Guernsey and Jersey may be world leaders in the trusts industry, but that’s the result of hard work in the past and constant attention to making sure trusts are relevant in the present
As financial services and private clients have become increasingly globalised, selecting an international finance centre (IFC) in which to do business presents a unique set of challenges.
While professional advisers and intermediaries may have more jurisdictions to choose from, this means deeper consideration must be given to their clients’ circumstances – including where they live, the language they speak, their financial requirements and risk aversion – before matching them to the most appropriate location.
To the untrained eye, IFCs might all look alike, but each has a unique identity based, in part, on the strength and clarity of legal structures, and the ease (or otherwise) of doing business.
Jurisdictions are part of a competitive marketplace and those that meet the needs of an evolving international client base win more business than the rest. The challenge, then, is to stay relevant and fit for purpose in an ever-changing environment – something that’s particularly true when it comes to trusts.
In this regard, Guernsey and Jersey both have a formidable offering, as they’ve regularly amended their trust laws to make sure they reflect the demands of the modern client – creating, in the process, a robust, modern and sophisticated legal framework.
But this is only one of a number of positive factors that put the islands at the top table of the global trust industry. Both islands have a long and prestigious record of administering trusts, and an ongoing focus on maintaining the highest regulatory standards. The flexibility of their trusts is also an attractive proposition, as is the fact that the islands are English-speaking and located near to London.
Step back in time
While companies have been operating on the islands since the 1960s, legislation laying out the structure of trust law first came into force in Jersey in 1984. In Guernsey, it was 1989.
But, as James Campbell, a Partner in the Jersey trusts team at international law firm Ogier, explains, trusts date back to the Crusades. Knights warring overseas left land, coins and possessions in the hands of reliable third parties, who, in theory, would give it back later, usually to an heir, if the knight died.
A lot of time may have passed since then, but the principle remains the same – one entity entrusting the administration of assets to another for the benefit of a third. Entities can be individuals, groups or companies. Assets can be money, property or anything else of value.
Since 1984, Jersey trust law has seen seven amendments, the most recent in June this year. According to Campbell, the changes clear up potential ambiguities, clarify clauses and provide greater certainty to clients.
The reality is that, as the world changes, so trusts must adapt to the wider legal environment and emerging client demographics. Twenty-five years ago, the main driver behind trusts was tax efficiency, and in Jersey and Guernsey the bulk of clients were British.
Today, legislation has erased many of the tax advantages, so succession planning and ownership agreements provide the impetus, while demand has increased from places such as the Middle East, Russia and Asia.
“It’s fundamental that Jersey keeps its trust law modern and sufficiently certain, so that people continue to want to use Jersey structures,” says Campbell. “Trusts are a pillar of Jersey’s finance sector, so it’s vital we get it right.
“Client demographics are changing and tax mitigation is less of a driver than it used to be. Now political instability, in the Middle East for example, is a catalyst for people to structure their assets. Jersey is a major financial centre and offers political stability, strong professional services, a respected trust law and a reputable court that will give you a reasoned judgment.”
The purpose of the seventh amendment to the Trusts (Jersey) Law 1984 is to provide some nips and tucks to parts of the existing law that have caused trustees and beneficiaries a few difficulties, or at least uncertainties, in the past.
As part of the consultation process, trust law working parties gather to discuss issues referred to them by industry professionals. They confer on any sticking points and make recommendations for change.
Positive steps
Legal updates, then, are prompted by real-world cases in which existing rules have created confusion, and occasionally conflict – from double-negatives in phrasing to unclear rights and prohibitions. So they’re almost always seen as positive steps in the trust community.
“It has to be a good thing that everyone knows where they stand,” explains Siobhan Riley, Head of Jersey’s trusts and private wealth group at law firm Carey Olsen. “If lawyers can’t get a clear opinion on how to look after a structure then a new statement of principles avoids incurring legal fees or an argument about the point in question.
“It’s the same as company law – it has to accommodate what people want to do.”
The amendments process is complicated by the fact that Jersey and Guernsey – the latter of which made its latest set of revisions in 2007 – must line up legal provisions with common laws in the territories they serve, or in many cases improve upon them.
Both jurisdictions may have an international client base, but the City of London remains a rich source of staple work – a fact that the regulation-setters don’t forget. Jersey and Guernsey trust law is based on English law and the two remain closely aligned.
“Jersey has a long association with the City, particularly in the last 20 years, and you see a lot of people move over from London banks and accountancy firms to work here,” says Nigel Pearmain, a Partner at Voisin Law. “Partly for that reason, between the various offshore financial centres, Jersey trusts are very well regarded in London.”
Judith Millar, a Partner at London-based law firm Bircham Dyson Bell, agrees with this assessment. “The people who do the updating are practitioners themselves,” she says. “We know them and work with them and that’s crucial for both jurisdictions to provide practical solutions. There are differences with English law, but maintaining a close relationship is good for the whole industry.”
Looking ahead
In future, the careful process of updating trust law will continue. Despite many subtle improvements over the years, the law isn’t perfect in any jurisdiction. Centres learn from each other too, borrowing clauses that are well written and provide clearer principles.
“They rub off on each other, so it’s a case of looking outward as well as in,” says Michael Powell, Private Client Director at Hawksford. “Presumably, Jersey’s trust legislature looked at the Cayman Islands’ Star trusts in drawing up the newest amendments and decided certain elements could be beneficially incorporated. The same is true between Guernsey and Jersey, whose trust laws are closely aligned.”
In the Channel Islands, it’s a case of evolution, not revolution. The reputation of the islands as go-to jurisdictions for strong, stable and fair administration is the jewel in their respective crowns. The latest changes in Jersey are a typical example of this careful, ongoing process.
In a nutshell: Amendments to Jersey Trust Law
Trustee security
In conferring a right to reasonable security for liabilities prior to transferring trust property, the law will now clearly apply both to changes of trusteeship and distributions to beneficiaries. And where such security takes the form of an indemnity (as it typically does), that indemnity may be provided not only to the trustee but also to related parties.
Disclosure to beneficiaries
Article 29 of the 1984 law is restated in a clearer, more comprehensive fashion. Broadly speaking, the new article condenses into statutory format some of the existing case law on disclosure. Probably the most significant provision is that the law will now clearly state that restrictions may be drafted into trust instruments limiting the extent of a beneficiary’s rights to information on the trust, subject always to the power of the courts to order otherwise.
Variation
Article 47 of the 1984 law already permitted the Jersey courts to approve proposed trust variations on behalf of minor and unborn beneficiaries. The seventh amendment extends that regime to the provision of consent by the Jersey courts on behalf of persons who can’t be found, despite reasonable efforts, and also on behalf of any beneficiaries who, because they are part of such a large class, it would be unreasonable to have to contact.
Reserved powers
Article 9A of the 1984 law received some tweaks, making it clear that, from a Jersey perspective at least, it’s possible to have a valid trust even if ‘all’ (rather than just ‘any’, as before) of that Article’s list of powers are reserved to the settlor or granted to parties other than the trustee, and any such reservation or grant would not make that person a trustee. Furthermore, the presumption will be that trusts will have immediate effect, even where there’s little for a trustee to do until the settlor’s death because so many powers have been reserved by that settlor.
Accumulation
In the context of accumulating trust income, the seventh amendment now provides more flexibility for trustees. It’s possible now for trustees simply to retain income indefinitely, rather than having either to accumulate it and add it to capital or, alternatively, to pay it out. And unless otherwise provided, there’s no time limit on the exercise of the relevant powers of capitalisation, retention or distribution.
Information provided by Robert Dobbyn, Partner, and Carla Plater, Associate, at Walkers in Jersey