Jersey is on the OECD ‘white list’, which means that it has a clean bill of health as far as OECD members are concerned. Jersey stands out as a beacon of good practice in the world of trusts and other financial services and the expertise of those who ply these trades in Jersey is world recognized. Now, therefore, is a good time to remember the many legitimate and sensible uses for trusts. If you are fortunate enough to have sufficient assets to justify setting up a trust, you may well feel some responsibility to use those assets wisely, perhaps for the benefit of your family, perhaps for the benefit of others whom you wish to help. The purpose of this article is to provide a reminder of how trusts can be used to achieve such laudable purposes.
I start with the charitable trust. You may be thinking of using some of your assets for charitable purposes. If you simply want to give away money during your life, you can write out cheques as you wish, but alternatively you could put the relevant assets into a charitable trust, which may have tax advantages. The main use of a charitable trust, however, is to hold your assets after your death, and apply them for the stated charitable purpose.
Estate planning is important for those with substantial assets. There are myriad reasons why you may want to do more than simply leave the whole of your estate to named individuals in your will. For example, you may want the shares in the family company to be held by trustees, so that the company is not sold, but continues to grow for the benefit of future generations. You may have a child whose future comfort you want to protect, perhaps because of mental of physical disability; money or property could be held by trustees for that purpose. As a final example, parents sometimes worry that a child’s marriage may not last and substantial assets given to a child will be split, should there be a divorce; one of many legitimate ways to reduce the impact of this would be to provide a life interest perhaps a family home, perhaps in a portfolio of shares, to the child, with full ownership going to the grandchildren, so that the child has the house to occupy for life, but cannot sell it.
Spendthrift trusts are an example of estate planning. They are usually created by parents who fear that their children would dissipate their inheritance, and they provide that the assets are held by trustees and distributed (assets and/or income) in regular and limited amounts to the children.
Provided certain conditions are met, the assets in the trust are protected from the childrens’ creditors.
Freedom of disposition. In many countries you do not have freedom to dispose of your assets to whoever you like, whether during your life or on your death. The main reasons for such restrictions are to preserve ‘family’ assets within the family for the benefit of your spouse and/or descendents and to ensure that provision is made for dependants. Such restrictions may be avoided by the use of a Jersey trust.
Asset protection. There are two main areas where this applies. The person who trades on his own account and bears his own liabilities, such as a lawyer, may stand to lose everything if successfully sued for negligence. He probably will be insured, but the insurer may manage to avoid liability under the policy, or the insurance cover may not be sufficient.
The other main area is where you, or perhaps someone for whom you feel responsibility, live in a country where the rule of law does not apply, and assets may be confiscated. If the assets are kept out of that country, and only income is provided, the damage can be limited.
Assets can be protected, but this is a difficult area and great care must be taken when planning the protection. It was interesting to read recently a report suggesting that Michael Jackson put a substantial part of his assets into a trust, with the effect that they were protected from his creditors
Commercial uses for trusts are legion, from employee benefit trusts to collective investments to pensions, and so on.
Tax planning is a legitimate use of trusts. The legitimacy depends upon the circumstances, but an obvious example of a legitimate piece of tax planning is the Jersey Comptroller of Income Tax’s concession that Jersey trustees are not liable for tax on Jersey bank interest or trust income from abroad if the settlor and beneficiaries of the trust are resident outside Jersey.
Anonymity may be a legitimate reason for setting up a trust, particularly in delicate family matters, as the trust instrument is not a public document, and remains confidential between the settlor and the trustees.
These are a few examples of the uses for trusts; in fact, they can be formed and tailored to meet almost any legal requirement. It is of prime importance that at an early stage you seek appropriate professional advice, legal, fiscal and from a trust professional, if you think that a trust may be appropriate for your plans.
David Le Quesne, chairman, Vivat Trust