Contributed By Mourant
Guernsey trusts, foundations, companies and limited partnerships are used for tax and estate planning purposes, either individually or together as part of a larger structure.
Which structure is suitable will depend on various factors, and it is important for tax and legal advice to be obtained in any jurisdictions relevant to the structure.
Trusts are recognised in Guernsey and have been for a significant period of time (including prior to the introduction of initial legislation in 1989). Guernsey has a long-standing reputation for trust services, with a number of local and international professional trust service providers. The UK ratification of the Hague Convention on the Law Applicable to Trusts and on their Recognition 1985 was also extended to Guernsey, and so is incorporated into Guernsey law, further cementing the recognition of Guernsey trusts.
The courts are well versed in matters of trusts law and the jurisdiction benefits from a number of well-respected trust advisers.
Professional trust service providers must be licensed by the Guernsey Financial Services Commission and must adhere to regulations and legislation in place. Such regulations include strict compliance and risk requirements, as well as staff training, capital maintenance and sound finances and outsourcing guidance.
Guernsey legislative changes over the last few decades with respect to trusts, foundations and other wealth structuring vehicles have focused on increasing their advantages and increasing Guernsey's offering within the offshore financial world.
For example, many commentators praised the Trusts (Guernsey) Law, 2007 when it was introduced as being modern and at the forefront of trusts legislation. Similarly, the Foundations (Guernsey) Law, 2012 was seen as being appealing to common law jurisdictions (to whom the foundation was a fairly new concept) yet still sympathetic to the civil law roots of the foundation (which date back centuries).
Any decrease there may be in the benefits of planning with trusts, foundations or similar entities is as a result of changes to legislation in foreign jurisdictions and not in Guernsey.
Guernsey residents who act as trustee or administrator of a trust, or councillor or guardian of a foundation, are not taxed as a result of their role but will be liable to income tax on any fees paid for the provision of their services. If the trust in question has Guernsey resident beneficiaries or has been established by a Guernsey resident settlor who can benefit from the trust, then trustees may be liable to income tax in respect of income generated within the trust if they are treated as being tax resident in Guernsey. Guernsey resident individuals may also be liable to income tax if they are beneficiaries of foreign trusts or foundations, or similar entities.
Should a Guernsey resident act as trustee or administrator of a trust or foundation in or from within the Bailiwick of Guernsey by way of business (effectively receiving payment or payment in kind for their services), they will require a licence or exemption from the Guernsey Financial Services Commission pursuant to the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000 (as amended).
Irrevocable trusts and foundations capable of being altered are permissible in Guernsey pursuant to the Trusts (Guernsey) Law, 2007 and the Foundations (Guernsey) Law, 2012, and are given statutory form by Section 53(3) of the Trusts (Guernsey) Law, 2007.
Trusts can be varied in one of three ways, pursuant to the terms of the trust if they allow variation, with the agreement of all the beneficiaries (provided they are adults and not under any legal disability) – known as the rule in Saunders v Vautier and given statutory form by Section 53(3) of the Trusts (Guernsey) Law, 2007, or by an order of the court. If a court application is made, it is likely that the court will look to the English law position and particularly the procedural provisions set out in English law, which do not exist under the Trusts (Guernsey) Law, 2007. An example of these procedural provisions is consideration of whether an advocate should be appointed to represent the interest of the minors and unborns.
As regards a foundation, the purpose can only be amended if allowed in the constitution, or by an order of the court in certain circumstances (such as that the purpose cannot be fulfilled). The charter and rules can only be amended if provided for therein or by order of the court, which is limited to authorising the rectification of any error, defect or omission. The founder can only reserve a power to amend or vary if it is set out in the constitution.
It is also possible in respect of both trusts and foundations for certain powers to be reserved for the settlor or founder, or for others appointed by them. However, these powers should not be extensive or the integrity of the trust or foundation may be challenged and/or tax consequences may arise.
The Trusts (Guernsey) Law, 2007 in particular provides a list of powers the reservation of which will not invalidate a trust. These include a power to revoke, vary or amend the terms of the trust, a power to advance, appoint, pay or apply the income or capital of the trust property or to give directions in this regard, the power to appoint and remove trustees, investment managers and the power to change the proper law.
The foundations legislation provides that a founder may only reserve a power to amend, vary, revoke or terminate the foundation and, even then, for a limited period of time.
A recent trend we have seen is the desire to draft trust and foundation documentation in such a way that they are flexible enough to deal with evolving obligations in transparency and disclosure and building into the structure constitutional documents the flexibility to adequately and properly deal with such requirements as they develop.
There are no tax consequences in Guernsey simply because a beneficiary or settlor/founder resident in Guernsey acts as trustee of a trust or councillor or guardian of a foundation. Of course, if they are remunerated for acting as trustee, the remuneration received may be subject to income tax.