Major Trusts Law Amendment Comes into Force.

On October 27 2006 the 2006 Amendment No 4 to the Trusts (Jersey) Law 1984 came into force. The changes were finalized following public consultation and are expected to be welcomed by both trusts practitioners in Jersey and intermediaries evaluating which jurisdiction best meets their clients' needs.

The amendment offers greater freedom, protection and flexibility to persons seeking to establish trusts governed by Jersey law.

Freedom

The amendment allows the following types of trust to exist for an unlimited period:

• Jersey trusts for beneficiaries;
• Jersey purpose trusts; and
• Jersey hybrid trusts for beneficiaries.

Therefore, it is no longer only charitable trusts that are unrestricted by time limits. Before the amendment Article 15 of the law limited all Jersey trusts (other than charitable trusts) to a maximum duration of 100 years. However, in some cases it is now possible to extend the duration of existing trusts beyond 100 years if the terms permit this. In addition, unless the trust terms provide to the contrary, it is also permissible to exercise a power to move assets from one trust to another, even if the recipient trust will exist for longer than the first trust.

 This paves the way for dynasty private Jersey trusts. Thus, advisers to high-value families should consider the use of Jersey trusts carefully where the family wishes to ensure that benefits are preserved for many generations.

Protection

The amendment enhances the defence of a Jersey trust against attacks by foreign courts under foreign law on the grounds of:

• the validity or interpretation of a Jersey trust;
• the validity or effect of a transfer of property to a trust;
• the capacity of the settlor;
• the extent and use of a trustee's powers, obligations, liabilities and rights;
• the validity of the appointment or removal of a trustee; or
• the existence and extent of powers conferred or retained in the trust instrument (including, but not limited to, the validity of the powers of amendment, revocation and appointment).

It achieves this by barring the application of all foreign laws to the determination of any of these issues. The assets of the trust should, as far as possible, be located in Jersey in order to guard against a foreign court order attaching directly to property held by a Jersey trust.

Flexibility

Settlor's reserved interests and powers

The amendment addresses the concerns of settlors, particularly those who are successful entrepreneurs and those who wish to protect family 'crown jewel' companies, who find that their vision of strategic wealth building does not sit easily with the conferral of wide discretionary investment powers on trustees who are bound by duties of prudent and conservative trusteeship (ie, diversification, limited leverage). Such settlors may wish to retain certain limited controls over assets they are adding to a trust. To resolve this tension between entrepreneurial vision and traditional duty, the amendment adds a commercially sensitive new Article 9A which provides that the validity of a Jersey trust is not prejudiced by the settlor reserving or conferring on a nominated third party the power to:

• give binding directions to the trustee to purchase, retain, sell, manage, lend, pledge or charge any of the assets of a Jersey trust or direct the exercise of powers arising from such property (eg, voting rights in shares of (foreign or domestic) companies underlying a Jersey trust; 
• act as a director of a company wholly or partially owned by the trust;  
• revoke the trust;  
• amend the terms of the trust;  
• advance, appoint, pay or apply the income or capital of the trust; 
• appoint or remove any trustee, enforcer, protector or beneficiary;  
• change the proper law of the trust; 
• appoint or remove an investment manager or investment adviser; or 
• restrict any trustee power by making the consent of the settlor or a third party a condition precedent to the use of such power.

A trustee who acts in accordance with any such direction, reservation or grant of power by the settlor will not be held to have acted in breach of the trust.

The amendment gives the Jersey government the power to amend this list of powers through regulations.

Disclaimer of beneficiary's interest

The amendment replaces the provisions in Article 10 of the law concerning the disclaimer of a beneficiary's interest with a new, simpler Article 10A. This provision enables a disclaimer to have effect for a limited period only and to relate to all or part of the beneficiary's interest, irrespective of any benefit already received. Thus, for the first time a disclaimer of the whole of an interest in a trust may be made for a temporary period, which may be of significant benefit, for example, when tied to the period of a beneficiary's residency for tax purposes in a particular jurisdiction.

Delegation of trustee's powers

The amendment makes it clear that a trustee may delegate any of his or her powers, and the delegate may further delegate such powers if so permitted by the terms of the trust. For example, this may facilitate the delegation of investment manager powers conferred by a lead investment manager with general responsibility to a boutique expert sub-manager with particular expertise and experience in an specific field of investment.

Failure of settlor's intentions

The amendment saves trusts for charitable or non-charitable purposes where the settlor's intention can no longer be fulfilled because, during the trust period (which is now indefinite), the defined purpose has been satisfied, become impractical or otherwise ceased to be a valid charity or purpose. On application of the attorney general or a trustee, the Royal Court may now declare the property to be held for other purposes that are consistent with the original intention of the settlor and the spirit of the gift into trust.

Liability of corporate trustees

The amendment repeals Article 56 of the law, which controversially provided that directors of Jersey or foreign trust companies were liable as personal guarantors in the event of a breach of trust by the corporate trustee. Although Article 56 was not interpreted by the Jersey courts during the 22 years it was in force, it had a place in the trusts industry before the extensive trust and company business regulations were introduced in Jersey in 2000.

One concern raised over Article 56 was that it prevented the establishment of Jersey private trust companies for high-value bespoke architecture wealth structures where family members wished to act on the board of the private trust company. Following the repeal of the article, this is no longer a concern.

Timing

The amendment inserts a new provision into Article 57 of the law on the limitation of actions. It requires that any action founded on a breach of trust brought by a trustee against a previous trustee will be time barred if it is not made within three years of the previous trustee ceasing to be a trustee. If a new trustee is negligent in not realizing that a breach of trust by the trustee occurred until three years after the new trusteeship begins, a claim may be brought against the new trustee for failure to pursue. To prevent such situations, a legal audit of any new trust business should be conducted before the trustee accepts the trusteeship.

"International Law Office"