Jersey Trusts

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.

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.

Matrimonial proceedings

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.

Tax planning

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.

Asset protection