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A Basic Guide to Trusts

The purpose of this short guide is to describe the essential elements of trusts and to outline some of the advantages of establishing a trust in Jersey.

A trust is an arrangement under which one person, known as the “Settlor” transfers assets to another person, known as the “trustee”, and instructs the trustee to use those assets for the benefit of other persons who are known as the “beneficiaries”. The Settlor may be, and often is, a beneficiary and usually the other beneficiaries will be members of the settlor’s family. A beneficiary can, however, be any person nominated by the Settlor.

The settlor’s instructions are contained in a written document which is called the “trust deed” and this ensures that the settlor, the trustee and the beneficiaries know precisely what their respective rights and duties are. It also contains “rules” which set out precisely what the trustee can do and, if necessary, the Courts will act to ensure that the trustee abides by these rules. The principle which underlies all of the rules is that the trustee must always act in the best interests of the beneficiaries. Thus the trustee has the legal ownership and control of the assets but may not enjoy them himself - that enjoyment is for the beneficiaries only.

Some of the advantages of establishing a trust include:

Jersey is an ideal location for the establishment of an international asset holding trust. There are no capital taxes in Jersey such as gift, capital gains, wealth or estate taxes and for trusts which have no Jersey resident beneficiaries there are no income taxes. Thus capital can grow and income can accumulate within the trust free of all Jersey taxation.

Brief Synopsis of the use of a Discretionary Trust

The formation of a Jersey discretionary trust and the subsequent transfer of a Settlor’s assets into that trust effectively guards against future attacks against his wealth because he has severed his legal right and control over those assets.

The concept of a discretionary trust is that the trustees will hold the assets transferred to them on behalf of the nominated beneficiaries during the Trust period. The deed is prepared to embody the following:-

  1. The name of the Settlor;
  2. The names of the beneficiaries;
  3. The terms and conditions and powers of the trustees.

The trust becomes effective upon the signing of the document by both the Settlor and the trustees. In Jersey there is no requirement to have the document registered and therefore it is not available for public inspection as may be the case in certain other jurisdictions.

The usual terms of a discretionary trust vest the distribution of both capital and income in the complete and unfettered discretion of trustees. It should therefore be understood that although the Settlor may be included as a beneficiary he has no legal right to direct the trustees in the exercise of their discretion. However, in administering a discretionary trust, the trustees would normally require guidance from the Settlor as to the distribution of capital and income which is usually undertaken by the use of “a letter of intent” given by the trustees to the Settlor. This letter may be amended from time to time or totally rescinded. It is of course understood that in normal circumstances the trustee would have full regard for its content. The letter of intent is an informal document and does not form part of the trust deed. That has the advantage that it is not apparent from the main trust document which of the discretionary beneficiaries is ultimately to receive benefit from the trust funds or in what proportions.

It should be understood that the above is merely a brief synopsis of a standard formal type of discretionary trust. It is not intended to be a definitive explanation of every type of trust since trusts can be drawn in varying and wide forms.

This document is a brief guide to subject matter covered, and is not intended to be a detailed or comprehensive statement of the law. It should not be treated as legal advice. Clients are urged to take professional legal and other appropriate advice before pursuing any particular course of action. For more detailed information and professional advice on your own situation please contact Michael Blackie, Frank Gee or Julie Coward at Basel Trust Corporation.

Basel Trust Corporation (Channel Islands) Limited
PO Box 484
3 Old Street
St. Helier
Jersey
JE4 5SS

Telephone: +44 (0)1534 500 900
Facsimile: +44 (0)1534 500 901

E-mail: [email protected]

Regulated by the Jersey Financial Services Commission in the conduct of Trust Company business.