Wealth Management Review - Jersey Trusts
Jersey is for many reasons an agreeable and accommodating sort of a place. Its physical charms are self evident, but who would have thought that the island enjoys the benefit of trusts legislation which is resolving problems arising far from its shores, and indeed around the globe?
Jersey’s ambivalent position at the southern extremity of the British Isles, deep inside territory that ought rationally to be French, has served it well. The island has used its loyalty to extract numerous concessions from the British Crown. However when the Trusts (Jersey) Law came into effect on the 23rd March 1984 the island made a clear commitment to doing things the British way- at least as far as trusts are concerned.
The law has been a runaway success. It has been amended just four times in 24 years. Emphasising flexibility over rigid codification has allowed the evolution of an abundant case law in the judgements of the island’s Royal Court.
In such a promising environment Jersey trusts have flourished. The problems and challenges they are now used to address are diverse. Common to all of them has been Jersey’s favourable tax regime, although the influence it exerts has undergone a subtle change of emphasis. Gone are the days when concealment and discretion were all that was felt necessary to secure the tax effectiveness of financial arrangements offshore. In today’s world of anti-avoidance legislation and closer scrutiny, Jersey’s well regulated financial services industry turns on arrangements that are either not principally tax driven or which take advantage of recognised tax concessions knowingly granted by onshore economies keen to encourage inward investment.
Another development has been the growth of the commercial trust to sit along side the private or family trust.
If company law achieves the separation of management (by the directors) from ownership (by the shareholders), trust law goes one step further by separating ownership (by the trustee) from enjoyment (by the beneficiaries). Once the Trusts Law had provided a sound statutory basis for the Jersey trust it was quickly put to work resolving a wide range of domestic or family issues. For individuals with assets in numerous jurisdictions, placing title to those assets in the name of trustees sidesteps the bureaucratic headache of obtaining probate in several countries at once. It also offers a means, where the assets involved are not land based, to get around the mandatory "forced heirship" rules so prevalent in civil law jurisdictions.
For others, living in fear of kidnap or corrupt or discriminatory government officials, the discretion allowed by a surrender of title to assets to trustees is a source of great comfort. In an increasingly litigious world, where "no win no fee" agreements encourage aggressive proceedings against defendants believed to have deep pockets, and where matrimonial breakdown is commonplace, a trust provides improved protection from empoverishment by litigation.
Jersey’s courts and legislature have, over time, clarified the rules to be followed by trustees dealing with claims from a settlor’s creditors or forced heirs. The sometimes extravagant assumptions of jurisdiction by foreign family courts are carefully scrutinised and would, if necessary, be rebuffed.
Meanwhile, in a different branch of the island’s trust industry, the commercial trust has grown so rapidly that some surprising assertions have become possible. For example more than half of the companies in the FTSE 100 use Jersey trusts as a tax neutral means to hold and administer the assets of their world wide employee share option plans. Jersey trusts are also used to hold pension plans for executives seconded during their careers to various different countries, often with different pension regulations. Independent consultants offer their services to their clients around the world through a company which receives their fees. The trustees who own the company can decide when and how this income should be invested or spent, whilst deferring or even avoiding the income taxes that might otherwise arise on placements abroad.
An important innovation has been the introduction of the non-charitable purpose trust, where the assets are held for a defined purpose (with an Enforcer to make sure it is achieved) rather than for beneficiaries. Thus, such assets are set to one side away from the direct ownership of any given person.
The other widespread use for commercial trusts is the Jersey Property Unit Trust (JPUT) and its sibling, the Very Private Unit Trust (VPUT). A unit trust takes the beneficial interest in the assets held on trust and divides it up into units, much as the ownership of a company is divided into shares. Acquiring units allows investors to pool their investments in assets such as UK land. JPUTs will, if carefully organised, benefit from stamp duty, income tax and capital gains tax concessions but are regulated by Jersey’s Collective Investment Law. VPUTs, with no more than 15 participants who are well aware of the speculative aspects of the investment proposal before them, can expect a lighter regulatory touch.
What might the future hold for the Jersey trust? There are three areas where significant growth is forecast.
The trust has a distant relative in the Islamic Waqf. There are many potential settlors in the Muslim world for whom setting up a trust seems a natural arrangement, so long as its investment policy can be guaranteed to accord with the demands of their faith. Enter the so-called " Sharia compliant" trust.
For decades, Jersey’s Trusts Law required the directors of a corporate trustee to stand as guarantors for any breach of trust it committed. That requirement has now been removed. Very rich families can, instead of conferring their business upon a commercial trustee, set up a private trust company of their own.
Finally, Jersey is putting the finishing touches to legislation that will allow the creation of a Jersey Foundation, inspired by the private foundations popular in Liechtenstein and now spreading to jurisdictions outside the civil law world. The Jersey Foundation will be a legal person holding assets for such purpose as the Founder designates, including the conferring of benefit upon named persons or causes, whether charitable or private. This could finally provide settlors from a civil law background, for whom the trust is simply too alien, with an arrangement they feel comfortable with.
Such developments, together with the continuing growth in fund related commercial trust work and the pool of professional expertise they have attracted, can only consolidate Jersey’s position as the pre-eminent offshore trust jurisdiction.
Advocate Christopher Scholefield
Partner, Viberts
14th February 2008