Completed by Julie Collins

Executive Director

EFG Offshore Limited

1.             How long have trusts been used by private investors, as a vehicle for their asset planning?

Forms of Anglo Saxon trust arrangement have been around since at least the Middle-Ages, growing out of feudal land ownership and resulting in recognition of the separation between the legal ownership of land and its use enforceable by legal equity.



The use of trusts for private clients grew in popularity during the 20th century, with the 1970’s and 1980’s seeing a boom in the creation of trusts for general asset planning. As the trust arrangement became more familiar to international tax and legal advisers their confidence in promoting these types of arrangements grew hand-in-hand with the development of offshore financial centres.



2.             How are trusts set up and are they registered and open to public scrutiny?

A trust is a private arrangement generally created by a declaration made by the trustees or by a deed, commonly known as the trust instrument, between the settlor of the assets into trust and the trustee themselves. A trust does not necessarily need to be created in writing, the exception being a unit trust, which must be created by a written document.  Enshrining the parties various duties and responsibilities in a written trust instrument provides clarity and certainty as to their respective positions.  There is no register of trusts in Jersey; therefore no public record of trusteeships exists. Consequently no government costs are payable either at creation or on an annual basis.



For the trust arrangement to be properly established the trustees must be in possession of the initial trust sum, which may be a nominal amount.  Additional assets may be added to the trust at a later date.



3.             Are trusts used for domestic purposes or are they purely for international investors?

Jersey trusts may be used for local Jersey residents although the trustees will not enjoy the tax benefits afforded to trust arrangements where the beneficiaries, and assets, are located outside of Jersey.



4.             Can trusts be used to hold the shares in companies registered in the same jurisdiction, especially shares in international business companies or similar zero-taxed vehicles; if so, what are the advantages of doing so?

A Jersey trust’s fund may be comprised of any type of moveable or immoveable property, excluding the direct holding of land in Jersey.



The trustees may therefore hold shares in companies registered in Jersey or elsewhere, including unquoted, private vehicles or those which are registered on financial exchanges.



Some of the advantages of conducting business via a low or zero taxed vehicle include:

·               Obviating the need to re-register title to underlying assets on an addition, resignation or change of trustees;

·               To simplify compliance with the due diligence requirements of financial institutions with whom a relationship is being created or updated;

·               Taking advantage of tax benefits which may be available in a corporate ownership structure;

·               Converting the geographic situs of assets to a more favourable jurisdiction;

·               Containment of trading risk within the corporate vehicle.



5.             Are there specific advantages of using international trusts to assist in overcoming forced heirship provisions of the jurisdiction of the person that is setting up the trust?

The rules of succession of the jurisdictions (essentially civil law countries of continental Europe and Latin America), which prescribe forced heirship rules determine who the proper heirs of the deceased are and which part of their estate will pass to them. An individual who is subject to those rules may wish to take advantage of the freedom of testamentary disposition of common law countries allowing them to choose who will benefit from their estate.  The settlor may wish to provide for persons other than those who would be entitled to benefit by law or to benefit the same persons but to vary their proportion of inheritance from that set down by the home country legislation. The creation of an inter vivos trust may allow them to avoid the forced heirship provisions in their home jurisdiction. If a trust is properly formed and constituted it should not be capable of being set aside by virtue of the laws of the foreign jurisdiction.



Some jurisdictions may have claw back provisions for gifts made to trustees and, as a consequence, Jersey, in common with other offshore jurisdictions, has enacted legislation to protect trustees and the assets held in trust.



Further to amendments to the Trusts (Jersey) Law in 1989 and more recently in 2006, the current legislation allows that if a foreign domiciliary makes an inter vivos transfer to a trust, the proper law of which is Jersey, then the validity of the trust will not be effected by foreign inheritance or succession rules. In addition, various matters concerning the validity of the trust, such as the capacity of the settlor, will be determined by Jersey law.



6.             What advantages are there in using international trusts as a part of a tax-planning regime?

Jersey, in common with the majority of offshore jurisdictions, does not tax resident trustees on income or gains arising within the trust, or underlying companies, unless there are also resident beneficiaries.



As a long-standing concession the trustees are also exempt from taxation on income arising from bank accounts held within the Island.



International trusts therefore play a vital role in financial planning strategies which contain an element of tax mitigation. The basic premise that the settlor has given away legal and, usually, unfettered beneficial entitlement to the assets in question is paramount in ensuring the validity of such structures and is the cornerstone of the work carried out by professional offshore trustees.



Tax mitigation would not usually be the only or main reason for creating a trust but may be part of the overall planning.



Whether limiting the amount of income or gains being generated within ones personal estate, mitigating inheritance taxes or deferring certain capital taxes a properly constituted international trust can be an effective financial planning tool.



7.             What are the particular advantages of using international trusts to protect against creditors?

Various jurisdictions have enacted specific legislation to protect assets placed into trust from being attacked by the settlors personal creditors. It is of course a prerequisite that arrangements are put in place to ensure that existing claims are not thwarted by moving assets from the home jurisdiction nor that the sole purpose of creating the trust is to defeat an existing claim.



There is currently no legislation in Jersey which specifically relates to asset or creditor protection trusts, therefore foreign bankruptcy orders are dealt with in the same manner irrespective of whether trustees are involved or not.



8.             Can trusts be used to protect beneficiaries from their disabilities or extravagance?

Yes. By placing assets into trust, for management by independent professional trustees, one can make provision for those who are unable to manage their own affairs whether through mental or physical disability or through profligate spending habits.



One would need to consider the exact circumstances leading to the individual’s inability to manage their own affairs. Their diminished capacity may be due to a physical or mental disability, a dependence on drugs or alcohol or simply an inability to manage their own finances in an appropriate manner.  Jersey trust law allows the terms of a Jersey trust to contain provisions to terminate the interest of a beneficiary should they become bankrupt.



Dependent upon the exact circumstances, and the fiscal regulations of the home jurisdiction, it may be possible for tax reliefs or benefits to be obtained and it is therefore recommended that specialist tax advice be taken.



Where, for whatever reason, a beneficiary is unable to handle large sums of money, or indeed their general finances, a trust can provide for their future well being bringing a sense of comfort to the settlor, who may be a concerned parent, guardian or benefactor, as well as to the beneficiary themselves.



When setting the terms of the trust, whether discretionary or interest-in-possession, all circumstances need to be considered to ensure the beneficiary is as fully protected as possible.



9.             Can trusts be used to treat income and capital of trust assets in different ways?

The income and capital funds within a trust may be separated or amalgamated with the income being capitalised. A Jersey trust may be of unlimited duration and income may be accumulated for the entire period of the trust’s existence.

Trusts are bespoke arrangements tailored to the particular set of circumstances in question. In this way trusts may be created which allow certain beneficiaries to benefit from income and others from capital as opposed to a fully discretionary trust whereby distribution of either income or capital is generally a trustee power.



It may be desirable to allow a beneficiary access to the income generated by the trust fund whilst ultimate benefit to the capital is reserved to a different beneficiary or group of beneficiaries.



10.         Can trusts be used to avoid the need to obtain a Grant of Probate on the death of the settlor and in other ways to be used as a substitute for a Will?

In a trust arrangement legal ownership and title pass to the trustees whether the asset is held in the trustees own name or via a nominee or subsidiary holding company. Consequently the death of the settlor does not impact upon the legal title to the assets as this is held by the trustees or their representatives. The assets held in trust do not form part of the deceased’s estate, obviating the need to enter into a potentially lengthy and costly process to obtain a Grant of Probate.



As the trustees hold, manage and administer the assets on behalf of the beneficiaries, the trust is a useful tool in succession planning.  Upon the demise of the settlor, assuming he was also a member of the beneficiary class, the assets are held on behalf of the remaining beneficiaries and may be distributed in full or part, or held for the longer term by the trustees dependent upon the nature of the trust, e.g. whether discretionary in nature or not, and, if discretionary, how the contents of the Letter of Wishes impacts upon any decision made by the trustees.



For a trust arrangement to be effective as a substitute for a will it is vital that the terms of the trust do not confer an absolute beneficial ownership on the settlor as the arrangement could be classified as a bare trust where the assets are being held in a nominee like arrangement to the settlor’s order.



11.         Is the setting up of a trust and the contents and details of the trust instrument confidential? What limits are there on this confidentiality?

A trust is, in essence, a private arrangement between the relevant parties. In Jersey there is no public register of trusts nor is information on trusts supplied to the authorities at the time of creation.



When contracting with third parties such as bankers or investment managers who will manage trust property or indeed when buying or selling trust property it may be necessary under anti-money laundering legislation for information to be disclosed on a confidential basis concerning identification of related parties such as the settlor, known beneficiaries, enforcer or protector or to provide confirmation of the power or authority of the trustees to enter into certain agreements or transactions. Usually, the trustees would provide a certified extract from the trust instrument as proof of their power to fulfil the specific transaction e.g. the power to borrow monies or place trust assets as security.





12.         What ancillary services are available in a jurisdiction relevant to an international trust operation, such as international banks, trustee services, investment advisers?

As a well-respected, strongly regulated financial centre of long-standing Jersey is well placed to serve the varied and diverse financial planning requirements of its clients.



Jersey has strict guidelines on who, or what, is, or is not, considered an acceptable person, or institution, to be licenced to provide financial services from the Island to the general public. The major business lines of trust and company service providers, banking and wealth management are closely regulated and must comply with their relevant disciplines, legislation, regulations and related codes of practice.



The major international retail and private banks and investment managers, are well represented within the Island, allowing trustees to engage locally based financial institutions should they so wish.



The major accountancy firms have substantial presences in Jersey and the Island is well served by legal advisors including firms with international operations.



13.         Is it necessary that a trust set up in the jurisdiction must be managed there or may the trustees comprise individuals or companies situated elsewhere?

A trust governed by Jersey trust law may be managed by trustees (both individuals and companies) resident in jurisdictions other than Jersey. As a trust is taxed by taxing the trustees as individuals or as a company, considerable tax savings may be enjoyed if the trustees are resident in a low-tax jurisdiction such as Jersey.



Care should be taken that non-Jersey trustees are familiar with the Jersey Trust Law (1984) with Jersey legal advice being sought should uncertainty arise.



14.         May the settlor retain the power to decide on the investment of trust assets, the identification of beneficiaries or the allocation of assets to such beneficiaries? What are the consequences of exceeding this?

Amendments to the Jersey Trust Law (1984), (Amendment No. 4 in 2006), introduced the concept of settlor reserved powers which allow settlors to retain a measure of control by reserving certain powers to themselves, with the reservation of the stated powers affecting neither the validity of the trust nor delaying its taking effect.



The powers are detailed below:

·               To revoke or amend the terms of the trust;

·               To, or give direction to, advance or apply trust property;

·               To appoint or remove trustees, enforcers, protectors or beneficiaries;

·               To appoint or remove investment managers or advisors;

·               To give directions to the trustees on the management of trust property;

·               To act as a director of an underlying company, or give direction on the appointment or removal of a director of the same;

·               To change the proper law of the trust;

·               To restrict trustee discretion by stating that certain powers or discretions may only be exercised upon receipt of the consent of the settlor or nominated party.



Care should be exercised in determining the powers to be reserved as, should “too many” powers be reserved to the settlor, it could be claimed that the trust is invalid as the settlor has retained unfettered control over the assets. The definition of whether the powers reserved in any particular situation may be too many in number will depend on the individual circumstances.

In addition, thought should be given as to whether the reservation of one or more powers to the settlor could potentially give rise to disadvantageous tax consequences dependent upon the individual circumstances.

The main advantage is that the settlor will be allowed to retain powers that were more usually seen in the hands of the trustee.



One of the most popular powers for the settlor to retain is generally that over the management of the assets.



15.         What particular markets are attracted to trusts in the jurisdiction?

As a world-renowned finance centre Jersey attracts business from around the world. Many international banks and wealth managers have a presence in the Island and refer their internationally located clients to their Jersey based fiduciary provider.



Jersey’s close proximity to the financial markets of the City of London and Europe, an efficient time zone and working practices for working with Asia, the Middle East and New York and an organised and professional workforce makes Jersey an attractive base not only for private clients but also for institutional and corporate trust arrangements such as those concerned with employee benefits and staff rewards.



16.         Who is the person in the jurisdiction with whom the details of the advantages of setting up a trust may be discussed and who should be instructed to set one up?

Prior to the creation of a trust, research should be carried out to source the most appropriate trustee to act on the clients behalf. Generally, introductions will be made to prospective trustees by an existing advisor to the client whether their lawyer, accountant, tax specialist or private banker. Consequently, the client may already have discussed the merits of creating a trust with their advisors thereby providing them with a general understanding of the basic nature of the arrangement.



Senior representatives of the trust company will be able to discuss the advantages and disadvantages of placing assets into trust, providing comparisons with alternative arrangements, and commenting on their own policies and procedures and how they approach their role as trustee.  Care, attention and time should be given to discussing the client’s own particular set of circumstances and reasons for wishing to create a trust, as the trust arrangement must be capable of fulfilling the settlor’s fundamental objectives.



It would be usual for the prospective trustees to liaise with legal and tax professionals from the relevant jurisdictions to determine the specifics of the trust to be created, taking into account such matters as the residence and domicile of the settlor and beneficiaries and the nature, and situs, of the assets which will be placed into trust.



17.         Who is usually engaged to draft the trust instrument; is it a lawyer in that jurisdiction, a standard form from a trust company or similar persons in the country of residence of the settlor, or by a service provider in the jurisdiction?

A trust instrument is a legally binding document and, as such, should be drafted with input from a lawyer. Many trust companies have arrangements with local law firms whereby pre-formatted documents are made available to the trustee service providers to use as standards and drafts for discussion purposes; and also as the final trust instrument itself where no amendments are required to be made to the body of the document.  For bespoke solutions, or where re-drafting will be made to a standard document, it is preferable that a firm of lawyers be engaged to ensure any amendments are appropriately worded. Not doing so may result in lower legal fees at the outset but this approach is generally a false economy given the risk of mis-drafting and the possibility of adverse consequences arising.


18.         What is the nature of trustees available in the jurisdiction; are they trust companies belonging to banks, associates of law firms, independent trust companies or branches or subsidiaries of international trustee companies?

Trust companies wishing to operate from Jersey must make application for, and be granted, a licence from the regulator, the Jersey Financial Services Commission in accordance with the Financial Services (Jersey) Law 1998. The application process is comprehensive and wide-ranging to ensure that the required minimum standards of integrity, competence and financial standing are satisfactorily met. Although there is a wide variety of the nature of trustees represented in the Island such as those belonging to banks, associated with law firms, independents or affiliated with international trustee companies only those who meet, and continue to meet, the stringent minimum requirements are given leave to operate in Jersey.



19.         In setting up a trust in the jurisdiction by a foreign settlor, what KYC procedures are required in respect of the settlor, trustees and beneficiaries, and what other anti-money laundering laws are applicable?

Since the enactment of the Proceeds of Crime (Jersey) Law 1999 verification of identity for existing and prospective clients is a statutory obligation with strict penalties for non-compliance.



Current legal and regulatory requirements are described in detail within:

·               The Money Laundering (Jersey) Order 2008; and

·              The JFSC Handbook for the Prevention and Detection of Money Laundering and the Funding of Terrorism.

Trust companies operating in Jersey are regulated under the Financial Services (Jersey) Law 1998 (the “Financial Services Law”) with acceptable standards of conduct and compliance set out in the Codes of Practice.



Client due diligence should be completed prior to the trust company accepting the client and transacting any business.



Key information to be obtained includes:



·               Verification of identity for the principals in the relationship (settlors, identifiable beneficiaries and protectors);



·               Verification of source of funds to be added to the structure, overall source of wealth and confirmation of annual income;



·               Rationale and purpose of the structure;



·               Frequency and nature of expected transactions.



20.         What is the minimum amount of cash or assets which are recommended to make the expenses of setting up and managing a trust worthwhile?

Fees levied by professional trustees will vary between organisations therefore it is difficult to quote a certain asset value figure over and above which the arrangement would be considered worthwhile. Various factors should be considered including the reason for the creation of the trust and whether there are monetary benefits in holding the assets in trust (e.g. tax savings); one also needs to take into account any non-financial advantages such as freedom of testamentary disposition and protection of the assets from abuse by profligate heirs to name but a few. Regard should also be taken of the fee-charging basis; is it a fixed fee, based on time spent or calculated as a percentage of overall asset value.



21.         Before an investor elects to set up a trust, he might consider the advantages of alternative arrangements. What advantages are there in these; for example, joint bank accounts, private foundations, insurance or some form of corporate structure or a straightforward power of appointment or an outright gift)?

When a client seeks advice from their advisor or trust company personnel it is usual practice for the merits of alternative arrangements to be discussed, ensuring that the advantages and disadvantages are viewed in context of the client’s particular set of circumstances.



Joint Bank Account

In certain circumstances, this provides ultimate flexibility as ownership and control are retained by the client. Having joint account holders allows for the assets, in the death of one of the parties, to pass freely to the survivor. Fiscal benefits are generally limited.

Private Foundation

Sharing characteristics with both trust arrangements and companies the private foundation may allow the client a greater degree of control over the management of the assets. In addition a foundation may be more readily understood for those clients familiar with civil law jurisdiction.

Insurance

Multiple and single premium life insurance policies may be used to create tax efficient asset pools, dependent upon individual circumstances, which, upon the principals death, can provide liquidity to deal with, for example, estate taxes thereby avoiding a situation whereby the heirs have to sell assets, or break up private companies, to settle the amounts due.  There are circumstances where it may be more effective to write the insurance policy into the trust.

Corporate Vehicle

Provides confidentiality and may confer fiscal benefits if structured, and managed, appropriately. Ownership remains with the client who has swapped ownership of the assets for a shareholding in the company.  This may be an effective tool in changing the situs of an asset.

Outright Gift

This transfers legal ownership and beneficial entitlement to a third party.  As the client is no longer the owner of the asset there may be significant tax benefits, although certain fiscal regimes place conditions on outright gifts, for example that the gift will be null and void if made within a certain number of years pre the donors death, which has implications for inheritance tax computations.

In addition the gift has immediate effect removing the donor’s ownership, control and beneficial entitlement which, given the individual circumstances, may, or may not, be an advantage.



22.         What is the duty of the adviser to ensure that the client understands the nature of the proposed trust and what procedures are adopted generally to ensure that the settlor understands the nature of a trust?

It is paramount that the prospective settlor is comfortable with the trust concept and fully understands the duties, responsibilities and obligations of trustees in their management, administration and oversight of the trust fund.



The settlor should be aware of, and comfortable with, the basic premise of giving away ownership and control of the assets, subject to the terms of the trust.  If he is not then the validity of the trust arrangement would be called into question.



The settlor is usually, but not always, a party to the trust instrument. In any event the terms of the trust should be carefully reviewed with the settlor and their advisors. It is usually appropriate to take the opportunity to remind the settlor that the trust instrument is a legal document and he may wish to take independent legal advice before signing.



Both the settlor, and the trustees, must be fully comfortable with the terms of the arrangement being entered into and the advisor should take steps to ensure any misunderstandings are cleared up prior to the finalisation of the arrangements.



23.         What measures are there to combat the abuse of trusts set up to conceal assets, particularly in respect of fraudulent activities or tax evasion by the settlor?

Jersey has had anti-money laundering legislation in place since 1988, and that to counter terrorism since 1990. The legislation is updated on an on-going basis to deal with new and changing threats and ensure compliance with international standards.



Reporting obligations are placed upon persons carrying out financial services business, which includes the provision of trustee services.



24.         Are purpose trusts possible in the jurisdiction and, if so, what are their principal applications?

Jersey law permits the creation of purpose trusts which have no ascertainable beneficiaries, but where the purpose is clearly stated in the trust instrument. There is no requirement for the purpose to be charitable either in full or part. It is permissible for a hybrid trust to be created which has ascertainable beneficiaries in addition to a specific stated purpose.



The trust must have an enforcer appointed whose duty it is to enforce the trust ensuring that its purpose is fulfilled thus answering any criticism that, in a trust without beneficiaries, there is no way to enforce the terms of the trust against the trustees. Consequently, the trustee and the enforcer may not be one and the same person.



Purpose trusts may be used in a variety of situations with some of the more popular applications including the ownership of the shares in a private trust company, philanthropic reasons where the purpose does not fit strictly charitable definitions and to own special purpose vehicles in off-balance sheet or securitisation transactions.



25.         Can creditors attack trust assets directly instead of taking action against the trustees and what measures have been enacted to frustrate action taken by “trust busters”?

A creditor must generally take action against the trustees as opposed to directly attacking the trust assets themselves.



Although Jersey law is designed to safeguard trust structures, and their assets, it does not provide a mechanism whereby a debtor may avoid existing creditor claims if he is insolvent at the point of transferring the assets into trust, or indeed if the transfer itself renders him insolvent, and the purpose for the transfer into the trust is to frustrate such creditor claims.



If a Jersey trust is created for a purpose other than to place assets outwith the reach of creditors, and so long as the settlor is unaware of any existing, future or contingent claims at the time of the trusts creation, or when assets are added to the trust, then a Jersey trust will probably afford protection from any subsequent claims which may arise.



Spendthrift provisions in the Trusts (Jersey) Law 1984 provide that the terms of a trust may make the interests of a beneficiary in the capital or income of a trust liable to termination and, as per clause 35(2)(b) is subject to:



“diminution or termination in the event of the beneficiary becoming bankrupt or, any of his or her property becoming liable to sequestration for the benefit of his or her creditors.”



26.         What procedures are recommended to be followed by trustees to minimise their risk (such as maintaining accurate minutes of meetings and file notes of telephone conversations)?

Over the past years trust company service providers have increasingly reviewed and enhanced their policies, processes and procedures to allow them to effectively discharge their duties and obligations in a professional and compliant manner.



Much of this work results from a desire to mitigate and minimise trustee risk. A well-known, though perhaps over-used colloquialism holds true in that “if it isn’t written down it didn’t happen”. It is generally insufficient for anecdotal or verbal recollections to be used in the trustees defence; therefore accurate record keeping is essential.



This includes:

·               Keeping accurate notes of meetings where matters of import or substance are discussed;



·               Ensuring that notes are taken to record the date, time, participants and content of telephone meetings and general discussions. If substantive or controversial matters are discussed it may be appropriate to have the participants acknowledge and agree, in writing, that the telephone note is a true and accurate account of the discussions;



·               Ensuring that all correspondence, including communication by email is accurately filed in the trusts records in a timely manner;



·               For routine, regular or common types of transactions or activities such as distributions, property purchases or sales, investment dealings etc. it is helpful for standard checklists to be completed to assist the trustees in ensuring that all relevant, pertinent matters are considered and also to act as a written record of the process that has been followed. The checklist, duly signed and dated, is therefore useful not only as an aide-memoir but as the trustee’s declaration that certain matters have been duly considered, checked or agreed upon.



27.         Are professional indemnity insurance policies easily available to trustees and is it the current practice for these to be taken out?

In accordance with the Codes of Practice for Trust Company Business:



“A registered person is required to maintain adequate insurance cover at all times, commensurate with business activities. Such cover must include professional indemnity insurance (“PII”) …….”



It is therefore a regulatory requirement that adequate PII cover be taken out by registered persons conducting trust company business. The minimum acceptable cover is detailed in the Codes of Practice.



28.         What are the obligations on trustees to disclose trust information and to whom would this duty be owed?

Apart from any obligations specified under the terms of the trust, or subject to any court orders, the trustees, in accordance with the Trusts Jersey Law (1984), are not required to disclose trust documents that reveal their deliberations, reasoning or relate to or form part of the accounts of the trust.  The exception would be that the latter, namely documents relating to the accounts of the trust, should be made available to the beneficiaries of a trust and also to the enforcers acting in relation to the non-charitable purposes of a trust.



Under the Trusts (Jersey) Law 1984 there is a provision that beneficiaries are entitled to receive certain information upon request, being documents relating to or forming part of the accounts of the trust fund.



The general interpretation is that this includes the trust deed and details of assets held within the trust fund, which would include the accounts of underlying companies.



29.         What is the position relating to trusts engaging in trade or other commercial activities (and is it usual for such activities to be conducted through a company whose shares are held in trust)?

Jersey trusts may be, and are, used in commercial transactions including, but not limited to, unit trusts in respect of collective investment schemes, employee reward plans such as share option and incentivising schemes, pension plans and the ownership of special purpose vehicles in off-balance sheet transactions.



In situations where the trustees have commercial interests it may be preferable to capture the trading risk by placing the tradeable assets in an underlying company.



30.         What procedures are adopted by banks before setting up a bank account for a trust (references, anti-money laundering procedures etc.,)?

As regulated entities banks must ensure that they have robust procedures in place to ensure they undertake, obtain and maintain, sufficient and appropriate client due diligence.



At the initial account opening stage the bank’s due diligence is comprised of two parts; there are separate due diligence requirements in respect of the trustees and then for the structure and underlying client.



In addition, the bank will require confirmation of the intended activity across the account to compile an expected transaction profile.



Basic client due diligence would include;

·               Full name and address of the trustees, settlor and those beneficiaries with a vested interest and any protectors. Photographic identification (such as a copy passport) and proof of address verification, appropriately certified will also be required;

·               The purpose for opening the account;

·               Details of anticipated nature and level of activity over the account, and of amount and origin of funds being received into the account;



In addition, the bank would require know-your-client background information on the settlor, including origin and source of wealth.



Dependent upon the ultimate client’s risk profile it may be necessary for additional information to be supplied.



In addition to the organisation specific account opening documentation, the exact information required may vary between organisations.



31.         Are trustees required to follow any legal provisions relating to the maintenance of trust assets or finance or is the limit to their authority only as may be contained in the trust instrument or by the protector/guardian?

Under the Trusts (Jersey) Law 1984 the duties of a trustee include:

“Subject to the terms of the trust, a trustee shall –

(a)          so far as is reasonable preserve the value of the trust property;

(b)          so far as is reasonable enhance the value of the trust property.”



Once the designated assets are placed into trust and under the trustees control it is their responsibility to manage and administer the assets in accordance with the terms of the trust instrument.



A professional trustee owes a higher duty of care to their beneficiaries than would be expected from a layperson, and this correlates to their management of the trust assets.



32.         Does a trust have to produce annual accounts and, if so, to whom are copies of these accounts routinely supplied?

In accordance with the Trusts (Jersey) Law 1984 “a trustee shall keep accurate accounts and records of the trustee’s trusteeship”.



Under the Codes of Practice for Trust Company Business the trustee must “keep or satisfy itself that someone else is keeping accounting records that are sufficient to show and explain transactions, and disclose with reasonable accuracy, the financial position of the structures under administration.”



Trust accounts are prepared on a frequency as determined by the trust company business although general practice dictates that accounts covering a 12 month period is the generally accepted norm, unless there are extenuating circumstances for producing accounts more, or less, frequently.



Trustees are accountable for their actions in managing the trust fund and it would therefore be usual practice for a copy of the accounts to be supplied to interested parties such as the settlor or named beneficiaries.



33.         Are there adequate investment advisers and stock exchange and other facilities available for investing trust funds in the jurisdiction where there are liquid assets of the equivalent of say $5 million?

Jersey has a well-developed infrastructure of offshore investment services ranging from discretionary management through to advisory and execution only.  These services are delivered from a range of different institutions including private banks, stockbrokers and asset managers.



The interaction between trustees and appointed investment managers has also lead to the development of independent “gate keeper” type businesses based offshore, which provide portfolio monitoring services.



The Channel Islands Stock Exchange (CISX) is an internationally recognised exchange on which international mutual funds and companies are quoted.  It concentrates on the following:

·               Specialist securities including Eurobonds, Structured Debt, Warrants and SPV’s;



·               Investment funds;



·               Primary and secondary listings of Securities and Shares issued by Channel Islands Companies:



·               Primary and secondary listings of Securities and Shares issued by overseas companies;



·               Channel Islands Depository Receipts (CIDR’s).



As of December 2008 over 2900 securities were listed on the Exchange with a market capitalisation in excess of US $50 billion.



34.         What reporting requirements are required of trustees in respect of a trust’s financial position, which are required to be made to the Regulator, to the settlor or to any other party?

In Jersey there is no requirement for a trustee to disclose details of a trust’s financial position to the Regulator.



Whether any on-going reports or schedules are supplied to the settlor or other parties would be a matter for discussion, and subsequent agreement, by the trustees and the parties concerned.  Please see earlier comments concerning who may reasonably expect to receive a copy of the trusts financial statements.



35.         Many trusts are now integral parts of more complex arrangements known as ‘Family Offices’. What is the principal use of trusts in such arrangements?

The term “Family Office” is not strictly defined, as such. The basic concept is generally seen as an attempt to amalgamate and simplify the complex personal and commercial issues faced by the wealthy of today, given the international diversity of their assets, interests and the family itself.



The family office may be a corporate vehicle that deals with all manner of matters on behalf of the family, whilst enjoying its own separate legal personality; it may be the actual physical premises where the family’s activities are centred or it may be the term used to describe the various, diverse structures which own and manage the family wealth drawing together trusted advisors and professionals from the major disciplines.



The use of trusts brings an integrated approach to succession planning, risk management, tax mitigation strategies and philanthropic projects; creating a platform for the family’s ideals to be expressed within a structure which provides the tools for the family’s mission to be carried out in perpetuity.



36.         What is the status of the jurisdiction in respect of requirements of the OECD on Exchange of Information, the FATF in respect of anti-money laundering laws and the IMF in respect of international banking standards?

Jersey has established standards that match International standards of:



FATF in respect of anti money laundering laws, through membership of the overseas Group of Banking Supervisors;



IMF in respect of international banking standards as a Crown dependency of the UK;



OECD through the UK memberships and official declaration of the islands association dated 19/07/1990.



37.         What are the advantages of the jurisdictions, which are marketed to various sectors of the world to encourage their HNWIs to locate their wealth through trusts?

A politically stable UK Crown Dependency the Island enjoys constitutional rights of self-government and judicial independence, with close ties and business links to the UK and mainland Europe.



Jersey’s status as a well-regulated international finance centre makes it a popular choice for international businesses and families to establish their structures, in the knowledge that strong measures are in place to protect the clients, their structures and underlying assets.



Jersey’s well developed judicial systems, strong legal framework, especially that relating to trust law and highly skilled and experienced workforce provide an attractive environment for HNWI’s to locate their trust arrangements.



The Jersey trust company businesses long experience of trust arrangements coupled with the presence of international law practices, accountants and tax advisors provides an arena for sophisticated planning and the efficient management of complex bespoke structures.



38.         Where the trust is discretionary, what procedures should a settlor and beneficiaries expect that the trustees should follow before making a distribution?

Where a trust is discretionary in nature the decision as to whether or not any particular distribution should be made, or not, rests with the trustees.



The trustees will either have decided themselves, without prompting, that a beneficiary is in need of funding or they will have received a request from the beneficiary or a third party, such as the settlor or protector, who is acting on the beneficiaries behalf.



The trustees decision making process will necessitate various factors being taken into consideration, such as the amount of the distribution compared to the overall trust fund, the purpose which the monies will be used for and whether it is appropriate that the particular beneficiary in question should receive a benefit at this time.



The trustees will also wish to ensure that the beneficiary is aware that receipt of the funds may have tax consequences for them personally.  There may be fiscal benefits (to the beneficiary) in the distribution being made from either of the capital or income accounts.



Prior to making the distribution the trustees will usually wish to receive an indemnity from the beneficiary.  It may even be necessary for previous trustees of the trust to be joined in the indemnity, dependent upon the conditions laid out in the deed of retirement and appointment.



The trustees will also need to ensure that they have up to date due diligence on the beneficiary, including, if necessary, refreshed passport copies and utility bills.



39.         Where the trust is discretionary and the trustees are not geographically close to the beneficiaries, what procedures are recommended to enable the trustees to have adequate knowledge of the beneficiaries to exercise their discretion properly to fulfil the terms of the trust?

To properly fulfil their duties and obligations trustees need to keep abreast of the current personal and financial circumstances of the beneficiaries. When considering the creation of a trust where the trustees do not have ready geographic access to their beneficiaries it is sensible to consider whether the appointment of a protector, who is well know to and familiar with the family members, would assist the trustees in keeping themselves informed of the family’s circumstances. This also provides a mechanism, via the protector’s prescribed consent, to assist the trustees in ensuring that distributions are made where there is a genuine, and appropriate, need.  It is recommended that regular meetings are held with the settlor during his lifetime to discuss the beneficiaries and their current circumstances.



40.         Beneficiaries may from time to time approach trustees requesting a distribution in their favour. How are such requests to be handled, bearing in mind the duties of a trust

What have been the main developments in Jersey trust law over the last five years?

The main developments in Jersey relevant to trusts and trustees duringthe past five years have been the issuance of three important consultation papers by the Economic Development Committee of the States of Jersey.

The first proposes wide ranging amendments to the Trusts (Jersey) Law 1984 (“TJL”). The proposed changes are designed to make the use of Jersey trusts more attractive in a number of significant ways, including providing greater flexibility to settlors in the drafting of trusts, enhancing the integrity of Jersey trusts and resolving some perceived uncertainties. The proposed changes are more significant in their collective extent than any previous amendment to that law. They include more robust anti-forced heirship measures (Article 8A TJL), the statutory sanction of a carefully defined range of settlor reserved powers (Article 17 TJL), a greater freedom in respect of prescribing the disclosure of information to beneficiaries subject to remedial rights to ensure sufficient trustee accountability (Article 25 TJL), a clarification of the nature of liabilities of trustees to third parties (Article 28 TJL), the introduction of a non-possessory lien automatically arising in favour of an outgoing trustee to facilitate transfers of trusteeship (Article 30 TJL) and the potential abolition of a provision making directorships of trust companies (including those of a private nature) unattractive through the imposition of co-guarantor status for liabilities of trustees for breach of trust (Article 52 TJL). The last of these provisions has never been a feature under English trusts and this area of law is now subject to extensive regulatory measures under the Financial Services (Jersey) Law 1998.

The second consultation paper proposes the introduction of Jersey foundations. This innovative proposal would enable the Jersey finance industry to gain access to new markets and customers. The consultation period for these first two papers closed on 18th February 2005.

The third consultation paper relates to the law of charities in Jersey and the establishment of a local Charity Commission. The consultation period ended in March 2004 and the Commission is in the process of considering comments received. A final report is, at the time of writing, expected during the early part of 2005.

1. Trust law

(a) No new legislation or regulations specifically relating to trusts was enacted during 2004 but it is notable that the Jersey Financial Services Commission launched the Expert Fund Guide in February 2004. It streamlines the approval process for collective investment funds. The new process is based on self-certification of compliance by regulated fund functionaries.

Various accords have been reached between the EU and the British Crown Dependencies over implementation of the EU’s Tax Package. Jersey’s own fiscal autonomy and international personality is recognised through bilateral agreements with the individual EU member States in relation to the EU Tax Savings Directive. In respect of the Directive, Jersey has secured an optional withholding tax facility in lieu of exchange of information for a transitional period.

Recent case law developments include:

(i) In Ani v Barclays Private Bank & Trust Limited & HM Attorney General the issue was where a trustee makes a suspicious transaction report under the terms of The Proceeds of Crime (Jersey) Law 1999, who should be responsible for the costs of the proceedings needed to unravel the issues arising in the event that no criminal charges are eventually brought. In this case, the Royal Court determined that each party should bear its own costs.

(ii) The Alhamrani case in the Court of Appeal concerned the issue of whether trustees of two trusts should disclose financial information in relation to the trusts to a group of individuals who had certainly been (and might continue to be) beneficiaries of those trusts. The beneficiaries (9 brothers and sisters) had entered into a Disengagement Agreement which provided that a number of the beneficiaries (First Group) would take assets situate in Saudi Arabia and the remaining beneficiaries (Second Group) would take the assets held in Jersey under the two Jersey trusts. As a result the Representor argued that the First Group had effectively disclaimed their interest under the two Jersey trusts, were accordingly no longer to be treated as beneficiaries of those trusts and were therefore not entitled to any information in relation to those trusts. The Disengagement Agreement was subsequently declared null and void by a court in Saudi Arabia and, as a result, the First Group successfully applied to the Royal Court for an order forcing the trustees of the two trusts to disclose financial information relating to the two trusts to them for the period since September 2000 (the date of signing of the Disengagement Agreement and which had previously been denied to them on the basis that they had no longer been beneficiaries of the trust).

The court referred to the principles set out in the recent Privy Council case of Schmidt v Rosewood [(2003) All ER 76] dealing with the power of a court to order the disclosure of information to beneficiaries, and to recent remarks made by Mr Justice Lightman in a lecture on the subject. The court’s view on this matter was as follows:

1. Beneficiaries do not so much have an absolute right to access particular information; rather, part of their beneficial interest in a trust is the right to ask the court to exercise their discretion to order the trustees of that trust to disclose information to those beneficiaries.

2. All beneficiaries of a trust (whether fixed or discretionary and whether they constitute objects of a discretionary trust or objects of a mere power) have the right to approach the court in such a fashion.

3. If the question of whether or not a particular individual in fact has a beneficial interest in the trust in question (ie, whether he or she is actually a beneficiary) is in doubt, then the court will not generally direct the trustees to disclose information until that issue has been resolved.

The court was minded to order disclosure to the First Group. The reasons included: (i) the fact that the First Group were not total strangers to the two trusts (and indeed they already held the relevant information for the period up to the point when the Disengagement Agreement had been signed); (ii) the fact that the First Group had reverted to being beneficiaries of the two Jersey trusts (and would continue to be so at least until such time as the Representor could win an appeal on the validity of the Disengagement Agreement); and (iii) that, in the court’s view, disclosure was more likely to bring about a settlement of the matters in dispute.

It should be noted that in a second judgment the court did agree to stay the order to disclose information to the First Group pending the resolution of an application by the Representor to further appeal this decision to the Privy Council.

(iii) Mourant & Co Trustees v Magnus & others concerned a discretionary family settlement including provisions requiring protector consent to exercise a number of trustee powers. The protector in this case had, since his appointment to that office, been convicted of a number of serious criminal offences (including fraud in relation to the assets of the settlement itself. As a result both the trustees of the settlement and the Magnus family wished the protector’s involvement in the settlement to cease. The settlement provided that the office of protector would be determined and vacated in certain circumstances. However, the protector had disappeared without any of the circumstances being applicable to him.

The settlement contained no express power of any other person or body (including the court) to remove the protector from office. A representation to the court was brought by the trustees to determine whether or not the court had an inherent power to remove individuals from the office of protector of a Jersey trust. Whilst the court observed that there was no power expressly entitling them to do so under TJL, it noted that prior to that act coming into force the court had possessed and exercised a common law power to remove the trustees of a Jersey trust. It found that the position of trustees and protectors were analogous in this regard (on the basis that both owed fiduciary duties in relation to a trust) and that, accordingly, it retained a power to remove from office a protector of a Jersey trust. In this case, not surprisingly, the court had no hesitation in exercising that power and removing the protector.

(iv) The case of Kleinwort Benson (Jersey) Trustees Limited v Pinto and others concerned the interpretation and construction of trust terms where multiple powers are granted to a trustee under the terms of a trust.

The issue was whether it was necessary to consider the restrictive wording in one such power when determining the scope of another? The trustee wished to exercise a general power of appointment in a trust (“Trust”) to transfer part of the trust’s assets to be held on the terms of a further trust, the main beneficiaries of which would be the children of one of the beneficiaries under the trust. The children were not beneficiaries of the Trust and there was no power to add beneficiaries. The trustees sought to rely upon the power that allowed them to “pay or apply” some or all of the trust’s assets “to or for the benefit of” any one of more of the beneficiaries. The Trust also included two further powers; that is that the trustees could: (i) appoint that, from a particular point forward, it held part or all of the Trust’s assets on different terms; or (ii) pay or apply the income or capital of the Trust to the trustees of any other trust provided that in the case of: (a) that no person other than the beneficiaries should benefit from any such appointment; and, in the case of (b) that no person other than the beneficiaries should be interested in such other trust.

The court observed that the deed establishing the trust had to be “read and construed as a whole” and the restrictions expressly imposed upon the powers that dealt specifically with transferring the Trust assets to be held on different terms should be read as restricting the more general power. The court held that the manner in which the trustee proposed to exercise its more general power was effectively expressly forbidden by the provisos to the two more specific powers.

(v) In the matter of the Beachcroft Trust the court confirmed the criteria for the grant of an order for rectification (that is, of the retrospective correction of an error contained within a trust document) were as follows:

1. It must be shown that the highest degree of probability that the mistake in the document is genuine and that, as a result, the document does not reflect the true intention of those responsible for the document.

2. There must be full and frank disclosure of all relevant information; and

3. Rectification will not normally be granted where there exists an alternative remedy.

The court confirmed it was satisfied that all of these criteria had been fulfilled and granted the order sought.

(vi) In Rathbone Trust Company (Jersey) Limited v Kane and others the court considered a number of questions relating to what powers a trustee of a Jersey trust has and how those powers should be used.

The first representation related to an error on the face of the Douglas Kane Trust (the “Trust”). It was apparent that the Trust had been intended to create consecutive life interests for the issue of Mr Kane; there was a risk that it in fact created concurrent life interests. The trustee wished to clarify the position, and to do so it considered exercising a specific power granted to it under the terms of the Trust, specifically “to rectify any manifest errors” in the Trust.

The power to rectify was therefore expressly conferred on the trustee, but in what circumstances would it be proper for the trustee to exercise that power? The purpose of the first representation was to seek the court’s guidance on this question.

The court, referring to its decision in Re S Settlement (24th July 2001) Jersey unreported [2001/154], stated that there are 3 issues upon which the court will need to be satisfied prior to approving a trustee’s proposed exercise of its powers in these circumstances, specifically:

(i) that the trustee has reached its decision to exercise its powers in a particular manner in good faith;

(ii) that the decision that the trustee has come to is one that a reasonable trustee properly instructed could have reached; and

(iii) that that decision is not vitiated by the trustee having any actual or potential conflict of interest that might have affected its decision.

In this case the court was satisfied that the trustee had fulfilled these criteria and, accordingly, approved the proposed exercise of the trustee’s powers.

The second representation arose out of the will of Douglas Kane, who had died in 2000. In the will he purported to leave certain sums to his grandchildren “to be held in custody for them by the same Jersey trust arrangement … which sum together with accrued interests and dividends will be put to the disposal of the beneficiary in five equal instalments …”.

This gave rise to a number of issues, including: (a) whether or not the court had any jurisdiction over this bequest on the basis that the late Mr Kane had died domiciled in the Netherlands; (b) whether these words alone were sufficient to create a trust; (c) if so, whether the proper law of that trust was Jersey law; and (d) what, in the absence of any specific provisions, were the trustee’s powers of investment in relation to this new trust?

It was agreed that the words contained in the will were sufficient to constitute a trust in respect of the bequests to the grandchildren, and the court went on to decide that it did have jurisdiction to review the implications of the will on the basis of Article 4 of the Trusts (Jersey) Law 1984.

Article 4 provides that the proper law of a trust is the law of the jurisdiction (a) expressed by the terms of the trust as the proper law; or failing that (b) to be implied from the terms of the trust; or failing that (c) with which the trust at the time it was created had its closest connection. In this case alternative (b) was satisfied because of the reference in the will to “the same Jersey trust arrangement”, which the court found was a reference to the original Douglas Kane trust itself. Moreover, the court also stated that the trust created by the will would have satisfied alternative (c) since the proposed trust assets and the trustee itself were located in Jersey.

One of the problems, though, was that in a trust created in little more than a few sentences there is very little express guidance to the trustee on the subject of its powers, obligations and duties. Two issues, in particular, concerned the trustee, specifically what were its powers of investment, and could it take remuneration for acting as the trustee of this new trust?

On the first of these points, the court decided that the trustee had the normal range of investments powers on the basis that the use of the words “interests and dividends” by the testator in the will indicated his intention that there would be some kind of active investment of the funds.

It is interesting to note, however, that the court observed that “particular prudence” should be exercised in this respect, since the funds were ultimately for the benefit of beneficiaries who were at this stage minors.

On the second point the court confirmed its previous decision in the case of Re the R F Norman Settlement (14th March 2002) Jersey unreported [2002/61] stating that it would be “unreasonable and unrealistic to expect a professional trustee to undertake the responsibilities of administering a trust without any remuneration”.

Permission was therefore granted to the trustee to charge for its services in relation to the new trust in accordance with its normal scale of fees, although it is notable that the trustee in fact voluntarily offered to cap its fees in this regard to a rate of 1% of the value of the funds per annum.

Perhaps of equal significance to professional trustees finding themselves in a similarly difficult and unclear situation was the court’s decision on the costs of this application. The court confirmed that it was happy for the costs to be paid out of the funds of the new trust, presumably on the basis that making the application to the court to resolve these issues had been the correct course of action on the part of the trustee.

(vii) In A K Mackinnon v The Regent Trust Company Limited & Others The Regent Trust Company Limited succeeded in striking out a claim that three trusts administered by them were invalid. The Bailiff's decision in this case is a key one in showing the Royal Court’s determination to uphold trust deeds freely entered into by a settlor.

The claimant had alleged before bringing proceedings that three voluntary settlements were ‘shams’ and therefore invalid. However, the claimant accepted there was no intention on the settlor’s part to mislead or deceive, which Regent said was a crucial ingredient of sham.

Instead, the claimant said that neither the settlor nor the original trustee ever intended that a trust be created over the assets on the terms of the three written trust deeds. The claimant alleged that it was always the intention the assets be held as if they still belonged to the settlor. Regent argued that as there was no real claim of sham, the trust deeds must therefore be valid in the absence of some other factor like mistake, coercion, undue influence or fraud.

The Bailiff agreed with Regent and struck out the plaintiff’s ‘no intent’ claim. In the absence of a vitiating factor like fraud, duress, mistake etc the subjective intention of a settlor is irrelevant - his objective intention is to be ascertained from the terms of the written trust instrument. You do not look behind the trust instrument in these circumstances. Thus the court upheld the sanctity of Jersey trust deeds and the need for commercial certainty in the trust industry.

(b) In addition to the three consultative papers referred to in the introductory section, the following are of note:

The Human Rights Law (Jersey) 2000 has not yet been brought into force but it is anticipated this will be done in 2005. This Law will protect the rights enshrined in the European Convention on Human Rights against interference from public authorities (including regulators) but the timetable for this remains unclear. It is not anticipated that there will be a significant effect on trusts or trustees.

A draft Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism is shortly to be circulated for consultation by Jersey Financial Services Commission (“JFSC”) and is intended to reflect current international standards.

The Data Protection (Jersey) Law 2005 is expected to come into force in or about April 2005. It is proposed there will be certain exemptions applicable to information held by trustees. This law is based upon and is very similar to the UK’s Data Protection Act 1998 and it is designed to satisfy foreign equivalence requirements..

(c) Article 2 of TJL expressly provides for the existence of trusts in Jersey, but Article 1(5) provides that TJL is not an exhaustive codification. In addition, a small body of Jersey case law on trusts emerged (some borrowing from English common law), prior to the coming into force of TJL (notwithstanding Jersey case law having its origins in Norman customary law).

2. Anti-money laundering

(a) Jersey is regarded as a cooperative jurisdiction by the FATF and even before a joint “position paper” with Guernsey and the Isle of Man in February 2002, Jersey was described by an international evaluation team as having “close to complete adherence” to the FATF’s 40 Recommendations.

The IMF Report on Jersey of November 2003 commented:

“Jersey demonstrates a high level of compliance with the FATF 40+8 Recommendations particularly with respect to confiscation of the proceeds of criminal conduct; law enforcement and prosecution powers; customer identification; exchange of information; international cooperation and measures to combat terrorist financing’’.

(b) These requirements have not changed since last year.

Trust companies and other financial businesses are obliged pursuant to the Drug Trafficking Offences (Jersey) Law 1988, the Terrorism (Jersey) Law 2002 and the Terrorism (United Nations Measures) (Channel Islands) Order 2001 to report any transactions which they know or suspect to involve the proceeds of drug trafficking or the funding of terrorism. The Proceeds of Crime (Jersey) Law 1999 (the “1999 Law”) imposes a duty on individuals and institutions to report suspicious transactions where they relate to the proceeds of criminal conduct. “Criminal conduct” is defined for the purposes of this Law as conduct which would constitute an offence which, if committed in Jersey, might lead to a sentence of imprisonment of one or more years. This will therefore include offences such as theft and fraud, robbery, forgery and counterfeiting, alleged deposit taking, blackmail and extortion. Tax evasion per se is not punishable by imprisonment in Jersey and it does not therefore fall within the ambit of the Law. However if, within the context of a fiscal offence, another common law offence such as fraud or false accounting is committed then it will be included and hence will fall to be reported. Information disclosed to the Jersey Financial Crime Unit pursuant to this Law can be disclosed outside the Island but only with the consent of the Island’s Attorney General, which consent may be given generally or specifically and subject to conditions which may, for example, prohibit its further disclosure without the Attorney General’s consent. The 1999 Law, in addition, imposes a requirement on financial services businesses to have specified procedures in place to combat money laundering.

As regards accepting appointments to a new trust a Jersey based professional trustee will need to go through the client verification procedures set out in the JFSC’s Guidance Notes. In some cases, trustees administering an existing trust will need to conduct retrospective ‘’Know Your Client’’ checks in accordance with the same procedures.

3. What measures are there to combat the use of trusts to procure the concealment of assets?

(a) If trust company business is carried on by a professional trustee in or from within Jersey, the trustee will generally be subject to the regulatory regime of the Financial Services (Jersey) Law 1998 (“FSJL”). Under the FSJL anyone who carries on trust company business (which is widely defined and includes the provision of company directors, company secretary and/or registered office, as well as the provision of trustee services) in or from within Jersey (or, if they are a Jersey corporate entity, anywhere in the world) must, subject to certain limited exemptions, become a registered person and be subject to a full regulatory regime and the investigatory powers vested in the JFSC. As mentioned above, Jersey statute also provides certain gateways for disclosure of information to foreign supervisory authorities.

(b) Such information may, in certain circumstances, be reported to Jersey’s Attorney General under the provisions of the Proceeds of Crime (Jersey) Law 1999 (see question 2 above) who may pass it on to foreign authorities investigating fraudulent activity. The Criminal Justice (International Co-operation) (Jersey) Law 2001 extends Jersey’s ability to cooperate with the authorities of other jurisdictions in relation to investigations into a limited number of offences including fraud, to investigations into all crimes (including fiscal offences).

(c) In February 2002 Jersey and Guernsey reached agreement with the OECD on exchange of information, including that the Islands would put in place legal mechanisms that allow information to be provided to tax authorities upon specific request for the investigation and prosecution of criminal tax matters, and provide to tax authorities upon specific request, and in accordance with tax information exchange agreements to be negotiated with individual countries, information that may be relevant to civil tax matters. Jersey has signed such an agreement with the US. The OECD at the same time agreed that Jersey and Guernsey would not be listed as “uncooperative”, and the agreement is thought to have done much to advance the Islands’ cause in the eyes of the UK and EU.

4. Asset protection trusts

(a) There is no legislation in Jersey specifically relating to asset protection trusts; the recognition and enforcement of foreign bankruptcy orders and assistance to foreign courts is the same in trust cases as in any other.

The common law in Jersey on the subject of transfers to trustees in fraud of creditors has developed from the Roman law suit known as a “Pauline action”. Essentially, the rule is that the alienation of property is voidable where a “substantial purpose” of the disposition is to defeat creditors and there is a close connection in time and effect between disposition and the subsequent insolvency of the creditor. The Royal Court in Grupo Torras SA v Al Sabah and six others [2002] JLR 53 held that the limitation period for a Pauline action is 10 years, and the action may only be brought by a creditor where the facts giving rise to the debt occurred before the disposition in question.

A claim may be brought against trustees of a trust containing assets in which a claimant has a proprietary interest, based on the “unjust enrichment” of an innocent trustee. Statutory provisions also exist enabling the court, in the event of an insolvency, to set aside transactions at an undervalue or which confer a preference. Alienations of property that contravene these rules (such as the settlement of these assets into a trust) accordingly may be vulnerable.

(b) See 4(a) above.

(c) In civil proceedings in Jersey where fraud is alleged the putative fraudster may not be able to rely on privilege in order to refuse to disclose documents that would otherwise be privileged.

5. Shams

(a) The Trusts (Jersey) Law was amended in 1989 (see also question 6 below) to provide that transfers made after that date into trusts would not be invalidated by operation of a rule of Jersey customary law known as “donner et retenir ne vaut” (which existed to protect creditors from the effects of illusory gifts). However, in In Rahman v Chase Bank (CI) Trust Co Ltd (1991) a trust was found to be a sham in circumstances where the settlor had treated the assets of the trust “as his own and the trustee as though it were his mere agent or nominee”. There have been no other findings of sham trusts by the Jersey courts since Rahman, and it is not uncommon for settlors of Jersey trusts to reserve some powers to themselves.

In Abacus (CI) Ltd and others v Al Sabah and others [2003] JRC 092 (see 1 above) the Royal Court held that for a trust to be a sham it was necessary for both settlor and trustee to intend that the true arrangement was otherwise than that set out in the trust instrument.

See the MacKinnon judgment synopsis at 1(a) above.

(b) On such a failure of a trust there will normally be a resulting trust for the settlor.

6. Forced heirship

The Trusts (Amendment) (Jersey) Law 1989 amended the existing TJL so that a person domiciled outside Jersey who transfers or disposes of property during his lifetime to a trust shall be deemed under Jersey law to have had capacity to do so if he was of full age and sound mind under the law of his domicile. The law further states that no rule relating to inheritance or succession shall affect the transfer or the validity of the trust. Plainly, these provisions do not and cannot prevent the validity of the transfer or of the trust being attacked in a foreign court.

One of the key changes proposed to be effected by an amendment (No.4) to the TJL by the Trusts Law Working Group in a consultation paper published in November 2004 by Jersey’s Economic Development Committee is the adoption of more robust anti-forced heirship provisions and, in particular, the exclusion of conflict of law rules to make Jersey trusts and gifts to them less open to challenge. This would be achieved by disapplying foreign rules (as well as Jersey forced heirship legitime rules) which concern the validity of trusts, the settlor’s power to dispose of assets; and the settlor’s heirs’ challenges on the basis that succession laws disturbed the settlor’s title to assets, or breached any fiduciary duty owed by a settlor to heirs.

7. Protectors

(a) and (b) There are no specific statutory rules relating to protectors except Article 20 TJL which provides that a trust instrument may require the consent of some person other than the trustee in relation to the exercise of specific powers and confirms that a person giving such consent shall not thereby be deemed to be a trustee. However, the point at which the vesting of dispositive powers in a protector will render that protector a co-trustee remains unclear. This question is particularly difficult where, for example, a protector's powers are such that the trustee is left only with responsibility for custody of the trust assets. So far as concerns the question of whether a protector is a fiduciary under Jersey law, the generally accepted view, particularly following the Magnus judgment (see 1(a) above) is that this is the case where a protector has powers exercisable for the benefit of others.

8. Purpose trusts

(a) Yes. It is notable that the consultation paper on trust law reform referred to in the introduction above proposes two enhancements to make purpose trusts more attractive. First, that purpose trusts be permitted to continue indefinitely (like charitable trusts) and second, that holding a particular asset is, in itself, sufficient to constitute a valid purpose.

(b) The Trusts (Amendment No. 3) (Jersey) Law 1996, amended TJL so as to expressly provide for the establishment of non-charitable purpose trusts. However, such trusts must provide for the appointment of an enforcer who is responsible for the enforcement of the non-charitable purposes. The enforcer cannot also be the trustee and the enforcer cannot profit from his office without the approval of the court or express provision in the terms of the trust. An enforcer has the same rights to information concerning the trust as the beneficiary.

(c) Purpose trusts are allowed.

9. Tracing of trust assets

(a) and (b) In Grupo Torras SA v Al Sabah and six others [2002] JLR 53 the Royal Court confirmed that in Jersey as in England when property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, and that a beneficiary of a constructive trust does have an equitable proprietary interest in the assets of the trust. The principle of tracing forms part of the law of Jersey. In Jersey, the English rules of equitable (as against common law) tracing will be applied, permitting tracing through a mixed bank account, save that the “apportionment method” is followed instead of the English “first in, first out” rules.

Furthermore, the Royal Court in the same case confirmed that tracing can extend to the assets of a wholly owned company and into immovable property.

10. Attacking trusts

(a) A creditor cannot generally attack the trust assets directly but must take action against the trustee. Where a resulting or constructive trust is alleged to exist, action would be taken against the person holding the assets.

In Abacus (CI) Ltd and others v Al Sabah and others [2003] JRC 092 the Royal Court held that there was no cause of action to pierce the veil of a trust and inclined to the view (but did not decide the point) that a remedial constructive trust did not form part of the law of Jersey.

(b) No specific measures have been enacted to frustrate action by “trustbusters”.

11. Ensuring trustees’ performance

(a) Yes, Article 17(1) TJL provides that trustees shall exercise their powers and discretions with due diligence, as would a prudent person, to the best of their skill and with utmost good faith. Furthermore, Article 17(3) provides that, subject to the terms of the trust, a trustee shall so far as is reasonable preserve and enhance the value of the trust property. All exoneration provisions must be read subject to Article 26(9) TJL which provides that “Nothing in the terms of a trust shall relieve, release or exonerate a trustee from liability for breach of trust arising from his own fraud, wilful misconduct or gross negligence”. Gross negligence means a flagrant or serious departure from the standards expected from a trustee.

(b) The JFSC have laid out detailed criteria in codes of practice regulating the conduct of trust company business in or from within the Island. The codes include requirements for trustee companies to be owned and controlled by approved principal persons, meet an adequate span of control, prescribed ratios of advanced and intermediate staff qualification, 25 hours of continuing professional training for every staff member per annum, proper protection of “customers assets” by way of segregation and identification of the assets, adherence to minimum solvency levels and maintain professional indemnity insurance. The JFSC is the licensing authority for conduct of trust company business. The JFSC are empowered to conduct investigations, are armed with entry and search powers and have a number of sanctions including the issuance of directions, power to seek injunctions and remedial orders, the making of public statements and the imposition of conditions on a licence or revocation of a licence without which a trust company business service provider cannot trade in or from within Jersey.

(c) Yes, in the case of In re Green GLG Trust the Hastings Bass principle was acknowledged to form part of the laws of Jersey. In that case the court found that the appointments made were void ab initio by reason of the trustee’s tax advisor failing to take into account the tax consequences of such appointments. The court commented that the limits of the Hastings Bass principle are still to be developed and certainly not every decision made by trustees which they later come to regret can be declared void. In order to avail oneself of this remedy it is probable the court will have to be satisfied that the trustees would not have undertaken the decision if they had known the correct facts.

(d) Under Article 41 TJL the court has power to relieve a trustee either wholly or in part from personal liability for a breach of trust where it appears to the court that he is or may be personally liable, has acted honestly and reasonably and he ought fairly to be executed for breach of trust or for omitting to obtain the directions of the court in the matter in which such breach arose.

Under Article 42 TJL where a trustee commits a breach of trust at the instigation or at the request or with the consent of a beneficiary, the court may by order impound all or any part of the interest of the beneficiary by way of indemnity to the trustee or any person claiming through him.

12. Conflict

Jersey law makes no specific provisions for the migration of trusts, but like English law trusts, a Jersey trust does not have legal personality. It is not, therefore, capable of having a residence. Where the residence of the trustee is relevant, this may, of course, be changed in the normal way, which will depend upon whether the trustee is, for example, a natural person or a company. The Companies (Jersey) Law 1991, as amended allows a Jersey corporate trustee to be redomiciled in a different jurisdiction and thereby migrate the trusts of which it is trustee, although the proper law of the trust would not be affected. There is nothing in Jersey law to prevent a trustee of a Jersey trust being resident outside Jersey, though the court has power to order that a Jersey resident trustee be appointed. So far as a change of the proper law of a Jersey law trust is concerned, statute provides that this may be changed if the trust instrument so permits. Accordingly, a trust instrument could provide for the change of its proper law at the trustee's discretion or upon the occurrence of a specified event, such as a change of the trustee or a change of the trustee's place of business.

Jersey harmonised its rules on the choice of law in trusts with those of the Hague Convention in 1991, and became party to it in 1992. It has not been a significant feature of any cases yet.

13. Succession

The terms of the bare trust must create a “substantive” trust rather than a “bare” trust. This requires that the trust assets are not held simply for or to the order of the settlor, but are held on terms which ensure that the settlor does not have the absolute beneficial ownership of those assets.

14. Trustees’ powers of investment

(a) There are no statutory restrictions on a trustee’s powers of investment other than the duty to invest prudently and, if an investment advisor or manager is appointed, to make such appointment in good faith and without neglect. It must also make such decisions in accordance with regulatory “conduct of business” requirements. There are no changes of law contemplated specifically in this respect, though those actually providing investment advisory and discretionary investment management services in Jersey are now subject to the regulatory regime under the FSJL.

(b) There is no legislation governing investment specifically by trustees, but their powers of investment are subject to their general duties as trustees and under regulatory law, which would require the review, at appropriate intervals, of the performance of investment managers and that the trustee has exercised its investment powers on the basis of sufficient information and for a proper purpose.

15. Trading trusts

TJL provides that the liability of a trustee of a Jersey trust in relation to a transaction made with a third party extends only to the trust assets provided that the trustee notifies the third party that it is acting as a trustee and such notice should therefore be given wherever possible. As an additional precaution, trustees usually also require express limitation of liability clauses particularly in contracts not governed by Jersey law. None of this would affect a trustee’s liability for breach of trust. Whilst trading through an underlying limited liability company will not expose the trustee to liability in contract, and may protect the trustee from tortious liability, the trustee will still remain exposed to liability for breach of trust if it fails to properly control or monitor (to the extent that it has power to do so) the trading activities of the underlying company. A trustee (and the directors, as guarantors, of a trust company acting as such a trustee) will be personally liable for restitution of lost trust assets or lost profits resulting from a breach of trust. Such personal liability may be limited, but not excluded from, by terms of the trust instrument and the court may, in certain circumstances, relieve the director of a trust company of personal liability. There are also various different structures which may be used to provide the trustee with protection in such circumstances. Examples of some of the structures available under Jersey Law are:

(a) non-charitable purpose trusts;

(b) private trustee companies;

(c) split voting/non-voting shares of limited companies; and

(d) limited partnerships.

However, such structures are unlikely to remove a trustee’s duty to at least consider whether to apply to the courts for directions in certain circumstances.

16. Taxation

(i) No. Jersey has no capital gains tax (subject to the Comptroller’s “anti-avoidance” discretion where he considers that profits should be taxed as income). Tax advisors qualified under the relevant foreign laws applicable should be consulted on the issue of foreign taxes. Probate duty may arise on the death of an individual owning Jersey movable property (eg, if held on a bare trust or under a fixed interest).

(ii) If the beneficiaries are not resident in Jersey, no such tax will be payable in Jersey.

(iii) See (ii) above.

(iv) No.

(v) There have been no significant developments in Jersey on this during the last year.

17. Trustees’ obligations to disclose trust information

TJL creates a statutory presumption that beneficiaries should have disclosed to them on request documents which relate to or form part of the accounts of the trust. The wide English Re Londonderry definition of accounts has been adopted in Jersey. It includes the trust deed and an inventory of trust assets including the account of underlying companies. Where a beneficiary of the trust is seeking disclosure of particular material and such material is not unusually sensitive, then disclosure to that individual is likely to be (but will not necessarily be) ordered by the court. The court will retain a discretion in certain circumstances to order disclosure of documentation where it considers it relevant, whether or not the individual seeking such disclosure has any substantive “right” (whether as a matter of the terms of the trust or as a matter of law) to the disclosure of that documentation.

18. OECD, FATF, IMF and counter-terrorism

(a) In February 2002 Guernsey and Jersey reached agreement with the OECD to improve the transparency of their tax and regulatory systems and establish effective exchange of information for tax matters with OECD countries by 2006, and the OECD acknowledged the essential importance of a level playing field. Guernsey and Jersey are involved in the design of standards for the implementation of these and similar commitments, and neither Jersey nor Guernsey will be listed by the OECD as uncooperative tax havens.

Jersey is regarded as being a cooperative jurisdiction by the FATF (see above).

(b) Jersey introduced new legislation in relation to terrorism (the Terrorism (Jersey) Law 2002) on 1st September 2003. The JFSC have also been consulting with an industry steering group in relation to the drafting of a new Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism which is expected to be published for public consultation shortly.

19. Commercial trusts

(a) In addition to directors' duties (under Article 74 of the Companies (Jersey) Law 1990 in the event of a Jersey company), Jersey law follows the Bartlett v Barclays Bank decision which has been adopted by the Jersey courts in West v Lazard Bros [1993 JLR 165 and Midland Bank Trust v Federated Pension Services [1994 JLR 276].

(b) In the context of unit trusts, the duties of a trustee to act in the interests of beneficiaries (ie, the unitholders) is the same as that which applies to all other Jersey law trusts. The relationship of the trustee and the manager varies from unit trust to unit trust and will usually depend almost entirely on the terms of the unit trust instrument to which both the manager and the trustee would be party.

(c) There is no statutory or regulatory framework in Jersey applicable to trustees of pension funds. Accordingly their responsibilities will be determined by the terms of the pension documentation and trust law generally.

20. Regulation of corporate and trust service providers

In addition to the obligations imposed by the Proceeds of Crime (Jersey) Law 1999 and its subordinate legislation, the FSJL regulates trust company businesses. FSJL provides for the supervision of trust company businesses and prohibits the carrying on of such business in or from within the Island, or by Jersey companies in any part of the world, unless the person carrying on the business is registered under FSJL or otherwise exempt. FSJL gives to the Commission substantial supervisory powers in relation to such businesses. (See section 11(b) for further details).

Whitmill Trust Company Limited Whitmill is an independent trust company established in Jersey 19 years ago specialising in providing effective wealth structuring solutions. Now recognised as one of Jersey's leading boutique providers, our independent and flexible approach enables us to work with a wide range of clients located throughout the world. We pride ourselves on our commitment to tailor our services to meet the inidivual needs of our clients – however diverse they may be. We have developed a comprehensive and versatile skill set which allows us to add value to our clients' affairs; including specilaistion in the following areas:

• Private Client services
• Trusts
• Companies
• Funds
• Family Office Management
• Property
• Philanthropy
• Yacht Registration Services
• Aviation Management
• Intellectual Property

With offices in Jersey, Gibraltar and Geneva our independence and size allows us flexibility and swift decision making and an ability to choose from a vast network of professional contacts ensuring a truly bespoke service for our clients.

Barclays Wealth Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of £153.5bn, as at 30 June 2010. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services and brokerage. Barclays Wealth is the wealth management division of Barclays. Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 147,000 people. Barclays moves, lends, invests and protects money for over 48 million customers and clients worldwide.

Basel Trust Corporation (Channel Islands) Limited The Group is independently owned by its highly experienced key executives, resident in either Jersey or Switzerland. This independence allows for flexibility as well as for fast and effective decision making. Your proposals and requirements will thus be carefully yet quickly considered. Our professional skills encompass trust, accountancy, law, e-commerce, IT and banking. Indeed a number of our directors have been board members of major financial institutions in Asia, Europe and the Caribbean. By combining these professional skills in a unique way, and making use of our international locations, we are able to offer a bespoke service to fulfil your specific requirements in a cost effective and flexible way. Our independence and experience means that we are happy to work with any high quality financial institution and we are comfortable when dealing with most asset classes including investment, trading, intellectual property, real estate, aeroplane owning, ship owning and fulfilment companies. We manage and protect assets worldwide. Our products and services include family estate planning structures, probate avoidance arrangements and creditor protection trusts, as well as structures established to properly minimise the imposition of foreign taxes. The Basel Group is also pre-eminent in the fields of e-commerce, intellectual property and escrow services. Our clients’ assets are safeguarded due to the fiduciary nature of our business. Client assets do not belong to the Basel Group and are thus not reflected on the Group’s balance sheet. We are guardians of those assets rather than the owners. Additional security is provided as the Group is required to meet capital adequacy demands imposed by regulators and to maintain significant professional indemnity insurance levels. The key subsidiaries are fully licensed and regulated by the relevant financial services authorities and comply with all applicable statutory requirements in the jurisdictions in which they are based. Please note that Basel Trust Corporation is not a bank or investment management organisation. The Basel Group’s operating companies within Jersey, Basel Trust Corporation (Channel Islands) Limited and its affiliates, are regulated by the Jersey Financial Services Commission.

Basel Articles

Active Corporate Services (Jersey) Limited

AIBJerseytrust Limited

Alex Picot Trust Company Ltd

Allied Fiduciary Services Limited

Allied Investment Limited

Allied Trust Company Limited

Alter Domus (Jersey) Ltd

Andium Trust Company Ltd

Apex Trust Company Limited

Appleby Trust (Jersey) Limited

Baccata Trustees Limited

Bedell Group

BKS Family Office Limited

BKS Family Trustees

BNP Paribas Jersey

Bond Trust Limited

Cambridge Trust Co. Limited

Capco Trust Jersey Limited

Capita Fiduciary Group

Caversham Fiduciary Services Limited

Circle Trust Limited

Citco Jersey Limited

Close

Close Trust Company Jersey Limited

Consortia Partnership Limited

Consortia Partnership Limited

Consortia Secretaries Limited

Consortia Trustees Limited

Deutsche International Trust Corporation (CI) Ltd

Dominion Corporate Group

Dominion Fiduciary Services Limited

EFG Offshore Limited

Equinox Trustees Limited

Equity Trust (Jersey) Limited

Europlan Financial Services Limited

Fairbairn Private Bank

Fiduciary Management Limited

Galsworthy And Stone

Garfield-Bennett Trust Company Limited

Hawksford International

Herald Trust Company Limited

Horizon Group

Horizon Trustees (Jersey) Ltd

HSBC Trustee (C.I.) Limited

IFG Corporate Services Limited

IFG Trust (Jersey) Ltd

IFM Trust Limited

ING Bank (Jersey) Limited

Investec Trust (Jersey) Limited

IPES (Jersey) Limited

Jersey Trust Company

Jordans (CI) Limited

JPMorgan Trust Company (Jersey) Limited

Kedge Capital (Jersey) Ltd

Key Trust Company Limited

Kleinwort Benson

Legal Trustees (Jersey) Limited

Leumi Overseas Trust Corporation Limited

LGL Nominees Ltd

LGL Secretaries Ltd

LGL Trustees Limited

Lloyds TSB Offshore Trust Company Limited

Mazars Corporate Services Limited

Minerva Financial Services Limited

Moore Management Limited

Moore Stephens

Nautilus Trust Company Limited

New World Trustees (Jersey) Limited

Northern Trust Fiduciary Services (Jersey) Limited

Ogier

Osiris Management Services Limited

Pentera Trust Company Limited

Phoros Trustees (Jersey) Limited

R&H Trust Co (Jersey) Limited

RBC Trust Company (International) Limited

RBS Coutts Channel Islands

Saltgate Limited

Sanne Group

Seymour Trust Company Ltd

SG Hambros Bank (Channel Islands) Limited

Soditic Financial Services Ltd

Standard Bank

State Street's Alternative Investment Solutions

Stonehage Group

Trident Trust Company Limited

Trustcorp

UBS Trustees (Jersey) Limited

Vistra (Jersey) Limited

Volaw Trust & Corporate Services Ltd

Wilderspin Independent Governance

Zurich Trust Ltd