Jersey’s trust sector is managed by thousands of professionals who are leading the way with new models and modifications of this centuries-old method of passing on wealth.
Jersey’s trust industry has 50 years of experience and is now represented by 4,500 practitioners who work alongside a further 12,500 executives drawn from the wider finance industry. With such a densely populated area of expertise, it’s no surprise to learn that fiduciary work plays a major role in Jersey’s banking sector. To give some idea of how large a slice of business this is, Royal Bank of Canada confirms it has over 450 trust-specific professionals in Jersey alone.
Types of Jersey trusts
Despite the different types of trusts that have developed over the last half a century, the most enduring remains the discretionary trust. “Something like 90% of Jersey trusts we draft are fully discretionary ones as they give the maximum flexibility,” explains Giles Corbin, Partner with Jersey-based law firm Mourant.
Alan Binnington, Private Client Director for RBC Trust Company says that a prime reason for the popularity of discretionary trusts’ is that once the assets have been transferred to the trustees the settlor ceases to own them, which may have advantages from a taxation point of view or for asset protection purposes. This transference of ownership also means that assets can be passed to future generations without the complication of having to obtain grants of probate. “The trust may hold assets through a wholly owned company or companies. This is often useful where there are different types of asset being placed into trust, such as shares in a family business, art, investments, boats and aircraft in which case placing them in separate companies enables higher risk assets to be segregated from lower risk ones.”
The flexibility offered by this type of trust is also underpinned by the trustees having the discretion as to which of the beneficiaries are to benefit, when and by how much. “Although trustees in such cases have a wide discretion it is usual for the settlor to give them some guidance as to how he or she would wish them to exercise their discretion, in the form of a non-binding ‘letter of wishes’ which can be updated and revised from time-to-time,” adds Mr Binnington.
Jersey’s trust law is currently undergoing its fifth amendment expected in the second quarter of 2011. The new law is expected to give settlors greater freedoms in direction of beneficiaries’ information.
A year ago Jersey’s trust sector introduced a new type of fiduciary structure. Called ‘foundations’, they are viewed by practitioners as a hybrid between a trust and a company. Essentially, foundations are structured on civil law concepts, whereas trusts are routed in common law principles. The originator of a trust, the settlor, hands over all control of the assets to the trustees, whereas with a foundation, the founder sits on the council making decisions. “The council is the ruling body of the foundation whose function is to administer the foundation’s assets and carry out the foundation’s objectives. There is no beneficial class as such and it is usual for a foundation to be established for a particular purpose,” explains Justin Thomas of Fairbairn Trust.
Mr Corbin points out that a foundation’s structure is more likely to be understood by international clients and more readily recognised by those countries’ legal authorities.
Whatever the type of trust that ultimately appeals to you, Alan Binnington signposts all expats to first take sound tax advice. “All too often clients think that having an offshore structure is bound to have tax benefits. The reality is that for persons resident and domiciled in the UK there are now very few advantages in setting up an offshore trust and a failure to take tax advice might result in the clients being worse off than if they had not set up a structure in the first place.”
The regulatory environment
Jersey was one of the first jurisdictions to regulate its trust industry and the regulator, the Jersey Financial Services Commission, insists on high standards with regular compliance inspections. Jersey recently introduced a depositors’ compensation scheme but, in common with similar schemes in other jurisdictions, this only protects persons who deposit money in a bank rather than those who set up trusts.
A significant difference between placing money on deposit with a bank and placing money in trust is that a deposit is simply a debt owed by the bank to a customer, with the customer taking the risk of the bank becoming insolvent, whereas assets placed into trust do not form part of the trustee’s assets in the event of the trustee’s bankruptcy.
Jersey practitioners feel that the system of licensing and regulation of professional trustees provides a greater degree of protection than a compensation scheme, particularly given that such schemes tend to have relatively low maximum compensation amounts.
Lastly, the Jersey courts also exercise a degree of supervision over the conduct of trustees. A beneficiary who feels that a trustee has committed a breach of trust may bring a claim to the courts for the trustee to make good any loss to the trust fund.