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