Uses and advantages – general
Jersey trusts are used principally to provide for the protection of the trust assets and to minimise or defer the tax payable on the income and the capital gains of the trust assets, and on the transfer of those assets.
Trusts established in Jersey can be used for a variety of purposes, some of which are listed below.
Anonymity and confidentiality
The separation of legal and beneficial ownership (which is the hallmark of a trust) means that the trustee and not the beneficiaries will be the registered owner of the trust assets. For example, if the trust assets comprise of shares in a company, it is the trustee that will be recorded as the owner in the company’s share register and the register will not normally indicate the name of the trust unless this is specifically requested by the trustee.
In order to offer even greater anonymity, at least on the face of the trust instrument, the trustee may execute the trust instrument as a declaration of trust. As a result, the name of the settlor will not appear in the document. It must be borne in mind, however, that any organisation carrying out trust company business in Jersey, which includes acting as the trustee of a trust or arranging for another person to act as the trustee of a trust, is subject to anti-money laundering legislation. Such legislation may require that the settlor of the trust assets and the significant beneficiaries of the trust provide evidence of their identities to the organisation in question.
Estate and succession planning – continuity of ownership
The legitimate avoidance of taxes and formalities
Because assets settled into trust do not form part of the settlor’s assets on death a grant of probate or other similar formalities will not be required in order to deal with the assets after his or her death. Another possible benefit which might arise from the fact that trust assets are separate from the settlor’s assets is that estate duties and taxes payable on the settlor’s estate on the settlor’s death may be minimised or avoided.
The avoidance of inheritance restrictions
A good example of one of the benefits of a Jersey trust is the avoidance of forced heirship provisions. Forced heirship may be described as a legal rule which restricts the right of a person to dispose of his or her property as they wish upon death so as to preserve that property for distribution to specified heirs. Such forced heirship rules may not prevent the alienation of a person’s assets during their lifetime but may operate so as to return certain assets which have been disposed of by that person during their lifetime to their estate for the purposes of distributing them to specified heirs. Such rules are often found in civil law jurisdictions. The Trusts (Jersey) Law 1984, as amended, deals with such issues. In relation to persons domiciled outside Jersey, it states that forced heirship or any other similar rule will not affect any transfer or disposition by such persons into a Jersey trust. As a result, the settlor can place his assets in trust free of any restrictions. However, additional practical steps should also be taken to protect the trust from forced heirship rules, for instance by ensuring so far as is possible, that the trustees and beneficiaries are not resident in countries with such rules and that the trust assets or underlying assets are not situated in such countries either.
Trusts can be used to protect family wealth in the event of divorce. Although the matrimonial courts have demonstrated that a husband and wife cannot salt assets away in a trust to avoid his or her obligations to the other spouse, or claim that they have no funds available to meet such obligations because they are in trust, careful planning involving the creation of Jersey trusts can help to preserve the wealth of the family (such as a family business from which the whole family benefit) from attack by the spouse of one beneficiary.
Trusts may be used for the legitimate avoidance of tax in other jurisdictions. This applies not just to taxes payable on the death of the settlor or any of the beneficiaries but also to taxes payable during their lifetimes. For example, because assets transferred into a trust do not form part of the settlor’s assets, this might mean that he may not be liable to tax on those assets – potentially reducing the amount of the settlor’s tax bill. Tax advice should always be taken when establishing a trust.
However, if a person knows that he or she has no actual, future or contingent creditors at the time the assets are settled into trust and provided the trust is established primarily for a purpose other than asset protection (for example, estate planning) a Jersey trust should protect trust assets from the claims of subsequent creditors of the settlor.
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