Trusts offer significant protection and flexibility. Guernsey is a mature trust jurisdiction, and has administered trusts since the 1970s. There are no exchange controls, also there is no Guernsey taxation on trusts, providing the settlor and beneficiaries are not locally resident.
Why use a trust? – examples
- To protect assets from attack or waste by minors, family disputes, unstable / hostile authorities.
- To hold a family business together for future generations.
- To leave assets to children according to the donor’s true wishes – which might not be possible under the forced heirship laws of certain countries.
- To provide legitimate confidentiality of asset ownership e.g. high profile families. Trusts are not subject to registration and filing requirements (unlike companies).
- For companies – to hold employee pension assets separately from company assets.
- Asset protection for charitable institutions.
Key points / parties
- The Settlor (or Donor) relinquishes the assets into the legal ownership and care of the Trustee.
- The Trustee becomes the legal owner of the assets. The Trustee is the contracting party with banks, investment managers and other service providers.
- The Beneficiary is the person for whom the Trust is created. The Beneficiary does not own the assets, but has the ability to receive benefit – subject to the terms of the Trust Document and the discretion of the Trustee (for a Discretionary Trust – see below).
- The Trust Document creates the trust relationship between the parties. It governs how the Trustee manages and distributes the trust assets.
- The Trustee is also subject to the Trusts (Guernsey) Law 2007. Guernsey trustees must also be regulated by the Guernsey Financial Services Commission (GFSC) under The Regulation of Fiduciaries, Administration Businesses and Company Directors etc. (Bailiwick of Guernsey) Law 2000 as amended. Guernsey trustees are also subject to Codes of Practice issued by the GFSC.
- With a Discretionary Trust, the trustee has discretion over payments to beneficiaries, investment strategy and all other powers. The Settlor or principal Beneficiary will often provide a note of their wishes to the Trustee, offering guidance as to how they might wish the Trustee to consider acting, both during their lifetime and after death.
- Sometimes, the Settlor may wish to appoint a Protector to oversee the actions of the Trustee. This is usually a family friend or trusted advisor, who will be given some limited and specific powers e.g. to consent to the addition/removal of beneficiaries, the appointment and removal of trustees.
- A Purpose Trust does not have beneficiaries, but will have one or more purposes – for example to provide funding for medical research, to own a certain asset. As there are no beneficiaries, an Enforcer must be appointed (similar to a Protector), to ensure the Trustee is fulfilling the purposes.
How secure are the trust assets?
As the Trustee holds the assets for the benefit of the beneficiaries – not itself – then the assets are ring-fenced and are not reflected on the balance sheet of the trust company.
Separate bookkeeping and accounting is undertaken for each individual entity (trust, company, foundation etc.)