Jersey: Trusts (Amendment No.5) (Jersey) Law - A Year On

The Trusts (Amendment No.5) (Jersey) Law was approved by the States of Jersey in November 2011. Almost a year on, it is anticipated that the process for its adoption into law is nearing conclusion. It was sanctioned by the Privy Council on 17 October 2012 which will enable its registration into Jersey's statute books.

The draft law will implement a number of amendments to the Trusts (Jersey) Law 1984, as amended, which industry practitioners feel will enhance the clarity and flexibility of Jersey's trusts legislation and in turn maintain the Island's attractiveness as a centre for international wealth planning.

Foreign court interference

The most significant changes are to Article 9 of the Trusts Law. They are, in part at least, intended to address the willingness shown by foreign courts, in particular the English divorce courts, to use their own laws to try to modify the terms of Jersey law trusts in favour of people who may not even be beneficiaries of the trust (e.g. one of the divorcing spouses).

Though the Royal Court judgment of Mubarak v Mubarak [2008] confirmed that a judgment of an overseas court purporting to alter or vary a Jersey trust cannot be enforced by the Royal Court, questions as to the application of Article 9 of the Trusts Law were raised. To address these, the Amendment will introduce new sub-articles 9(1)(f) and 9(1)(g) which will confirm the position; in particular that the purported exercise by a foreign court of any statutory or non-statutory power to vary the terms of a Jersey trust or ruling on the nature and extent of any beneficial rights or interests in trust property are determined in accordance with Jersey law and not by foreign law.

Article 9(2)(b) will be amended to delete the reference to "the settlor", and Article 9(6) is amended to insert a replacement definition of "personal relationship", which will widen its meaning so as to prevent personal relationships with beneficiaries being used as grounds to look through a Jersey trust by a foreign court under foreign law.

A new form of Article 9(4) is introduced, identifying that no judgement of a foreign court or tribunal shall be enforceable or given effect, and a new Article 9(2A) will be added to clarify the conflict of laws provisions.

These changes to Article 9 aim to ensure that any issues relating to a Jersey trust are decided in accordance with Jersey law, and not the laws of another jurisdiction. Foreign laws are not wholly excluded though, and will have a continuing role, for example, in determining issues over assets situated within the foreign court's jurisdiction.

Settlor reserved / granted powers

The Amendment also enhances and clarifies the Trusts Law provisions, (Article 9A), relating "reserved powers". Essentially, provisions of a trust allowing the person who creates the trust (the settlor) to retain, or confer on another, a continuing say in the operation of the trust without impeaching its validity. Settlors are often hesitant to hand over their assets to a trustee and lose complete say over how the assets are managed. The reservation of some powers can help to ease such concerns.

Article 9A(2)(e) of the Trusts Law will be replaced with an improved sub-article so that the settlor can appoint or remove any trustee, enforcer or beneficiary and any other person holding a power, discretion or right in connection with the trust or in relation to the trust property. Previously this sub-article also made express reference to the appointment or removal of a protector, which is now absent, but the new language would include a protector in any event.

Purpose trusts

By the Trusts (Amendment No.3) (Jersey) Law 1996, Jersey introduced the concept of a non-charitable purpose trust. The holding of assets, whether as part of a commercial transaction or otherwise, has become one of the more popular uses of such purpose trusts but it was unclear whether the single purpose of owning assets, (e.g. holding shares in a private trust company), was sufficient to properly constitute a purpose. To address this, (so the purpose, and in turn the trust, did not fail), often purposes were drafted wider than wanted by the settlor. The Amendment will define the term "purpose" to clarify that Jersey law allows the ownership of assets to constitute a sufficient purpose, for example, the holding of securities only. Onshore advisors had questioned whether this was a proper purpose; the Amendment puts the issue beyond doubt.

Remuneration of professional Trustees

Presently, Article 26 of the Trusts Law provides that unless a trustee is authorised by the terms of the trust, the beneficiaries or the Royal Court, it shall not be entitled to remuneration for its services. The Amendment will alter that article so that if the trust instrument is silent on the matter, a professional trustee, (defined as an entity registered with the Jersey Financial Services Commission to conduct trust company business), is entitled to reasonable remuneration.

Trustees acting in respect of more than one trust

It is a longstanding principle of law that a person cannot contract with himself. However, this hampers trustees where they act for several trusts within the same client structure by potentially preventing them from carrying out transactions between such trusts. The Amendment will introduce a new Article 31(3) of the Trusts Law, clarifying that a trustee can enter into a contract with itself in its capacity as trustee of separate trusts.

Chain indemnities on change of trustees / limitation periods

The Amendment will also clarify the application of the privity of contract rule to indemnities provided to a former trustee and limitation periods and limitation of actions or prescription of claims against trustees.

Conclusion

In summary, the changes in Amendment No. 5 strengthen and improve Jersey's trusts legislation. The changes provide certainty in areas which were previously questioned and introduce practical solutions (for example in respect of trustee remuneration) for the benefit of the trust industry as a whole.

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.