Using Jersey Private Trust Companies
When most settlors establish a trust in Jersey they use a professional trust company as the trustee. This way they can ensure that their tr...
When most settlors establish a trust in Jersey they use a professional trust company as the trustee. This way they can ensure that their trustees are professionals and have the security of knowing that they are regulated by the Jersey Financial Services Commission (“JFSC”) and registered under the Financial Services (Jersey) Law, 1998. Professional trustees will also bring to that settlor’s trust their experience gained being the trustee of many other trusts. Some of the big trust companies are trustees of thousands of private trusts. However, whilst this is the ideal way to proceed for many settlors, Jersey is also able to offer the flexibility of using a Private Trust Company.
A Private Trust Company (“PTC”) is defined in the Financial
Services (Jersey) Law, 1998 (“FSL”) as a company:
(a)The purpose of which is solely to provide trust company business services in respect of a specific trust or trusts;
(b)That does not solicit from or provide trust company business services to the public; and
(c)The administration of which is carried out by a registered person, registered to carry on trust company business under the FSL.
The main advantage from the settlor’s viewpoint in establishing a PTC is the additional element of control that the PTC can provide. The settlor and/or his or her family could be the shareholder or shareholders of the PTC and through that shareholding would be able to appoint and dismiss the directors to the PTC. Whilst this is an obvious disadvantage to the professional administrator, the control of the board of the PTC is often a welcome feature for settlors wishing to retain control. However, if the settlor and/or his family were minded to be shareholders of the PTC, the potential tax consequences of that ownership would need to be fully investigated.
If, for tax or other reasons, the settlor and/or his family did not wish to own the PTC directly, a structure could be put in place whereby the PTC was owned by a purpose trust. Purpose trusts are another example of the flexibility of the use of trusts in Jersey. A purpose trust is a trust that is established to achieve a non-charitable purpose and is not for the benefit of individual beneficiaries. This contrasts with a normal private trust established for a family where the family members are listed as the beneficiaries of that trust.
The “purpose” of the trust which owns the PTC would be, among other things, for the PTC to provide trusteeship services to designated trusts. In order for the PTC to comply with the requirement in (b) above then these designated trusts would normally all have to relate to one particular family or group of people.
Normally, the requirement for a trustee to be registered under the FSL would mean that the formalities and cost of establishing a company just to act as the trustee of a very small number of trusts would be prohibitive. However, one of the advantages of forming a PTC to act as trustee for a trust is that the PTC, provided that it complies with the definition as set above, is exempt from the requirement to register under the FSL.
The only regulatory requirement that must be met is that the name of the PTC must be provided to the JFSC. Additionally, if the PTC is a Jersey company, the JFSC would require disclosure of the ultimate beneficial ownership of the company and information regarding the trusts of which the company was to be the trustee. If, however, the PTC was a company incorporated in a jurisdiction other than Jersey, the rules relating to disclosure of ultimate beneficial ownership would depend upon the rules in that other jurisdiction.
The main disadvantage of using a PTC is the cost. You need to have the PTC administered by a registered person. Many of the professional trust companies in Jersey are prepared to administer PTCs but the costs are likely to be in excess of the normal charges that would be levied for a family trust where the professional trust company itself is the trustee. The use of a purpose trust would also be an additional layer and therefore cost, but may solve any potential tax problems. Due to the costs involved, PTCs are likely only to be attractive in a commercial context or for very large family structures. However, for these large family structures, any increase in costs may be outweighed by the advantages of having a dedicated trustee to look after a complex structure and the control provided to the family.
A further factor which needs to be taken into account when considering whether a PTC should be used is the ability of the beneficiaries to seek redress in the event of the commission of a breach of trust by the trustees.
It would be normal for a PTC to be relatively thinly capitalised, and this would, on the face of it, restrict the ability of the beneficiaries to seek redress should there be a breach of trust. Whilst the PTC itself may not have the funds from which the beneficiaries could seek redress, there is provision under the Trusts (Jersey) Law 1984, namely Article 56, whereby if a breach of trust has been committed by a corporate trustee (and the PTC would be a corporate trustee), every person who at the time of the commission of the breach of trust was a director of the PTC shall be deemed to be a guarantor of the PTC in respect of any pecuniary damages and costs awarded by any court against the PTC in respect of the breach.
Given this personal guarantee by the directors, the identity of those directors needs to be carefully considered if the PTC is to be thinly capitalised. Whilst it goes without saying that the directors of the PTC would seek to ensure that no breaches of trust are committed, and whilst they may be exonerated for breaches of trust, save for breaches of trust arising from fraud, wilful misconduct and gross negligence, it cannot be overlooked altogether and a commission of an act of gross negligence could, in these circumstances, be extremely serious for the directors of the PTC personally.
The use of PTCs is an extremely useful tool for certain types of settlors of Jersey trusts and should always be considered when establishing or running large complex structures.