Just over a year ago a survey illustrated that there were some 60,000 trusts administered in Guernsey. It is reasonable to assume that the largest proportion of these have been set up by private clients.
1. Asset conservation
Take the example of a private company. An individual has built it up over his lifetime and owns the shares outright. He has three children. Without a trust:
(a) the shares are part of his estate on his death and it may be that they must pass to each of his children equally under the applicable law of inheritance;
(b) his heirs may or may not be interested in the company, may or may not get divorced, may or may not become insolvent,
any of which events could threaten continued family control of the company. With a trust however:
(aa) any non-Guernsey rule of forced heirship may be overridden (the Trusts (Guernsey) Law, 1989 (the "Trusts Law") s.11A (2));
(bb) the trust can continue for 100 years (the Trusts Law s.12);
(cc) the interests of the beneficiaries can be discretionary and indeed "spend thrift" so that an interest is determinable on such an event as the beneficiary becoming insolvent (the Trusts Law s.40(c)); and
(dd) other than in the case of a Guernsey trust, the assets may not come under a direct threat in the event of a divorce of a beneficiary.
2. Asset Management
A frequently encountered variation on the above example is where the shares in a private company have been sold leaving the settlor with considerable wealth. He can still achieve the above advantages and also benefit from high professional standards from a trustee (the Trusts Law s.18(1)) who, if resident in Guernsey, will be the subject of professional regulation (by the Guernsey Financial Services Commission under the Regulation of Fiduciaries etc, Law, 2000). The trustees may themselves appoint competent investment advisers and managers (the Trusts Law s.29).
3. Legitimate Tax Advantages
Legitimate tax advice remains a fundamental part of estate planning. Indeed, in a recent English case a UK-based adviser was found to have been negligent for failing to advise a client that he could legitimately save tax by having his assets held in the Channel Islands rather than the UK.
Tax planning can be very complex and can involve the interaction of a number of different jurisdictions.
Particular tax planning points include:
(i) in a properly constituted trust, the property is no longer part of the settlor’s estate;
(ii) the trust property is "owned" by the trustees (see the Trusts Law s.66). If the trust is in Guernsey it will not generally be taxable here if the settlor and trustees are not Guernsey residents; and
(iii) the property is not fully or not even at all the property of the beneficiaries (see the Trusts Law s.10) and in many instances the beneficiaries are only likely to be taxed on what they receive.
Life is not necessarily that simple and so many offshore jurisdictions have tax legislation to counter or restrict principles (i) and (iii) as regards settlors/beneficiaries from their jurisdictions.
However, it would seem that a combination of the factors described above has persuaded tens of thousands of settlers to set up and run offshore trusts in Guernsey. Long may it continue.
For more information on Guernsey trust law please visit www.ozannes.com for details of Ozannes’ latest publication "A Guide to Guernsey’s Trust Law" in CD Rom format only, which is an invaluable source of reference for this area of law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
