Guernsey: Shari’ah Compliant Trusts In The Offshore Domain

Last Updated: 11 June 2007
Article by Russell Clark

Most Read Contributor in Guernsey, September 2018

Originally published in Moneyworks, May 2007.

In the offshore domain, trusts have their origin in the common law of England and have, for many years, been used by wealthy families in the Middle East to create long-term structures to address tax and succession planning. Trusts can be crafted so as to comply with the specific family requirements of Islamic law. Indeed, the concept of Waqf is the nearest equivalent to a trust in Islamic law and its components can with careful drafting be reflected in the terms of an English common law trust. Often trustees are chosen from one of the convenient offshore trust centres, such as one of the Channel Islands, but equally there are a number of Islamic states which recognise and enforce the principles underlying trusts. British Commonwealth countries such as Malaysia and Pakistan have had trust laws in place for years. However, the introduction of reforms to the law of Waqf and new legislation in jurisdictions such as Bahrain and Dubai, which do not have Anglo-Saxon roots to their laws, demonstrate that the trust concept which is recognised in the offshore domain is gaining in popularity.

With no single unified code of Islamic law we must look to the two primary sources of Islamic legal principle being the Qu’ran and the Sunna (the sayings of the Prophet Mohammed PBUH). Shari’ah laws are no different to laws around the world and have developed over the years through academic study of the legal system and principles, resulting in five principal schools of Islamic law, four for Sunni Muslims and one for Shi’a Muslims (amongst others).

The reach of the Islamic law stretches beyond the Middle East, into Pakistan, Malaysia, Central and South East Asia as well as parts of North Africa and encompass more than 1.3 billion people. Given the varied legal histories of these many jurisdictions it is inevitable that the core principles of the Shari’ah law vary from region to region, therefore making it necessary for jurisdictions such as those in the Channel Islands to offer tailor-made trusts, due to a wealth of expertise developed over years of experience to reflect the specific requirements of each client’s family and domicile.

In recent years jurisdictions with a non Anglo-Saxon legal heritage have introduced trusts legislation and trust cases are now heard in their courts on a regular basis. Trust cases in one jurisdiction are now frequently cited as persuasive authority before courts in other jurisdictions and whilst it remains the duty of a court to apply the "local" law, if that is the law which governs the trust under consideration, it will of course frequently be useful, if not essential, for that court to take into account relevant principles considered elsewhere and to decide whether they are of assistance.

Islamic Compliant Trusts

Given that there is no unified code of Islamic law and its role will differ from one jurisdiction to another there is no simple answer to the question "What is Shari’ah compliant?" There cannot be one single Shari’ah trust "product" covering all circumstances and jurisdictions and for the draftsman of Shari’ah compliant trusts, as indeed with the draftsman of any other trust, the challenge will be to produce a trust document that meets the settlor’s expectations whilst according with the laws of the jurisdiction which will govern it.

A Muslim settlor living in one jurisdiction may be more concerned than another settlor in another jurisdiction to ensure that his trustees’ investment powers are restricted to exclude investments which he considers repugnant to his religion, for example businesses with links to pornography and alcohol, or in interest-bearing securities. He may not be so concerned to specify at the outset the share of the trust fund that each beneficiary will receive, or the language in which the trust document will be written. On the other hand, a settlor resident in another jurisdiction may wish to establish a trust under a "local" trust law, in his own language, with a registered professional trust company and close involvement on a regular basis of an Islamic scholar or board of scholars to advise on applicable Islamic law principles.

An issue of key concern to many Muslim settlors is the separation of ownership of family wealth. Upon settling any assets into a trust the settlor is no longer classed as a legal owner of those assets. Indeed, this concept underlies the legal theory of the Waqf, where the settlor gives the ownership of the property to God, but is administered by the wali or mutawali. In the offshore domain, the legal title to the assets is placed in trust is clearly separated from that of the settlor and transferred to a third party who is sometimes unknown to the settlor and his family. The beneficiaries of the trust, as selected by the settlor, will become the beneficial, but not legal, owners of the trust assets. These actions remove the assets from the settlor’s personal estate which as a result can combine the benefits of asset protection and wealth preparation for future generations. These benefits can be of significant comfort to the settlor and his family, especially in the case of a family business.

In addition to these issues there is the question of inheritance on the settlor’s death. In certain jurisdictions a trust may be challenged in the local courts if it continues beyond the settlor’s death and does not comply with the local Shari’ah law regarding the distribution of the deceased’s assets. It is therefore important to have the family of the settlor on side. Alternatively, if the trust complies with Shari’ah law on gifts during lifetime and is made in circumstances where the transfer of assets in the trust cannot be challenged on grounds of "deathbed sickness", the trust can form an acceptable means of distribution, which is not restricted by rules on inheritance.

All this is not to say that a settlor would be giving up all control of the family’s wealth. Under the laws of Guernsey it is possible to have a family member, business partner or even a committee of the same to act as protector of a trust. The protector’s powers and duties depend upon the drafting of the trust, however, their consent may be required prior to certain actions of the trustees, such as making distributions or disposing of key assets. In addition to this the settlor may draft a letter of wishes. Such a letter is not binding upon the trustees, however, it is a strong guiding influence in the exercise of their discretions. Further the settlor may, in an appropriate case, reserve certain powers to himself.

Language and Interpretation

Most trusts are written in English and for historical reasons the vast bulk of trusts jurisprudence, statutes, reported case law and academic articles are to be found in the English language. One can immediately see challenges for practitioners who are asked to prepare a trust in a language other than English and indeed for a court which is asked to interpret trust legislation and documentation in another language. Individual words and phrases, such as "fraud", "wilful misconduct", "utmost good faith", amongst others, have been the subject of judicial consideration in many English-speaking trust jurisdictions and one can foresee difficulties for courts in "new" trust jurisdictions when called on to apply this judicial learning in circumstances where the corresponding words or phrases in the local language may have a different meaning or emphasis.

In any jurisdiction evidence will need to be adduced from experts in Islamic Shari’ah law regarding which school of law will apply. Trustees must deal with trust assets in accordance with the terms of their trust deed and applicable law and accordingly the draftsman must ensure that their draft assists the trustees by setting out their powers and duties in some detail. They should also assist the court which may one day be called upon to interpret the trust instrument by clarifying the principles of Islamic law which it is intended should apply.

Choice of Jurisdiction

Any settlor creating a trust should choose with care the jurisdiction which will govern the trust which will usually, but not necessarily, be the law of the place where the trustees are located. Most settlors will usually be well advised to select jurisdictions which have established trust regimes, clear and up-to-date legislation, courts and professional advisers that are familiar with the relevant laws and principles, and for added security the settlor may also wish to select a jurisdiction where professional trustees are regulated and subject to codes of practice requiring them to abide by principles of "best practice".

These arguments may mitigate against using the so-called "new" Islamic trusts jurisdictions which inevitably cannot start with "track records". Nevertheless, where such jurisdictions have based their laws on those of other jurisdictions with significant trust industries one can expect expertise and experience to be acquired rapidly and settlors based locally may prefer to establish trusts in languages with which they are familiar and where locally-based courts are on hand to deal with disputes.

Guernsey

Guernsey, being one of the Channel Islands, is situated off the French Normandy coast. It is a British Crown dependency which does not form part of the European Union, however, upon the UK joining the EEC, special terms were negotiated for the Channel Islands. Guernsey has over 60 years of trust and estate planning experience and has an independent legislative body . As a result the Island has unique and well-developed environment for trust structures, with many multi-jurisdictional clients and a sound financial services industry which is driven by its desire to meet the ever-evolving needs of our clients.

A popular trust structure in Guernsey, when dealing with family wealth held in companies, is that of the Private Trust Company. Directors of such a company may include the settlor and members of his family. The directors control the company, which as trustee, is the legal owner of the trust assets.

The introduction of Foundations to Guernsey

Guernsey is constantly striving to improve its reputation for innovative excellence. Several areas of the finance services sector are currently undergoing review and changes to enable the Island’s globally based clients to be offered the broadest possible range of products and services.

Key to these changes is the introduction of Purpose Trusts and the concept of Foundations. Countries such as Germany and Switzerland, which consider the traditional Anglo-Saxon trust structure alien, will be able to benefit from the introduction of Foundations which operate in the familiar manner of a contract.

This is an example of how Guernsey has established itself as an environment where flexibility goes hand in hand with growth and development. The international arena for estate planning is fast expanding and Guernsey’s experience and expertise, coupled with its wide product service range, makes the Island a worldwide and established leader in the provision of asset management structures going into the future.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions