March 20, 2013
Guide to the Commercial Use of Trusts In Jersey
Naomi Rive (Jersey Practice Group Head, Appleby, LLC) recently published an article entitled, Jersey: Guide To The Commercial Use of Trusts In Jersey, Wealth Management, Mondaq, (Mar. 15, 2013). While the article can provide a basic guide to the use of trusts in Jersey, the article is no substitute for an attorney that can provide client specific information. Provided below is the preface to her article from Mondaq.com:
The lack of rigid formal requirements for the creation and operation of trusts, unlike companies, and the tremendous flexibility allowed in inserting clauses in trust instruments make the trust a very useful device for achieving many commercial purposes if there are no tax disadvantages in its use. Jersey law offers the additional attraction of permitting the establishment of non-charitable purpose trusts as an alternative to traditional beneficiary trusts.
The Trusts (Amendment No. 5) (Jersey) Law 2012 which came into force in November 2012 amended the Trusts (Jersey) Law 1984 to give certainty as to the uses of a purpose trust by inserting the definition of "purpose".
The particular commercial/legal features and advantages of using a purpose trust are:
- that a person owns or controls property which is subject to an obligation to apply that property for a particular purpose;
- the purpose is specified by the originator of the arrangement;
- the obligation is maintained by operation of law and cannot be revoked by any person unless the terms of the trust so permit. (This is the most prominent feature of the purpose trust – the maintenance of the obligation to apply the trust assets to the specified purpose irrespective of the wishes or legal rights of the obligee or any potential recipient (or classes of recipient) of benefit from the arrangement);
- the precise terms of the purpose and its mode of execution can be specified outright in the trust instrument or may be subject to variation within parameters specified by the originator; and
- the trust assets are dedicated to the specified purpose and "ring-fenced" from insolvency risks of the trustee. Subject to any defeasance rights the trust assets will also be protected from creditor claims against the originator of the purpose trust.
Trusts have long been used as a core element of many commercial arrangements whether in the context of pension funds, unit trusts, employee benefit structures or security trustee arrangements in capital markets issues. The following pages summarise certain less well known commercial uses to which a purpose or a hybrid purpose / beneficiary trust may be put. It is by no means an exhaustive description of possible uses which are limited only by the imagination and ingenuity of businessmen and lawyers in the commercial context.
A short summary of the legal and regulatory requirements for establishing a Jersey Law purpose trust is set out at the end of this guide together with summary information on the taxation of trusts in Jersey.
It is recognised that this Guide will not completely answer detailed questions which clients and their advisers may have. It is intended to provide a sketch of the subject matter covered. The Guide is, therefore, designed as a starting-point for a more detailed and comprehensive discussion of the issues.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this to my attention.
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