Briefing – Further Amendments to Jersey’s Trust Legislation – Trusts Amendment 7
Jersey’s government has approved further amendments to its principal trusts legislation – the Trusts (Jersey) Law 1984 (“Trusts Law”). Those changes, to be implemented by the Trusts (Amendment No.7) (Jersey) Law 201- (“Trusts Amendment 7”), will clarify rather than substantially revise the Trusts Law, and are expected to come into force later in 2018.
The legislative changes:
Article 1 – new definition of “officer”
A new definition of “officer” is inserted which includes:
- A foundation council member;
- a director, manager, secretary or other similar officers of a corporation;
- a partner of a limited liability partnership;
- a general partner or limited partner participating in the management of an incorporated limited partnership or separate limited partnership
- any other person purporting to act in any of the above capacities.
Why the change?
In recognition that modern trusts operate in conjunction not just with corporations but also with other vehicles (e.g. LPs, LLPs SLPs etc.), this new definition confirms the application of relevant provisions of the Trusts Law to that wider scope of legal and natural persons.
Article 9 – Extent of application of law of Jersey to creation, etc. of a trust
A minor change to Article 9(2A) is made in recognition that, in so far as that provision deals with determining the capacity of legal persons, that includes not just corporations but also other legal persons (such as LLPs and SLPs).
Art 9A – settlor reserved / granted powers and interests
Article 9A sets out the nature of powers that can be reserved / granted by a settlor.
Trusts Amendment 7 will clarify, among other things, that:
- not just some only, but all, of those listed powers can be reserved or granted;
- the ability to reserve / grant powers in relation to underlying entities in which the trust holds an interest extends not only to underlying corporations, but also other entities – e.g. LPs, LLPs SLPs etc.;
- the reservation or grant of a power does not of itself constitute the power holder a trustee.
Article 29 – disclosure of information
Article 29 deals with rights to, and duties of, disclosure of information and documentation concerning a trust.
Trusts Amendment 7 replaces the pre-existing Article 29 entirely. The new Article 29 recognises that a trust’s terms may:
- confer a right to request disclosure of information;
- determine the extent of the right to information; and
- impose a duty upon a trustee to disclose information to any person.
It also gives beneficiaries the right, (subject to the trust terms or court order), to request disclosure of documents which relate to or form part of the accounts of the trust.
However, as a protection, Article 29 also empowers trustees (subject to court order) to refuse a disclosure request if satisfied that to do so is in a beneficiary’s interests.
What is preserved from the pre-existing Article 29 is a trustee’s right, (subject to the trust terms or court order), to refuse disclosure of information or documents which identify the trustee’s deliberations or the reasons for its decisions.
Article 29 also recognises the power of the court to make discretionary orders relating to a request for / receipt of information or documentation concerning a trust. A trustee, beneficiary or enforcer (or such others person as the court permits) can apply for such an order.
Why the change?
Amending Article 29 removes uncertainty as to whether the express terms of a trust can restrict beneficiaries’ access to documents which relate to or form part of the trust accounts.
It also updates the legislation so as to reflect developments in Jersey case law in more recent years which have recognised the need to balance principles of confidentiality and of accountability to beneficiaries, and in that regard potentially competing interests of different beneficiaries, the trustees and other persons.
Article 38 – accumulation and advancement
Article 38 sets out rules for how trustees deal with the accumulation and application of trust income. Currently, save for income attributable to a minor’s interest, the default position (unless supplanted by a trust’s express terms) is that income not accumulated must be distributed.
With Trusts Amendment 7, that default requirement to distribute income not accumulated is replaced. Instead, income is to be retained as income for so long as and to the extent that:
- income is not distributed / required to be distributed by the trust terms;
- no trust to accumulate income and add it to capital, or retain it as income, applies or is exercised.
A new Article 38(2A) clarifies that, unless the trust terms provide otherwise, there will be no time limit within which the power to accumulate income / add it to capital, or to distribute it or retain it as income, must be exercised.
Why the change?
The amendments clarify and widen the options for trustees in relation to the accumulation and distribution of income, and the characterisation of trust receipts as either capital or income.
Article 43 – Termination of a Jersey Trust
Article 43 addresses how trust property is to be dealt with when a trust terminates. One element of that is the right of trustees to be provided with reasonable security against trust liabilities.
A similar entitlement to reasonable security is contained in Article 34 of the Trusts Law, in the context of a trustee ceasing to be trustee (e.g. on resigning from office).
Trusts Amendment 7 introduces a new Article 43A which clarifies that entitlement to reasonable security in the context of ceasing to be a trustee, distributing trust property, or a trust’s termination or revocation.
Article 43A specifically addresses “reasonable security” provided in the form of a contractual indemnity, and sets out the categories of persons in whose favour such an indemnity may be provided (including, for example, a corporate trustee’s officers and employees). It confirms that such persons may enforce such an indemnity made in their favour whether they are party to it or not, including a contractual indemnity made by other persons (e.g. replacement trustees) after their relationship with the trust has ceased but which is expressed to extend for their benefit.
Why the change?
Trustees (including former trustees no longer in possession of the trust funds) are potentially personally liable for trust liabilities.
Uncertainty as to the reliance that can be placed on a trustee’s lien under Jersey law has led trustees parting with trust funds to seek other means of ensuring that they will be able to clawback trust assets to meet later discovered trust liabilities which they might otherwise have to meet personally.
A contractual indemnity from the recipient of trust funds in favour of the trustee has become the market standard mechanism by which to deal with that potential personal exposure to trust liabilities.
This new Article 43A acknowledges that, and clarifies which persons may rely on such an indemnity, and also that the doctrine of privity of contract will not operate to prevent those not party to such a contractual indemnity being able to enforce it.
Article 47 empowers the court to approve an arrangement varying or revoking a trust’s terms, and to enlarge trustees’ powers of management and administration of trust assets. The court may only give such approval on behalf of persons who are not able to do so themselves (e.g. minors or unascertained beneficiaries) and if it concludes to do so would be for their benefit.
Trusts Amendment 7 will extend the scope of the court’s powers, enabling it to give approval on behalf of a person who cannot be found despite reasonable efforts to find him/her, and on behalf of a person who is a member of a class the size of which makes it unreasonable to contact that person.
Why the change?
Extending the court’s powers will enable the implementation of advantageous changes to trust arrangements which might otherwise be frustrated or delayed because beneficiaries cannot be located, or the class of beneficiaries is particularly wide.
The changes which Trusts Amendment 7 brings are evolutionary rather than revolutionary. They add clarity and further flexibility to Jersey’s trusts legislation, thus ensuring that it remains a jurisdiction at the forefront of international wealth planning. If you require further information or trust advice please contact Mason Birbeck firstname.lastname@example.org
Main contact: Mason Birbeck
Mason Birbeck is an expert in Trust Law. If you require any clarification on this briefing please contact him.