The purpose of this briefing note is to set out some of the uses and benefits of Jersey trusts. Primarily, they revolve around wealth management and preservation.
ANONYMITY AND CONFIDENTIALITY
The separation of legal and beneficial ownership (which is the hallmark of a trust) means that the trustee and not the beneficiaries will be the registered owner of the trust assets. For example, if the trust assets comprise of shares in a company, it is the trustee that will be recorded as the owner in the company's share register (although the register will not show the name of the trust).
The trust instrument itself is not a public document and is not required to be registered in any official or public register maintained by the authorities.
In order to offer even greater anonymity, at least on the face of the trust instrument, the trustee may execute the trust instrument as a declaration of trust. As a result, the name of the settlor will not appear in the document.
ESTATE AND SUCCESSION PLANNING
Continuity of ownership
Trusts can be used to ensure the continuity of ownership of a particular asset, for example, a family business. If a person has established a successful business there is a possibility that on his death the ownership of the business may be split between a number of people (possibly even individuals outside of the family) as a result of the administration of his or her estate. This could have a detrimental effect on the running of the business. If the family business is instead settled into a trust, it will not form part of the settlor's estate on his death. Instead, the trustees will own the business and will act in the best interests of the beneficiaries of the trust (the trustee is usually relieved of the responsibility to become involved in the management of the company by the terms of the trust). The settlor can name the persons who are to be beneficiaries at the time the trust is established and he therefore has some control over who will benefit from the family business.
The legitimate avoidance of taxes and formalities
Because assets settled into trust do not form part of the settlor's assets on death a grant of probate or other similar formalities will not be required in order to deal with the assets after his death. Another possible benefit which might arise from the fact that trust assets are separate from the settlor's assets is that estate duties and taxes payable on the settlor's estate on his death may be minimised or avoided.
The avoidance of inheritance restrictions
A good example of one of the benefits of a Jersey trust is the avoidance of forced heirship provisions. Forced heirship may be described as a legal rule which restricts the right of a person to dispose of his property during his lifetime so as to preserve that property for distribution to specified heirs on his death. Such rules are often found in civil law jurisdictions and mean that an individual from those jurisdictions cannot alienate assets during his lifetime. The Trusts (Jersey) Law 1984, as amended, deals with such issues. In relation to persons domiciled outside Jersey, it states that forced heirship or any other similar rule will not affect any transfer or disposition by such persons into a Jersey trust. As a result, the settlor can place his assets in trust free of any restrictions. However, additional practical steps should also be taken to protect the trust from forced heirship rules by ensuring, so far as is possible, that the trustees and beneficiaries are not resident in countries with such rules and that the trust assets are not situated there either.
Trusts can be used to protect family wealth in the event of divorce. Although the matrimonial courts have demonstrated that a husband and wife cannot salt assets away in a trust to avoid his or her obligations to the other spouse, or claim that they have no funds available to meet such obligations because they are in trust, careful planning can help to preserve the wealth of the family (such as a family business from which the whole family benefit) from attack by the spouse of one beneficiary.
Trusts with a Jersey resident trustee often enjoy tax benefits. Although Jersey resident trustees are, in theory, liable to Jersey tax in respect of all of their income arising as a result of them acting in their capacity as trustees, by long standing extra-statutory concession such trustees are not liable to Jersey income tax on foreign sourced income or Jersey bank interest if the settlor and beneficiaries of the trust are not resident in Jersey. Jersey does not have capital gains tax or inheritance tax.
Trusts may be used for the legitimate avoidance of tax in other jurisdictions (see earlier in the context of succession). This applies not just to taxes payable on the death of the settlor or any of the beneficiaries but also to taxes payable during their lifetimes. For example, because assets transferred into a trust do not form part of the settlor's assets, this might mean that he may not be liable to tax on those assets - potentially reducing the amount of the settlor's tax bill. Tax advice should always be taken when establishing a trust.
Jersey law will not enable a debtor to evade his existing creditors by settling assets into trust if the debtor is insolvent at the time the assets are transferred into trust or he becomes insolvent as a consequence of the transfer and he transfers the assets with the intention of putting them beyond the reach of such creditors.
However, if a person knows that he has no actual, future or contingent creditors at the time the assets are settled into trust and provided the trust is established primarily for a purpose other than asset protection (for example, estate planning) a Jersey trust will probably protect trust assets from the claims of subsequent creditors of the settlor.
Trusts can also be used to provide a different sort of asset protection. If a person is situated in a country suffering from political unrest or instability he can protect his assets (for example, against possible seizure by the authorities of that country) by settling them into trust – provided, of course, that the trustees and the trust assets are themselves in a stable jurisdiction. Jersey is just such a jurisdiction. It is politically stable with close links to the UK and the rest of Europe and has a highly competent and well regulated professional financial services industry.
Jersey trusts also have a number of commercial uses. They can be used as unit trusts in the context of collective investments. They are also an ideal vehicle for pension schemes, employee benefit trusts, employee share option schemes and so on. Purpose trusts (Jersey trusts in which the trustee holds assets in order to carry out a specific purpose rather than holding them for the benefit of the beneficiaries) are used in a range of financial structures.
This memorandum is intended as a general outline on the uses to which Jersey trusts may be put. It is not intended to be comprehensive in its scope, and we recommend that clients seek legal advice on any particular matters.
Memoranda, on other aspects of Jersey law, have been prepared by Walkers and are available on request, or at our website at www.walkersglobal.com .
British Virgin Islands
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.