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A trust is a legal obligation that comes into existence when an individual or other legal entity (known as the Settlor) transfers the legal ownership of assets - which may be of almost any type - to another person or persons (known as the trustees) to hold not for their own benefit but for the benefit of the beneficiaries who can be individuals or otherwise. It is essential that the transfer is gratuitous otherwise the transaction takes on the characteristics of some other legal entity.
A trust may therefore be defined as an equitable obligation which binds the trustees to hold and deal with the trust assets for the benefit of the beneficiaries in accordance with the terms of the trust.

Most trusts are established by a written document executed by both the Settlor and trustees in which is set out the duties and powers of the trustees.
Trusts created by written document will generally take one of two forms:

A settlement: this form of document will be entered into and signed by both the Settlor and the trustee and so provide clear evidence of the intentions of both parties and of the agreed obligations assumed by the trustee.

A declaration of trust: this form of document is entered into and executed by the trustee only, and records that the trustee has received certain property, specified in the document, to hold upon the terms set out in the document.

It is sometimes more convenient to create a trust by declaration of trust rather than by settlement, for example, the Settlor may not be available to sign the document, when it is prepared. Moreover, a declaration of trust preserves confidentiality as to the source of the trust assets.

A trust can also arise on death under the terms of a will. It is also possible, subject to certain exceptions, to create a trust orally, with no written evidence of its existence.

There is no requirement to register with any authority the creation of a trust in or subject to the law of Jersey, nor is a copy of the trust instrument available for public inspection; a trust remains a private agreement between the Settlor, the trustees and the beneficiaries.

Moreover, there are no stamp duties or other fiscal charges payable on establishing a trust.


This is the person who establishes the trust by transferring assets to the trustees. The Settlor must completely constitute the trust and must do everything in his power to transfer the assets to the trustees.

The trustee is an individual or company who receives assets from the Settlor and who has the responsibility of administering them for the benefit of the beneficiaries. The trustee becomes the legal owner of the assets but cannot use them for his own benefit. The trustee is obliged to perform certain duties as laid down in the trust document or by the terms of the trust, and in accordance with the law. Most countries which recognise trusts have laws which determine the powers and duties of trustees.

The terms and conditions on which the trustee is to hold the assets will generally be set out in a written document commonly known as a trust deed. In many instances they are lengthy documents with extensive provisions to ensure that the trustees have the power to carry out the wishes of the Settlor and to safeguard the interests of the beneficiaries.

The beneficiaries of a trust may be individuals (including the Settlor), classes of persons or corporate bodies who will or may become entitled to the income and capital of the trust. They need not be named but they must be identifiable or ascertainable. It is not necessary to make a list of all beneficiaries but certainty as to what the Settlor intended the qualifications to benefit to be is essential. Where the trustees have a discretion as to which of a group of persons is to benefit, no one beneficiary has a right to any of the trust assets.

Unlike England, there has never been a dual system of law and equity in Jersey and for a long time the validity and enforceability of trusts in Jersey was clouded in some obscurity, especially as regards trusts relating to immovable property. There was a limited amount of case law on the subject of trusts dealing with the creation, subsistence and termination of trusts and on the rights and obligations of the parties to such trusts. Where the local case law was lacking the Court turned to English authorities for guidance and generally applied the principles of English Trust Law to such matters. It is not surprising therefore that Jersey Trust Law developed on very similar lines to its English counterpart and this similarity is evident from the codification of Jersey Trust Law in March 1984.

The Trusts (Jersey) Law 1984 removed many of the doubts and uncertainties which previously existed in relation to the establishment and administration of Jersey trusts; the law is not, however, entirely exhaustive and the courts of Jersey continue to accept judgements of the courts of England as being persuasive in relation to certain trust matters.

The Trusts (Jersey) Law 1984 provides a modern legal framework for the establishment of trusts in Jersey and for the protection of beneficiaries.

The duties of a trustee can be particularly onerous. The law provides that a trustee:

- must act impartially in the interests of all the beneficiaries;
- must keep trust accounts and accurate records of distributions and administrative decisions;
- where there are several trustees they are under a general duty to act together;
- must preserve and enhance the Trust Fund so far as is reasonable;
- must not make speculative investments;
- must administer the trust with due diligence as would a prudent person to the best of his ability and skill and observe the utmost good faith.

Whilst various trustee duties are expressed to be subject to the terms of the trust instrument it is not open to the Settlor of a trust to be able, if he wishes, to relax these last mentioned basic duties that underline the essential nature of trusteeship.

During the lifetime of a trust and as long as he is a trustee, a trustee must exercise the powers set out in the trust deed. These generally will include the following:

- Wide investment powers which allow the trustees to invest in almost any kind of investment;
- Power to employ agents, investment advisors, nominees and custodians;
- Power to appoint new or additional trustees;
- Power to move the trust to another jurisdiction in the event of political upheavals, the election of an unfavourable government change the proper law and place of administration of the trust;
- Power to transfer the whole or part of the Trust assets to a new trust provided the beneficiaries of the new trust include beneficiaries who were intended to benefit from the original trust assets;
- Power to establish companies and to transfer any part of the trust assets to those companies. The use of a dual structure can provide taxation benefits;
- Other powers may include a power to borrow, to make loans with or without interest, to pay fees and expenses, to pay taxes, to carry on trade and to insure the trust assets.


Trusts may be classified in several ways, but most commonly they are classified according to the nature of the interest of the beneficiaries in the trust assets. This classification falls into two broad categories: those where the disposal of capital and the income has been pre-determined by the Settlor and those where the disposal of capital and income requires the exercise by the trustees of discretion. The former are normally referred to as fixed interest trusts while the latter are commonly known as discretionary trusts. In practice many trusts combine the characteristics of these two main types of trust.

Without doubt, the discretionary trust is the most widely used type of trust, especially in the Channel Islands. It has been developed into a most powerful tax planning tool and can be an ideal asset holding vehicle for an individual who is neither domiciled nor resident or ordinarily resident in the UK and whose activities span several countries.

The discretionary trust is commonly used when, at the time the trust is established, no decision has been taken as to what proportion of the trust's income and capital should be reserved for each beneficiary, and when it is desirable to maintain flexibility in this respect. Under the provisions of a discretionary trust, the trustees are given the power to select which person or persons are to receive a benefit from the trust and the extent of such a benefit.

They may also have the power to decide whether to distribute income or accumulate it. The trustees very often have the power to add or remove beneficiaries and this gives considerable flexibility to the trust.

Whilst the trustees of a discretionary trust will usually have the power to determine the beneficiaries of both the income and the capital of the trust, and the amounts which they are to receive, it is normal to find that the Settlor will have given the trustees some guidance as to how they should administer the trust, both during the Settlor's lifetime and after his death; the guidance will be set out in a "letter of wishes" or letter of intent. For tax reasons, these letters are usually expressed not to be legally binding. In practice, it is most unusual for the trustees to disregard the Settlor's wishes. Such letters may be varied by the Settlor at any time during his lifetime, to meet changing circumstances, and they can be completed without formality. The trust therefore becomes an ideal substitute for a Will.

It is also normal for an offshore discretionary trust to include extensive investment powers to meet the requirements of international clients and it can hold all manner of assets both esoteric or otherwise. As this type of trust is very often used in combination with a company or companies, there will be power for the trustees to establish wholly-owned companies, not withstanding this, the terms of the trust may provide that the trustees do not need to interfere in the management of such companies.

In contrast to a discretionary trust, the respective rights of the beneficiaries of a fixed interest trust to share in the capital and income of the trust, are fixed and clearly defined by the terms of the trust, from the moment it is established. The trustee is not given any discretion in how to distribute the trust income and capital to the beneficiaries.

There are a number of particular forms of fixed interest trust, of which the best known is the so-called "interest in possession" trust: this is a trust whose terms provide that the trustee must distribute all of the income of the trust fund to a particular individual - often the Settlor - during that person's lifetime, following which the trustee is required to distribute the capital of the trust to the capital beneficiaries in accordance with their respective rights.

This is a special form of discretionary trust. In the United Kingdom it qualifies for particularly favourable inheritance tax treatment and is ideal for parents or grandparents wishing to benefit their children or grandchildren.

An accumulation and maintenance settlement must have one or more persons who will become beneficially entitled to the assets of the trust, or will gain an "interest in possession" in those assets (see the preceding section on fixed interest trusts, for the meaning of "interest in possession") on attaining a specified age not exceeding 25. Prior to those named beneficiaries becoming so entitled, no interest in possession must subsist in the trust fund, and the trustees must accumulate the income of the trust fund or else apply it for the maintenance, education or benefit of the beneficiaries.

These are trusts where the beneficiary has a fixed interest which, however, ceases if certain events occur, for example, upon the bankruptcy of the beneficiary or on his attempted alienation or sale of his interests. In such event, the fixed interest ceases and the principal beneficiary together with his family become members of a discretionary trust.

This type of trust would often be used for non-tax reasons. In recent years, the trend towards speculative litigation against professional persons, particularly medical practitioners, lawyers and accountants, and most noticeably in the USA, has led to many such persons establishing offshore asset protection trusts as a means of protecting assets from future judgement creditors.

Unit trusts are generally used as a vehicle for members of the public to pool their funds for the purpose of investment through the trust: the investment pool is held by the trustees whilst it is managed by an investment manager. The respective rights of the investors to share in the assets of the trust is determined by the number of units - akin to shares in a company - held by them in the trust. These types of unit trust are subject to stringent regulations in Jersey, under the provisions of the Collective Investment Funds (Jersey) Law 1988, and the extensive regulations which flow from the law.

It is possible to establish a "private" unit trust under Jersey law: consent for the issue of units in a "private" unit trust is required under the Control of Borrowing (Jersey) Order 1958. Private unit trusts can be a useful tool in international tax planning.

A charitable trust will have as its aim a purpose that is intended to benefit society as a whole, or at least a considerable section of society.

Because of their intended benefit to society, charitable trusts (sometimes known as public trusts) are accorded special privileges not shared by private trusts: for example the rule as to certainty of beneficiaries, and the rules on duration of a trust, do not apply to charitable trusts.

More importantly, charitable trusts - and gifts made to them - are commonly given special tax privileges.

The Trusts (Jersey) Law 1984 has recently been amended to make provision for non-charitable purpose trusts to exist in Jersey and thus end the established principle of Jersey Law that a valid trust cannot exist without ascertainable beneficiaries, unless the trust was charitable.

Accordingly trusts may be set up which do not actually have any beneficiaries and thus it cannot be said that the trust property belongs to anyone. The purposes that may be included in the trust instrument are not limited under Jersey Law although this must be certain, consistent with public policy and lawful. The duties of the trustees are enforced by an enforcer who is a person (natural or legal) who is appointed by the trust instrument to monitor the trust and the trustees are under a duty to apply to the Court for the appointment of a new enforcer at anytime when there is none.

Non-charitable purpose trusts can be useful in a variety of state planning exercises and commercial transactions. A purpose trust might for example have its purpose being to establish an underlying company and enter into agreements relating to a transaction with any assets being distributed to beneficiaries or charitable purposes at the expiration of the trust period. In addition these trusts may be used to enable purposes which are not strictly charitable to be fulfilled.

Trusts can be used for the carrying on of a business with considerable tax advantages. Such a trust is usually structured to allow the trustees to engage in trading activities and they should obtain suitable indemnities from those beneficiaries who are of full age; the beneficiaries would normally be members of the Settlor's family. The trust offers considerable flexibility in regard to the distribution of capital and income and avoids the provisions relating to transactions in securities, and benefits in kind.

These are trusts created for the benefit of the employees, their relatives and dependants, in a particular trade or firm. They are usually of a discretionary nature. These trusts are often created as part of an employee share ownership plan.

There are many opportunities available to use insurance policies written in trust.
A typical example is the joint life last survivor policy which is designed for husband and wife to cover the inheritance tax liability arising on the death of the surviving spouse. Unless written in trust, the proceeds of the policy will form part of the survivor's free estate and will increase the inheritance tax liability.

Although the premiums paid are treated as gifts, they may well fall within one of the annual or other inheritance tax exemptions. Discretionary trusts are ideally suited for use with term assurance policies.



Jersey trusts are used principally to provide for the protection of the trust assets and to minimise or defer the tax payable on the income and the capital gains of the trust assets, and on the transfer of those assets.

It is most important that, at the time of creating the trust, the Settlor should consider the taxation, exchange control and other legal consequences flowing from the creation of the trust, both in his country of residence and nationality and in the country or countries of residence of the beneficiaries, where necessary, the Settlor should obtain appropriate professional advice as to the consequences of establishing the trust.

Trusts established in Jersey can be used for a variety of purposes, some of which are listed below:

For asset protection
Trusts to protect the assets of professional persons against speculative litigation have already been referred to in the previous section. Protective trusts may also be used to provide security for assets which might be open to expropriation or confiscation by a politically unstable or hostile regime.

To minimise or defer taxes on the assets and on the income and gains arising from them
Many countries, for example the United Kingdom and the United States of America, have sophisticated anti-avoidance provisions in their tax legislation, intended to reduce the opportunities for persons resident in them to reduce or avoid taxes through offshore trusts, nevertheless, opportunities still exist for significant tax benefits to be gained through the use of Jersey trusts by persons resident in those countries. For example, a person resident but not domiciled in the UK can significantly reduce his tax burden - income taxes, capital gains tax and inheritance tax - by transferring assets to a Jersey trust. Many other countries have much less sophisticated anti-avoidance provisions, leading to many more opportunities to use Jersey trusts for tax mitigation. Frequently, the opportunity to establish an offshore trust to minimise tax will arise when the Settlor and his family moves from one country to another, so changing their country of tax residence and, sometimes, their nationality.

For estate planning
To avoid probate formalities and harsh succession laws in the Settlor's country of residence. In regards to avoiding foreign rules of forced heirship Jersey law offers particular assistance to those seeking to establish a Jersey trust for such purposes in that the Trusts (Jersey) Law 1984 provides that a non-Jersey domiciliary transferring property to a Jersey trust during his lifetime is deemed to have had capacity to make that transfer as long as at that time he was of full age and sound mind under the law of his domicile. Thus, no rule of inheritance or succession law of his own domicile has any effect on the validity of the transfer (or of the trust).

For exchange control avoidance
if the Settlor is resident in a country with exchange control regulations and has a pool of assets outside the reach of such regulations, it may be desirable to transfer the ownership of such assets to non-resident trustees, to avoid any requirement for the Settlor to declare the ownership of such assets.

For confidentiality
it can be useful to transfer the shares of private companies, and also shares held in public companies, to non-resident trustees, to preserve confidentiality as to the ultimate beneficial ownership of those shares.

There are many other ways in which Jersey trusts can be used for protection of assets and in international tax planning.


United Kingdom tax payers are not unique in their desire to shelter profits from the ravages of taxation. Unfortunately, although Parliament's fiscal sovereignty only extends to the UK, the two tenets on which it is based - personal presence of the tax payer and locations of assets - make it difficult for UK domiciled and resident individuals to shelter profits overseas. These difficulties are compounded by a substantial battery of anti-avoidance legislation.

The Inland Revenue's armoury was substantially strengthened by the Finance Act 1991 which drastically reduced the tax planning opportunities offered by the employment of offshore trusts. However, it is clear that their future role will be far more restricted and the tax practitioners use of them will have to be specific and clearly defined.

There are, in essence, three elements of an individual's tax profile - his domicile, his residence and his ordinary resident status. A change in any one of these can alter the tax position. The abandonment of residence or ordinary residence (while retaining a UK domicile) can nevertheless achieve a tax saving.

Individuals seeking to shelter assets overseas should also have regard for the need to make returns as these compliance costs can increase the expense of an offshore structure. The Finance Act 1991 again introduced new provisions in this area. Reference should be made to the extensive reporting requirements which relate to offshore trusts - for example, the person creating a non-resident settlement must inform the Revenue within three months of doing so. The Revenue are also empowered by notice to require information on Settlors, beneficiaries and trustees. Penalties may be imposed for failure to comply.

The possession of a UK domicile is a very strong link with the UK. It is, therefore, hardly surprising to find that this link creates substantial problems for those seeking to shelter income and gains overseas. It is, however, but one link in the chain and it will often be possible to achieve a tax saving by loosening the other links.

The key to income tax and capital gains tax planning for non-domiciled UK residents is the remittance basis. At its simplest, a remittance will take the form of a transfer of money to the UK. A constructive remittance is something which is not a simple remittance but which involves either bringing something which is not money into the UK or bringing money into the UK which is not received in the form of income e.g. a loan. The scope for an individual to use his overseas income to support his living expenses in the UK without actual or constructive remittances is, therefore, limited. If, however, he has sufficient capital he may be able to structure his affairs so that he can live off his capital and remit little or nothing by way of income or capital gains to the UK. In this way he can live in the UK while restricting his tax liability to the amounts of income or gains that he actually remits plus, of course, any UK source income or gains he may have. In order to achieve this, it is essential that he should keep his capital entirely separate from his income and capital gains.

Non-domiciled individuals are only liable to capital gains tax from the disposal of UK assets and gains from the disposal of non-UK assets which are remitted to the UK. Non-resident trustees are not liable to capital gains tax unless they are carrying on a trade in the UK through a branch or agency and the assets disposed of were used or held for the purpose of such trade. From a capital gains tax planning viewpoint, the use of a non-resident trust by a non-domiciled individual offers two particular possibilities. The first is that he can increase the base cost of his non-UK assets by transferring them to trustees.

The second and more significant possibility is that a non-domiciled Settlor can, by transferring his assets to non-resident trustees, put them virtually outside the scope of capital gains tax for as long as he retains his non-UK domicile. It is immaterial whether the assets are situated inside or outside the UK as it is only the non-resident status of the trustee that is relevant.

The extent to which trusts can be used by a non-domiciled individual to minimise his income tax liability on an on-going basis will depend on a number of factors of which the most material will be the individual's need to have access to the income in the UK. If the Settlor or his family does not need the trust income to meet their living expenses in the UK they will be able to avoid any income tax liability if sufficient care is taken in any dealings with the income. If they do need the trust income in the UK, the remittance basis will not offer any real benefit and they will be taxable on all of the income that is brought into the UK.

It will be apparent from the above that the scope for avoiding liability to income tax by accumulating income in an offshore settlement is, even for non-domiciled beneficiaries, very limited if any benefits are to be provided out of the settlement to beneficiaries in the UK. It is possible to defer any liability until such time as capital benefits are received in the UK but complete avoidance is unlikely to be achieved so long as the beneficiaries remain ordinarily resident in the UK.

Deferment of liability can be valuable, particularly if the liability can be deferred for a number of years. How valuable the deferment will be depends on various factors, particularly the investment performance achieved by the trustees and the difference between the rates of income tax that would have been paid by the beneficiaries had the income been distributed to them on a current basis and the rates payable on actual receipt of the taxable benefits.

It is often necessary or appropriate for the trustees of a trust to hold all or a part of the trust assets through an underlying limited liability company. Such a company might be established offshore, in Jersey or in another low tax area, or it might be established onshore, in England or elsewhere. The trustees might own all of the shares of an underlying company or there might be other shareholders.

The reasons for establishing an underlying company are likely to fall into two areas: they will be either fiscal reasons or non-fiscal reasons. There can be a number of ways in which an underlying company may have fiscal, or taxation, advantages: for example, in order to change the effective situs of trust property, to make it excluded property for UK Inheritance Tax purposes, or to reduce taxation on royalty payments received on patent rights owned by the trustees.

Similarly it might be desirable for the trustees to establish a wholly-owned company for non-fiscal reasons, for example, if it is proposed that the trustees should undertake a certain trade or business, the trustees may wish to undertake that through a limited liability company and so avoid any personal liability arising from that trade or business.

Though the trustees would often be involved in the management of an underlying company this need not always be the case: the terms of the trust might provide that they need not interfere in the management of an underlying company.

When the Settlor has determined to establish a discretionary trust but, at the same time, wishes to retain some control over the exercise by the trustee of the discretions, it is possible to add another party to the trust arrangement, known as a protector. A protector does not normally have any positive powers over the trustees, but he has the power to veto certain decisions of the trustees, if he feels that the trustees are using their powers in an undesirable fashion.

For example, the trust deed may provide that the protector's approval must first be obtained by the trustee, before the trustee exercises its discretion to appoint another person to the class of beneficiaries, or to distribute any part of the trust assets to the beneficiaries. The trust deed will set out in detail those occasions when the protector's approval will first be required, before exercise by the trustees of any of their discretions.

It must be noted that there are some drawbacks to the appointment of a protector. For example, the appointment of the protector may cause delays for the trustee in administering the trust, because of the need to obtain the protectors consent, it should also be borne in mind that some jurisdictions, for example the United States of America, treat the protector as akin to a trustee and this can result in potential adverse tax consequences.

Jersey provides a secure haven for the tax-free administration of offshore trusts. Jersey has a long history of political stability, based upon a democratically elected government but without any political parties. This combined with a strong economy and full employment inspires confidence for the future of the Island.

Though it is a dependency of the English crown, Jersey is independent of the United Kingdom. Special arrangements were negotiated at the time of the United Kingdom's entry to the European Community; under these Jersey does not have to adopt EC directives on taxation, the movement of capital and other matters which might otherwise affect the Island's finance centre activities.

Jersey trustees are not subject to income tax on income received by them as trustees, provided that none of the beneficiaries of the trust is resident for tax purposes in Jersey and the trust is not in receipt of income from any source within the island other than bank deposit interest.

Jersey does not levy tax on capital gains or on capital. No stamp duties or other fixed charges are payable either on the creation of or during the administration of a Jersey trust.

a) The Settlor passes legal ownership of the assets to the trustee once the trust deed is signed.

b) The trust deed can be tailored to suit each client's requirements. The trust deed itself does not have to include the Settlor's name. There is no requirement to register the trust deed in any public register in Jersey, nor are accounts filed. Anonymity is therefore possible. A draft deed can be made available on request.

c) The Settlor can request the trustee to administer the trust fund in specified ways, by a personal "Letter of Wishes". The trustee refers to this for guidance, but it is not legally binding. This letter would normally include guidance on investment policy and the distribution of both income and capital.

d) The Settlor can, in practice, exercise a further influence over the ultimate application of the trust fund by using a "Protector", who is specified in the trust deed. Certain supervisory functions can be given to a protector: For example, the trust deed may provide that the trustee cannot appoint funds to the beneficiaries without his consent. The protector may also be given the power to remove and replace the trustee. The person chosen would normally be a family friend or trusted adviser. Using a Protector is more complicated, and liable to increase administration time, and therefore cost.

e) Even though the trustee may be resident in Jersey, provided no beneficiary is resident in Jersey and no income other than bank interest arises there, by concession no Jersey tax is payable. Similarly, provided neither the Settlor nor the trustee nor any of the beneficiaries is domiciled or resident in the United Kingdom, the trust can be administered in Jersey in such a way that United Kingdom tax is not relevant.

f) In addition to taxation advantages, trusts may be of assistance with inheritance and incapacity difficulties and may be used to make provisions for future contingencies. Trusts are therefore a flexible and secure way of holding assets to suit the requirements of the client or his family (see below).

The Jersey government is consulting on a Trusts (Amendment No.5) (Jersey) Law, which it hopes will be brought into force in 2007. It follows the introduction of the Trusts (Amendment No.4) (Jersey) Law in 2006, which included provision for Settlor-reserved powers.

The changes currently under consideration include the insertion of a modern, flexible definition of a "charity" or "charitable purpose", and the insertion of a provision into the stating that in relation to a non-charitable purpose trust, the mere holding of the shares of a company represents a valid purpose. This would be beneficial for a purpose trust holding the shares of an underlying private trust company.

(a) The introduction of a statutory lien in favour of trustees in respect of liabilities that the trustees would have been entitled to be reimbursed for, had they still been trustees. This would help clarify the position of former trustees when claims are made against them after their retirement.

(b) The re-statement of Article 21 of the Trusts (Jersey) Law 1984 insofar as it relates to a trustee's duty in respect of investments, so as to more closely follow what is known as the "prudent investor" rule in the US and in a number of Caribbean jurisdictions.

It is also understood that consideration may be given to amending the principle by which beneficiaries are entitled to know they are beneficiaries of a particular trust, such that in respect of minor beneficiaries it would be possible to prevent them from being told they were beneficiaries should a Settlor wish it. Such a change would reflect the law in a number of US states.



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