Clients are often advised to set up trusts as part of their wealth planning arrangements but for some, an offshore trust may hold a certain mystique. The purpose of this article is to explain some of the basics in establishing a trust together with the potential benefits that may be available.
Q1. What is a trust?
A ‘Trust’ is a longstanding concept in English law which actually dates back to the Middle Ages. So hardly a recent invention! A trust is essentially a relationship whereby property is held by one party for the benefit of another. For example, a trust is created by you (the settlor) by transferring any category of property (i.e. real estate, investments, cash or any other type of asset) to another party (the trustee). The trustee then holds that property for the benefit of the beneficiaries e.g. the family members.
The trustee assumes legal title to the trust property, but is required to act in the best interests of the beneficiaries. In this respect, it would be usual for a trust to be created by the execution of a trust deed.
Q2. What is a trust deed?
The terms and rules upon which the trustee is to hold the trust assets will be set out within a trust deed. This is for the benefit of all parties as it will ensure that the settlor and the trustee know precisely what their respective rights and duties are, in addition it clearly sets out the rights of beneficiaries. The trust deed will usually provide that the trustee has the power to manage the trust assets in accordance with the terms of the trust deed and the governing law of the trust.
In addition to the trust deed, it is also usual for settlors to indicate to the trustee their wishes as to the future management and disposition of the trust fund in a less formal manner. This expression is often contained in a letter of wishes which, although not legally binding, will generally be considered by the trustee when performing executing their responsibilities (for example, considering if a distribution should be made from the trust fund).
Q3. What is the role of the settlor?
Once a trust is created the settlor will no longer have legal ownership of the trust assets. However, the settlor may be a beneficiary and may, in some circumstances, retain a degree of control by reserving the exercise of certain powers, such as the power to approve distributions or appointing different trustees.
Q4. Who are the beneficiaries?
The beneficiaries are the persons entitled to or who may benefit from the assets held in the trust. As stated above, the settlor may be one of the beneficiaries. The beneficiaries will benefit in accordance with the terms of the trust deed. It is also possible to include additional beneficiaries in the future or even to exclude some from any benefit.
Q5. What is the trust fund?
The assets constituting the trust fund may, generally speaking, be of any type of movable or immovable property. Further assets may generally be added at any time after settlement of the initial assets.
Q6. What are trusts used for?
The range of uses for a trust are now extensive as the trust concept has proved to be enormously adaptable over the years. Benefits include wealth planning, succession planning, asset protection and to a lesser extent tax planning. Such is the flexibility of a trust that it would be difficult to define its potential uses comprehensively
As a result, there are now a wide range of different types of trust available. We will cover some of these different types of trust in future articles.
Q7. What is the role of the Trustee?
As mentioned above, legal title to the trust assets is vested in the trustee under the terms of the trust deed and they assume responsibility for the proper management of those assets.
A trustee must act with due diligence, as would a prudent person, to the best of its ability and skill and must observe the utmost good faith. A trustee must exercise its powers solely for the benefit of the beneficiaries. Furthermore, a Jersey based trustee is subject to local regulation.
Q8. Why use Jersey as the offshore jurisdiction?
In the offshore world, the trustee may be an individual but more usually this would be a company regulated by the relevant jurisdiction.
In Jersey, corporate trustees such as Fiduchi are licensed and regulated by the Jersey Financial Services Commission (JFSC). The role of the JFSC is to maintain Jersey’s position as an international finance centre with high regulatory standards.
