• Trusts (Amendment No 4) (Jersey) Law 200- (the "new law")
  • August 23, 2006 | Author: Alan Dart
  • Law Firm: Bedell Cristin - Office
  • On 25 April 2006 the States of Jersey approved the draft Trusts (Amendment No 4) (Jersey) Law 200- (the “new Law”).   The Law will now go to the Privy Council for approval, and it is hoped that it will be enacted by the end of the year.  The Law will introduce several important amendments to the Trusts (Jersey) Law 1984 (the “1984 Law”).

     

    The new Law will replace Article 9 (formerly Article 8A) of the 1984 Law with much more comprehensive provisions designed to minimise the impact of any rules of foreign law upon the creation or operation of a trust governed by Jersey law (a “Jersey trust”).  At present, Article 9 offers a defence only to claims based upon foreign rules of inheritance or succession, or upon issues of settlor capacity.  The new Law will introduce an overriding requirement that in considering any issue as to the validity or interpretation of a trust, the validity or effect of any transfer of assets into a trust, the capacity of the settlor, the administration of a trust including powers and duties of trustees, or the existence and extent of retained or conferred powers, a court must apply only Jersey law (to the exclusion of the local legitime rules and/or conflicts of law rules).   To emphasise that only Jersey law is to be applied, it is expressly provided that the courts shall give no consideration to the prohibition or non recognition of trusts under any foreign law, or the avoidance or defeasance of foreign law rights arising from any personal relationship.   That term is defined as any relationship arising by blood, marriage or adoption, or any arrangement conferring rights analogous to those of parent and child or husband and wife under a foreign law.   Same sex relationships which have legal status under foreign law would therefore be covered by this definition even though the relationship might not be recognised in Jersey.

     

    A further provision in the new Article 9 will require that no foreign judgment may be enforced by the Jersey courts if it is inconsistent with the new Article 9.   It will be interesting to see how this provision affects applications made in relation to orders of foreign matrimonial courts affecting Jersey law trusts.

     

    The new Law will introduce an entirely new provision as Article 9A of the 1984 Law.   This will provide statutory authority for the creation of trusts under which a settlor reserves certain powers for himself, or confers those powers upon persons other than the trustees.   It has always been considered that Jersey law permits a trust to include such provisions if it is appropriately drafted, but the new Article will ensure that the position in Jersey is in line with that already adopted in many other offshore jurisdictions.   The powers permitted include powers to amend, vary or revoke the trust, powers of appointment over income or capital, powers to give directions as to investments and other property, and powers to appoint or remove trustees, beneficiaries and protectors.   A trustee acting in accordance with such a power contained in the terms of the trust will not be acting in breach of trust.

     

    Amendments are made to Article 10 so that it is now possible for any beneficiary to disclaim his interest in a trust in whole or in part, either permanently or for any temporary stated period, regardless of the terms of the trust.   However, a beneficiary can only make a disclaimer on a revocable basis if that is permitted by the terms of the trust.

     

    A potentially far reaching amendment arises under Article 15.  At present, all Jersey trusts (except charitable trusts) have a maximum 100 year duration.   Under the new Law, it will be possible for trusts to have an unlimited duration, although any trust may still provide for a maximum period of existence.   It will be very interesting to see whether the facility for a trust to exist indefinitely is generally adopted, or whether those advising settlors will prefer to include a specific limit to the trust period.

     

    The new Law will also confirm that no rules of perpetuity apply to Jersey trusts, and as a useful practical point, that an appointment from one trust to another of longer potential duration will be valid unless the terms of the first trust prevent this.

     

    Amendments are made to permit a sole trustee of any Jersey trust unless the terms of the trust require a higher minimum number.  The statutory power of appointment of new trustees is extended to apply to cases where the provisions in a trust have lapsed or failed, or where the person who has that power under the terms of the trust cannot exercise it.   In relation to trustees seeking to resign, simultaneous resignations which would result in there being no trustees will be ineffective, but a resignation made to facilitate a breach of trust will no longer be ineffective.   Instead, the trustee resigning will remain liable for the breach so facilitated.   This is a further amendment which will simplify the process of advising in relation to trusts where there have been past changes of trustee.  

     

    Much wider powers of delegation are conferred by amendments made to Article 25 of the 1984 Law.   It will become possible, unless prevented or restricted by the terms of the trust, for a trustee to delegate all of his trusts and powers, including dispositive powers, and for further sub-delegation to be made.   Presently, only administrative powers can be delegated unless the terms of the trust permit wider delegation.  This has been found to create problems where individuals act as trustee and the trust does not contain wide delegation powers.   Assuming the amendments become law, it will be possible for an individual trustee to grant a broad delegation to cover for periods of his unavailability.

     

    Article 32 of the 1984 Law, which deals with a trustee’s liability to third parties, has been amended to clarify the position where a third party is aware that he is transacting with a trustee, but has not been specifically informed of this by the trustee.   At present, the position in this situation is unclear.

     

    Amendments have been made to Article 35, dealing with spendthrift provisions, so that the Article as amended will simply confirm that any beneficiary’s interest can be made subject to diminution or termination.

     

    A new Article 47A will be introduced which will contain a much more comprehensive procedure to enable the courts to apply trust assets to consistent objects where the original charitable or non charitable purpose of a trust has become incapable of being practically achieved in any of the circumstances set out in the new Article.   As a result, Article 42(2) is repealed.

     

    The new Law will repeal Article 56 of the 1984 Law.   This is the Article which makes the directors of any corporate trustee automatically liable as guarantors of any liability for breach of trust committed by that trustee.   There is provision for a director to apply to the court to be excused from liability, but the burden of proof is on the individual director.   More importantly, perhaps, the Law contains no means to ensure that there is any substance to the guarantee imposed, so that it acts only in conscience, and the very existence of Article 56 is considered to act as a deterrent to certain forms of business, in particular private trust companies.

     

    The abolition of Article 56 will mean that the liability of any director of a corporate trustee will now fall to be determined in accordance with general principles of Jersey law, including principles of knowing assistance.

     

    Finally, a new provision is added to Article 57 of the 1984 Law to impose a three year limitation period upon actions brought by a current trustee against a former trustee, the time running from the date when the former trustee ceased to be a trustee.   This period is consistent with the statutory period already existing for other actions for breach of trust.

     

    The provisions introduced by the new Law will not only ensure that Jersey’s laws relating to trusts will stand comparison with equivalent laws in other leading offshore jurisdictions, but should also result in new business being attracted to Jersey.   In particular, the ability to create a Jersey trust with no maximum duration, or any given trust period, will open up possibilities for estate planning which will not exist in other jurisdictions, and the abolition of Article 56 will enable Jersey to compete more effectively in the international market for private trust company business.   However, this does not mean that the Law is now regarded as complete, and consideration will start very shortly as to further amendments which might be introduced for the benefit of clients and practitioners using Jersey trusts.