Offshore

Comment: New Guernsey Trust Law Will Add Complexity

Osmond Plummer Geneva 10 March 2008

Comment: New Guernsey Trust Law Will Add Complexity

As previously reported, the new Guernsey Trust law will become effective on 17 March 2008. The question is what difference does it make? If you are a tree, the answer is “Quite a bit”. The old law as amended in 1990 was a little over 8,500 words long. The new one is more than 5,000 words longer and some 3,000 words longer than the Jersey Trust Law revised in late 2006. The changes, in fact, offer few surprises as they have been subject to discussions and aired in public over the period of consultation. They certainly seem to be less than the increase in words would suggest. Purpose trusts (other than charitable) are now generally permitted, as is the case in the other international jurisdictions. These trusts must be created in writing and the new law provides for appointment of an enforcer, as is the case elsewhere. This person has a fiduciary duty to enforce the non-charitable purpose of the trust and there must always be such a person in place. There is a new section that specifies that the law that governs a Guernsey trust will be the Guernsey law but does recognise that other legal systems may differ in their opinions. It then goes on to state that no lack of recognition of the concept of a trust or rules prohibiting establishment of a trust or the discretion of the trustees (such as forced heirship) will apply in Guernsey. That is, except the rules in respect of forced heirship that apply to Guernsey residents. As is now common elsewhere, there is now no time limit on the duration of a trust created under the new law (but the time restriction on the life of trust created under the old law remains). There is also no restriction on accruals and perpetuities. The duty to preserve and enhance trust property remains as does the requirement for trustees to act as a bon père de famille. Interestingly, the powers of the court to vary the deed are restricted in nature in that the court is directed to ensure that the variation is in accordance with the desires of the settlor and is appropriate for the moment. And whilst the law allows a settlor to retain various powers and claims that they do not affect the validity of the trust, it seems to this reviewer that the issues the Guernsey drafters have avoided are the issues that some people see being raised by the Jersey law. That having been said, it is fairly certain that this increase in flexibility will require a commensurate increase in the complexity of drafting deeds so that they are effective, not just in Guernsey, but seen as such in the jurisdictions in which the settlor and beneficiaries reside and in the country in which property is located.

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