Purpose Trusts

There are occasions when the planned benefit of a trust is not personal or charitable in nature. In addition, the benefit of a trust may be intended to go to an institution. In these circumstances, The Purpose Trust can achieve these purposes.

The traditional concept of a Trust involves a three way relationship where the Settlor, as the original owner of an asset, settles the asset into a Trust managed by the Trustee, who holds the asset for the use and enjoyment of the Beneficiaries of the Trust. Under Jersey Law there is the possibility of a trust being created for a pure purpose.

Jersey Law

Under Jersey Trust Law it is possible to establish a Purpose Trust without ascertainable beneficiaries and instead a particular purpose is stated in the Trust Instrument. This purpose does not need to be charitable. All the existing law for Jersey Trusts will apply, such as perpetuity periods and no requirements in Jersey for a Trust to be registered or in any way open to public inspection.

Advantages of a Purpose Trust

The main advantage of a purpose trust is that it has no beneficiaries. The Trustees have the legal ownership, but there is no one who can be regarded as having beneficial ownership. The Trust can therefore become a kind of 'non-owned' vehicle which proves useful in different kinds of transactions.

The Enforcer

An important aspect of the non-charitable Purpose Trust under the Jersey Legislation is the requirement to appoint a person whose duty it is to enforce that the Trustees undertake 'the purpose'. This person is called the 'Enforcer'. The Enforcer must be a different person to the Trustees.

An Enforcer may be an individual or a company. The Enforcer is not allowed to profit from his office unless he is expressly authorised to do so in the Trust Instrument. A Trustee cannot also be an Enforcer.

Use of Purpose Trusts

Purpose Trusts are regularly used for holding shares in an underlying entity such as a Private Trust Company.

Purpose Trusts are used in this regard, because they offer privacy to the underlying client and are orphan vehicles (i.e. Purpose Trusts have no shares which need to be held or owned).

Other uses for Purpose Trusts include asset financing and also for joint ventures where neither party wants to be in control of the voting power or do not want a formal association with each other.

Purpose Trusts can also act an impartial custodian or where the Settlor would like the benefit to be for a purpose which is neither personal or falls within the definition of a charity, and the Purpose Trust can achieve this purpose.

Of particular interest is the use of a Purpose Trust as a special purpose vehicle in the connection with financing arrangements such as off-balance sheet asset-backed securitisation. The use of the purpose trust to own the special purpose vehicle in this type of arrangement can be of benefit to all parties.

A purpose trust can also be used to collect funds from various sources and redistribute them according to an organised programme, without seeking to achieve any profit for itself.

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.