Trusts - Legal Arrangement
A trust is not a legal person, it is not a legal entity in its own right but a legal arrangement by which the ownership of property is separated from the right to benefit from that property.
A trust comes into existence upon the transfer of property by a person (known as the settlor) to another (known as the trustee) to be held for the benefit of one or more persons (known as the beneficiaries) or for a specified purpose or purposes.
Guernsey trusts are governed by the Trusts (Guernsey) Law, 2007 ("the Trusts Law").
A trustee can be a natural person or a legal person. Where the trustee is a Guernsey resident corporate trustee it may act as sole trustee. Otherwise, there must be at least two trustees.
A trust comes to an end once the trustees cease to own any of the trust property having distributed it to the trust's beneficiaries or for the trust's purposes.
The trustees of a trust must act in the best interests of the beneficiaries, observe the utmost good faith and act in accordance with the Trusts Law and the terms of the trust. They are also under a duty to ensure the trust property is under their control and to preserve and enhance the value of the trust property.
Different forms of Guernsey trusts include discretionary, life interest and purpose trusts. It is also possible for Guernsey resident trustees to administer a trust governed by the law of other jurisdictions. These are known as foreign trusts.
Discretionary trusts
A discretionary trust gives the trustees the discretion as to when, how and how much of the trust property to distribute to the beneficiaries of the trust. The beneficiaries have no defined right to any part of the trust property. The trustees may receive guidance from the settlor of the trust as to how to exercise their discretion, often in a document known as a 'letter of wishes', but this guidance does not bind the trustee.
Life interest trusts
A life interest trust provides that a person or persons has the right to receive the income from the trust property or to use trust property during their lifetime. These persons are known as life tenants. After the death of a life tenant the trust usually becomes a discretionary trust for the benefit of other beneficiaries.
Purpose trusts
A purpose trust does not have beneficiaries. Instead the trustees manage the trust property for the advancement of a specific purpose or purposes. Guernsey purpose trusts can include both charitable or non-charitable purposes, or a combination. Trusts for the advancement of non-charitable purposes must be created by an instrument in writing and must provide for the appointment of an enforcer whose duty it is to enforce the non-charitable purpose of the trust. A trust can provide for the benefit of beneficiaries and for the advancement of purposes, these trusts are known as hybrid trusts.
Specific trust structures
Guernsey trusts are sometimes used to create specific trust structures for providing investment products. These include 'Retirement and Annuity Trust Schemes' (RATS) which are structured to provide a tax efficient way for Guernsey residents to provide for their retirement. The terms of the RAT must be approved by the Director of the Revenue Service in order for it to comply with the tax rules and be tax efficient.
Guernsey trusts are also used to provide occupational pension schemes set up by employers to provide pensions for employees. These also need to be approved by the Director of the Revenue Service to receive tax benefits.
Another common trust structure is the 'Employee Benefit Trust'. These trusts are created by employers to provide benefits to employees.
