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Managing your money 27 October 2021

Reasons to settle a trust

Author: Michael-Pierre Giraud, Head of Fiduciary Services, Jersey

Growing older has taught me many things and one such thing is to never throw away old clothes (with the exception of paisley ties which are hopefully truly consigned to the past). This is as fashion tends to be cyclical with a constant re-emergence of brands and trends. 

Oddly, it would seem as though the same can be said for the fiduciary industry and people motives for establishing trusts.  If we look back as to why trusts were first settled and the reasons for which they are now used by wealthy families, they are not too dissimilar.  It is well documented that trusts can trace their origins back to the medieval times when the English lords, partaking in the Crusades, left their estates in the care of trusted individuals.  These individuals either held the assets until the lord’s return or administered them in line with the lord’s wishes and held them for the benefit of nominated beneficiaries of the estate.  These assets were settled in order to ensure the preservation of the assets in the estate, to enable its administration in a proper manner and to enable a controlled succession plan for persons nominated by the departing lord.

Fast forward a thousand or so years and has that much actually changed?  The simple answer is not really.  There is no denying that for a brief period tax planning seemed to become a principal motive to settle a trust, however we seem to have come full circle with the original benefits of a settling a trust becoming much more relevant.  Tax motivated planning was arguably prompted by the more rudimentary nature of tax regimes which have understandably evolved over time.  Such is the evolution that, in more developed jurisdictions, the establishment of a trust may be tax neutral or even, at times, punitive.  This makes the need for expert tax and legal advisors all the more important so that they can help a family and a trustee avoid unnecessary pitfalls.  Anti-Avoidance legislation has also been widely introduced which has seen more aggressive planning fall by the wayside and become obsolete.

So, on the assumption that an irrevocable discretionary trust is being established, what are the more traditional benefits of establishing a trust?

  • Succession planning – a key benefit of trusts is allowing for the controlled distribution of wealth down through a family’s generations which helps avoid wealth being squandered by spendthrifts and ensures an enduring legacy for future generations.  A motivation for gifting assets to a trust may include the settlor’s desire to mitigate forced heirship laws in their home jurisdiction so that wealth can be distributed in line with a settlor’s wishes rather than being dictated by legislation.  It should be noted that the situs of the assets plays a significant part if the effectiveness of a trust ability to protect assets from forced heirship claims.
  • Estate planning – a trustee’s fiduciary responsibility extends to ensuring assets are held as tax efficiently as possible and benefit is enjoyed in a tax efficient manner (tax leakage through paying unnecessary taxes is very undesirable to a trustee).  As would be expected, this is done by working closely with expert advisors in each relevant jurisdiction.
  • Asset preservation – ensuring that assets are segregated from a settlor’s personal estate shields the assets from future creditor claims and protects assets from political and economic instability in a settlor’s, or potential beneficiary’s, home jurisdiction. Holding the assets in a trust also help to protect a family business from break up as it is the trustee which legally owns the shares and not individual family members.
  • Asset consolidation and reporting – a trustee must account for and report on all the assets it holds.  These assets, and any movement in the assets, needs to be bookkept and reported on annually in financial statements.  Families holding assets personally rarely undertake this level of reporting if ever producing personal balance sheets.
  • Asset administration – a trustee’s fiduciary responsibility to preserve and enhance the trust fund includes ensuring that assets are properly maintained, insured and monitored.  This includes the administration of cross jurisdictional assets ranging from financial assets, commercial, residential and development properties, rights, patents, carried interests, chattels and luxury assets. It will also include ensuring all relevant filings are completed and that holding entities remain in good standing in their jurisdiction of incorporation.

Families who are looking beyond potential tax savings are establishing dynastic structures with greater values and complexity. The complexity is in relation to the nature of the assets held and the jurisdictions in which they are situated.  It is also in relation to the residence of the beneficiaries, with the second generation frequently having a connection to a jurisdiction such as the UK or US. 

So, in summary, trusts have never gone out of fashion with the exception of the more aggressive planning which is now widely restricted by anti-avoidance legislation and, in a fashion sense, is seems to be akin to a paisley tie and quite undesirable. 


Important Information

This document has been prepared to assist clients who are considering creating a trust (in either the Island of Jersey or Mauritius).  It is intended to provide a quick overview to the establishment and administration of offshore trusts and the benefits of estate and succession planning. It is not intended to be comprehensive in its scope and it is highly recommended that a client obtains both legal and tax advice (as may be appropriate) prior to the establishment of a trust and any proposed transfer of assets.

These services are provided by Standard Bank Offshore Limited’s subsidiaries in the Island of Jersey and Mauritius. Standard Bank Offshore Trust Company Jersey Limited is regulated by the Jersey Financial Services Commission, to provide corporate and trust services. Registered office address is Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ and registered in Jersey under No 9153.

Standard Bank Trust Company (Mauritius) Limited is regulated by the Financial Services Commission, Mauritius, to provide corporate and trust services and does not fall under the regulatory and supervisory purview of the Bank of Mauritius Registered office address is Level 9, Tower B, 1 Cyber City, Ebene, 72201, Mauritius and business registration number: C06021609

The above entities are wholly owned subsidiaries of Standard Bank Offshore Group Limited whose registered office is Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. Standard Bank Offshore Group Limited is a wholly owned subsidiary of Standard Bank Group Limited which has its registered office at 9th Floor, Standard Bank Centre, 5 Simmonds Street, Johannesburg 2001, Republic of South Africa.  The Standard Bank of South Africa Limited, an authorised Financial Services Provider (FSP number 11287).

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