsey) Law, 2007, having received royal assent on 12 February 2008 and becoming effective from 17 March. The new law substantially overhauls the previous 1989 one, which was the first occasion on which Guernsey had a codified trust law.
Among the enhancements introduced in the new legislation are:
- the introduction of "purpose" trusts
- the exclusion of foreign law in determining the validity
of a trust
- the introduction of settler "reserved powers"
- the abolition of the former 100-year limit for the
duration of a trust in favour of unlimited duration
- the removal of personal liability for directors of a
- certain changes to provisions in the law regarding
Until 1989 Guernsey had thrived for several decades as an international trust jurisdiction and had relied on case law, which continues to be an important influence in the development of its trust law.
However, the fact that a codified trust law is a relatively recent innovation in the development of the island's trust industry merely serves to confirm that there are many other factors involved in it reaching its position of international pre-eminence.
During the last 50 years, the trust industry has evolved from initially serving the needs of clients based in common-law countries and particularly the United Kingdom to a global business catering for the diverse inheritance-planning needs of clients often involving multi-jurisdictional issues. The globalisation of business and the international mobility of clients often require inheritance planning to take account of laws in several different countries, involving issues such as "forced heirship" legislation, civil law, Sharia law and sometimes cultural traditions, for example, the retention of control of a family by its patriarch.
Trustees in Guernsey are regulated by the Guernsey Financial Services Commission under The Regulation of Fiduciaries, Administration of Businesses and Company Directors etc (Bailiwick of Guernsey) Law, 2000, and there are in excess of 140 licensed fiduciaries, ranging from large institutionally owned operations to independently owned trust companies, with more than £200 billon of assets under administration.
The financial services sector accounts for approximately 75% of Guernsey's economy and employs 25% of the total island workforce. A banking sector with deposits of more than £112 billon, an investment fund industry with in excess of £1,646 billon under administration and a strong presence in the legal and accountancy professions are also evidence of the support infrastructure available locally for the trust industry. In addition to their Guernsey offices, many trustees have associate ones throughout other parts of the world offering a wide range of international services and client support, augmented by a network of relationships with other professionals including tax advisers, with whom trustees work in order to ensure clients are properly counselled on multi-jurisdictional planning issues.
Guernsey's success as a major international trust centre is a result of a reputation for financial probity and quality service provision earned over a long period which has seen the steady development of the international finance centre which exists today. It has not been the island's policy to introduce "designer" or "product-driven" legislation to boost business, but rather to take considered long-term decisions to benefit the finance sector. Other current examples of this policy are the introduction of a new companies law and the total modernisation of the Greffe (Companies Registry) which will be electronically based and will go "live" in July 2008. Both of these developments will also enhance the competitiveness of Guernsey-based trustees. These innovations coincide with the introduction of a "zero-10" tax regime in Guernsey from 1 January, under which all corporate profits except certain banking profits are tax-exempt. All these developments demonstrate Guernsey's commitment to maintaining its position as a major international finance centre.
Inheritance Planning And The New Trust Law
The drafting of the new trust law included consideration of a wide range of potential additions and changes compatible with maintaining Guernsey's position as a pre-eminent trust centre. The major features of the new law for inheritance planning include the following:
Exclusion Of Foreign Law
Section 14 of the law covers an exclusion of foreign law provision, whereby the criteria surrounding matters such as the legal capacity of settlors and their ability to settle assets and the terms of a trust are to be determined by reference only to Guernsey law. This is an important provision in the face of a trend in some jurisdictions to uphold judgements made in foreign courts.
Private Trust Companies
Guernsey had been previously regarded by some advisers as an unattractive jurisdiction for PTCs because of section 70 of the 1989 law which provided that directors of a corporate trustee were guarantors in the event of a breach of trust by a corporate trustee. Section 70 has been repealed. PTCs can now be incorporated in Guernsey without this potential liability when acting as a trustee and are increasingly popular vehicles favoured in "family office" arrangements and in other situations where the administrative structure has to accommodate formal input from family advisers and members. Subject to satisfying certain criteria, exemption from the fiduciary law can be obtained by a PTC.
Although arguably not strictly an inheritance-planning factor, noncharitable- purpose trusts are an increasing feature of international trust administration and are frequently utilised as the ownership structure for a PTC. Section 12 of the law now permits the creation of such trusts. The definition of purpose - "any purpose whatsoever, whether or not involving the conferral of any benefit on any person and includes without limitation the holding or ownership of property and the exercise of functions" - is considered to remove the uncertainty of "purpose" which some believe exists in other jurisdictions.
Duration Of A Trust
All new Guernsey law trusts may be of unlimited duration as opposed to the 1989 law, which restricted them to a time limit of 100 years. The law also enables assets to be appointed out from one trust to another when the duration of the recipient trust is longer than the one from which the assets are being distributed.
Reserved Powers Trust
Although it has always been possible to draft a trust in order to reserve powers to a settlor or grant them to a third party, international advisers and their clients and particularly those not in common-law countries have become accustomed to the perceived greater certainty provided for settlor-reserved powers by legislation expressly permitting the reservation of powers and thus removing any doubts over the validity of such trusts. The new provisions are found in section 15 of the law. The formalisation of reserved powers trusts reflects an increasing trend for such arrangements, balancing the objective of effective inheritance planning through trusts while facilitating the reservation of limited powers, which might include revocation, amendment or variation of trusts, appointment or removal of trustees, beneficiaries etc.
Other Feature Of Law
- Power to exclude beneficiaries' rights to
- New provisions regarding indemnities, including
- Time limitation of claims against trustees
- Recognition of "professional persons" such as
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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.