Guernsey: Guernsey Purpose Trusts

Last Updated: 30 January 2008
Article by Alison MacKrill

Most Read Contributor in Guernsey, November 2018

Originally published in STEP Journal, Guernsey Supplement, November/December 2007

A Guernsey law trust, as it currently stands under the Trusts (Guernsey) Law, 1989 (the "Trusts Law"), in order to be valid shall have one or more beneficiaries or be created for a charitable purpose.

A beneficiary must be identifiable by name or ascertainable by reference to a class or a relationship to another person. To the extent that a trust has no beneficiary identifiable or ascertainable, unless it was created for a charitable purpose it is invalid and unenforceable.

In other words, Guernsey law followed the English law principle that there must be somebody in whose favour the law can decree performance. If there is no declared object there is a resulting trust in favour of the settlor or his representatives.

In some respects the Trusts Law is narrower than English law which allowed certain exemptions from the beneficiary principle.

Many of the English decisions are concerned with the validity of trusts which were not charitable bequests and were therefore void in English law as being perpetuities.

Prior to the passing of the Trusts Law there was no law in Guernsey which prohibited the constitution of a trust under which the trustees remain vested in perpetuity. This mirrored Scottish law where the privilege of creating perpetuities under trust was not limited to charitable bequests. So the restrictions presently placed by the Trusts Law do not form part of a logical whole.

All Change

All this is about to change with the coming into effect of a new trusts law. The Guernsey legislature has examined the rationale behind the invalidity of a non-charitable purpose trust and has decided to provide for the validity of such trusts through the mechanism of enforceability. Such enforceability is provided for by the appointment of a person who can enforce the terms of the trust, or otherwise, an enforcer. Moreover by returning to the position prior to the Trusts Law that there is no prohibition against a perpetual trust any conflict that such trusts are void as being perpetuities is removed.

Questions have arisen in jurisdictions which have passed legislation providing for non-charitable purpose trusts over what a "purpose" may be. Doubts were raised whether the formation of a trust for the purpose of holding one or more assets was properly a purpose in and of itself. The new law provides that a purpose includes the holding or ownership of property. The new law also provides that all questions relating to a Guernsey trust are to be determined in accordance with the law of Guernsey, both with respect to validity generally and by making it clear that a trust formed for the purpose of ownership of property is valid. It is likely that non-charitable purpose trusts will be formed for both commercial and non-commercial reasons including, in particular, holding special purpose vehicles, whether the shares in a private trustee company or for securitisation purposes.

Commentators have queried whether a non-charitable purpose trust would be enforced in an English Court of law. As the UK is a signatory to the 1985 Hague Convention on the Law Applicable to Trusts and on their recognition it is likely that the validity of such a trust would be recognised. If the Convention did not apply for any reason then it is unlikely that an English Court would not uphold the validity of the trust under Guernsey law. The new trusts law also covers what happens should the situation arise that the purpose for which the trust was formed has come to an end by applying the cy près doctrine to any trust for purposes. It is also worth noting that a non-charitable Guernsey purpose trust, like any other trust, may have a non resident trustee.

Guernsey law purpose trust may have any or all of beneficiaries, charitable and non-charitable purposes. If there are beneficiaries, however, then the provisions relating to rights of information will apply, unlike with a Cayman STAR trust.

With these changes to the Trusts Law Guernsey is setting out a clear and simple means of creating purpose trusts which may be used for both commercial and non-commercial applications, including trusts which would otherwise fail were they not considered to be charitable but philanthropic only.

Where tax is not an issue, the mixed private and purpose trust may be of interest for the settlor who wishes to benefit a small group of persons to create a private charitable trust. Upon a failure of the trusts the funds would be applied cy près. By this means trusts constituted for wide purposes will be given the liberal treatment given to trusts for charity in the narrower sense.

For more information about Guernsey's finance industry please visit .

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.

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