Trusts analysis

How trusts vary

Alan Binnington (pictured), director, Mourant Private Wealth, compares the different approaches to trusts in Jersey, Guernsey, Dubai, Delaware and Cayman

Many prospective settlors are frustrated at the restriction under English law on the duration of a trust to a life in being plus 21 years. Recognising this, a number of jurisdictions have now enacted legislation enabling perpetual trusts to be created. In this group are: Jersey, Guernsey, Dubai, Delaware (although in the latter case a trust of real property can last only for 110 years) and Cayman STAR trusts. Bahrain, Bermuda and BVI have chosen 100 years while the Bahamas, Cayman (in relation to non-STAR trusts) and the Isle of Man have chosen 150 years. It is likely that in future more offshore jurisdictions will follow this trend. 

Many civil law jurisdictions give heirs the right not only to challenge the provisions of a will that defeats their legal entitlement but also to challenge transfers into structures such as trusts which may also defeat their rights. A number of jurisdictions have now introduced legislation to protect trusts from such claims. In some cases the protection is intended not just to defeat forced heirship claims but also to prevent the enforcement of foreign judgments against trust assets, this being particularly relevant in the context of matrimonial claims. At present neither Bahrain nor New Zealand  have gone down this road but Jersey, Guernsey, the Bahamas, Bermuda, Cayman, BVI, Delaware, Dubai, the Isle of Man and Singapore have done so. 

Individuals contemplating the creation of a trust sometimes feel uncomfortable at the prospect of losing control of their assets. As a result a number of jurisdictions now permit the settlor to retain a degree of control over the trust assets without invaliditating the trust. Some jurisdictions, such as Bahrain, Bermuda, BVI, Delaware, Singapore and the Isle of Man have provided in their trust legislation that the reservation of powers to the settlor is permitted without specifying the precise nature of such powers. Others, such as Bahamas, Cayman, Dubai, Jersey and Guernsey have listed the types of powers that may be reserved although it is usually made clear that the list is non-exhaustive. Although New Zealand has not made provision for the reservation of powers to the settlor the ability to split the trustee’s function amongst different categories of trustee (such as the custodian, managing and advisory trustee) may be used to achieve a similar effect. 

A number of jurisdictions have amended their trust legislation to enable trusts to limit or exclude altogether beneficiaries' rights to obtain information. Thus, for example, the Bahamas legislation provides that there is no obligation to disclose information to a person unless they have a vested interest in the trust whilst Bahrain permits the trust to restrict information rights save for certain positive duties of disclosure set out in the statute. 

With the exception of the Cayman Islands which, through their STAR trust regime, pursuant to which trusts designated as STAR trusts confer no rights on beneficiaries to enforce the trust most jurisdictions are likely to allow beneficiaries to obtain some information concerning the trust, principally its accounts, subject however to the discretion of the court.

Under English law, the only trusts that could be created for the benefit of purposes rather than legal persons were charitable trusts. With the increasing use of trusts for commercial transactions a number of jurisdictions have introduced legislation to provide for the creation of non charitable purpose trusts. One advantage of a non-charitable purpose trust is that it can be used to benefit purposes which, while they may have some public benefit, do not fall within the traditional scope of charitable trusts. In the commercial context the principal uses are for off balance sheet transactions and to hold shares in a private trust company. 

In creating a legislative framework for non charitable purpose trusts one has to consider the question of enforceability given that there are no individual beneficiaries to hold the trustees to account. The solution adopted by those jurisdictions that have introduced non-charitable purpose trusts is to create the position of enforcer. This is the method adopted by Jersey, Guernsey, the Isle of Man, Cayman Islands, British Virgin Islands, Dubai and Bermuda (although in the latter case an enforcer is not essential). The Bahamas have chosen to have what is known as an authorised applicant who may be appointed under the trust but who could also be a person with some pecuniary interest in advancing the purpose or, in default, the Attorney General. Delaware provides that a person who has an interest in the declared purpose of the trust may petition the court for the appointment of an enforcer. 

Some of these developments are quite radical in their approach and are as yet untested outside their home jurisdictions. It will be interesting to see how they stand up to the scrutiny of foreign courts.

The trust is not of course the only structure that is used in private wealth management although it is still the favourite in common law jurisdictions. However its civil law cousin, the foundation, is increasingly being looked at because of its perceived advantages over the trust. Unlike the trust the foundation has its own legal personality which avoids the problem posed by changes of trustee where the assets have to be vested in the new trustees. In addition the foundation is seen as permitting a greater degree of control by the founder through the retention of rights by the founder. The Bahamas has now joined the traditional foundation jurisdictions of Panama and Liechtenstein in having foundations and it is likely that Jersey, Guernsey and the Cayman Islands will soon follow suit.