Jersey's Trusts Law: Amendment No.722 Mar 2018
The Government of Jersey has agreed a series of amendments to be made to the Trusts (Jersey) Law 1984 (the "Trusts Law"). The amendments are contained within the draft Trusts (Amendment No.7) (Jersey) Law 201- ("Amendment No.7") and are expected to be brought into force during 2018, subject to Privy Council approval.
The Trusts Law is central to Jersey's position as one of the world's leading private wealth and trusts jurisdictions. The legislation was introduced in 1984 to provide a statutory framework for trusts in the Island, but not a codification of the law: the idea was that there should be sufficient flexibility to allow the court to apply and develop the principles over time. The extensive body of case law that has been created as a result, together with the reputation and accessibility of the judiciary are recognised to be key factors influencing those who choose to use Jersey trusts.
As amendments to the Trusts Law have been made over the years, it has always been important to ensure that the flexibility and reputation of the legislation are preserved, whilst also providing clarity where appropriate and introducing new provisions to allow Jersey trusts to develop in a competitive and international market place.
What will Amendment No. 7 include?
Amendment of Article 29: the provision of information to beneficiaries
When questions as to the disclosure of information arise, there are two competing factors to be considered. On the one hand, settlors may be concerned that the provision of information to certain beneficiaries (such as younger family members) may not be in their interests and may operate as a disincentive to them establishing independent and focused futures for themselves. On the other hand, the principle of accountability is central to the trust concept and requires that beneficiaries should be able to hold trustees to account: in order to do so, beneficiaries require access to relevant trust documents.
Questions relating to access to trust information can be addressed by the court in the exercise of its inherent jurisdiction and, in addition, there are statutory provisions contained within Article 29.
The construction of Article 29 has been recognised as not being as clear as it could possibly be, and questions have been raised as to whether a trust instrument can be drafted to restrict a beneficiary's access to documents which relate to or form part of the accounts of the trust.
Amendment No.7 reworks Article 29 to make it clear that restrictions can be drafted into a trust instrument, and to address the statutory powers of beneficiaries, trustees and the court in relation to requests for disclosure.
A trust instrument can be drafted to:
- confer rights to request disclosure of information or documents concerning the trust;
- determine the extent of a person's right to information or documents concerning the trust; or
- require trustees to disclose information or documents concerning the trust to any person.
Subject to the terms of the trust, beneficiaries (including named charities) and enforcers of non-charitable purpose trusts can ask the trustees to disclose documents which relate to or form part of the trust accounts. Trustees can decline to comply with such a request (or any other request for disclosure of information or documents concerning the trust) if the trustees are satisfied that it is in the interests of one or more of the beneficiaries, or the beneficiaries as a whole, to do so.
These new provisions are all made subject to any order of the court and Amendment No.7 confers a statutory power on the court to make disclosure orders which override the terms of a trust.
Clarification of Article 9A: powers reserved or granted by settlors
Article 9A contains detailed provisions in relation to the reservation or grant of powers by a settlor.
Amendment No.7 makes some minor changes for clarification, including the following:
- Article 9A(1)(b) will permit all (rather than "any") of the powers referred to in Article 9A(2) to be reserved or granted;
- Article 9A(1) already says that the reservation or grant of powers mentioned in Article 9A(2) will not affect a trust's validity nor delay it taking effect: this provision will be expanded to include a presumption that a trust (if not expressed to be a will or testament or to come into effect upon the death of the settlor) is to take immediate effect;
- new wording will make it clear that the reservation or grant of a power will not of itself be sufficient to make the power holder a trustee.
Extension of indemnity provisions: new Article 43A
Article 34 addresses the position of outgoing trustees and provides that they are entitled to "reasonable security" for liabilities - whether existing, future, contingent or otherwise - before surrendering the trust property.
In practice, such reasonable security is usually given in the form of an indemnity. Article 34(2A) provides that, so long as certain conditions are satisfied, a trustee can enforce an indemnity which has been renewed or extended even though the trustee is not party to the renewed or extended indemnity. It is therefore possible for a former trustee to enforce an indemnity which is contained in a contract between subsequent trustees.
Contracts of indemnity are frequently drafted to indemnify a trustee's officers and employees as well as the trustee and this practice has been recognised by the court. In addition, STEP's Jersey precedents (published in "A Practical Guide to the Transfer of Trusteeships" (3rd edition)) provide for indemnities to be given to the retiring trustee, for itself and for each of the "Indemnified Persons", being defined as: "… the Retiring Trustee and its successors, its directors, officers and employees and each of them and the respective heirs, personal representatives and estates of such directors, officers and employees and each of them".
Amendment No.7 contains a new Article 43A: this replaces and extends Article 34(2A) and allows others, in addition to trustees, to enforce contracts for indemnity to which they are not themselves party. An indemnity can therefore be provided in respect of:
- the trustee or a person engaged in the management or administration of the trust on behalf of the trustee;
- the present, future or former officers and employees of the trustee or person engaged in the management or administration of the trust on behalf of the trustee; and
- the successors, heirs, personal representatives or estates of those mentioned above.
These new provisions apply not only in trustee retirement situations but more broadly, including when trustees distribute trust property, or when a trust is terminated or revoked.
Extension and clarification of Article 38: accumulation and advancement
Article 38 provides that the terms of a trust can direct or authorise the accumulation of trust income and that, subject to particular provisions which apply in relation to minor beneficiaries, income which is not accumulated must be distributed.
Amendment No.7 widens the options for trustees in relation to the accumulation and distribution of income. The terms of a trust can require or allow:
- the accumulation of income and its addition to capital;
- the retention of income in its character as income;
- the distribution of income.
A default provision provides that income will be retained as income for so long as and to the extent that:
- income is not distributed or required to be distributed by the terms of the trust;
- no trust to accumulate income and add it to capital, or to retain income in its character as income, applies; and
- no power to accumulate income and add it to capital, or to retain income in its character as income, is exercised.
Amendment No.7 also provides that, unless a trust instrument states otherwise, there will be no time limit for the exercise of powers to accumulate income and add it to capital, to retain income in its character as income, or to distribute income.
Article 38(5) contains powers which allow trustees to advance or apply trust property for the benefit of a beneficiary before the time at which the beneficiary becomes absolutely entitled to the property. Amendment No.7 makes it clear that these powers can be used in respect of the whole - rather than just part - of the trust property to which the beneficiary will become entitled.
Limited widening of the court's powers in relation to variations of trust
Trust instruments can be drafted to incorporate powers of variation - exercisable by the trustees or others - tailored to reflect a settlor's requirements.
In addition, the court has limited powers of approval and variation.
Article 47(1) allows the court to approve an arrangement which varies or revokes all or any of the terms of the trust, or enlarges the trustees' powers to manage or administer the trust property. The court gives its approval on behalf of those who cannot consent for themselves (minors, interdicts (persons without legal capacity) unascertained or unborn beneficiaries), if it considers that the proposed arrangement is for their benefit. However, the court is unable to approve a variation on behalf of adult beneficiaries and they must therefore provide their own consent before an arrangement can be approved pursuant to Article 47(1).
Whilst Article 47(3) allows the court to vary trusts, it is accepted that these powers are confined to administrative matters and cannot be exercised to alter the beneficial trusts.
Amendment No.7 introduces limited extensions to the court's powers of approval under Article 47(1). Provided the court considers that an arrangement is for a person's benefit, it will be able to give its approval on behalf of that person if the court is satisfied that he or she:
- cannot be found, despite reasonable efforts to do so;
- is a member of a class of beneficiaries and, because of the numbers within that class, it is unreasonable for him or her to be contacted.
These extended powers of approval are intended to be of assistance on those occasions when beneficiaries cannot be traced, or when the class of beneficiaries is very wide, whilst at the same time leaving intact the robust "firewall" provisions of Article 9 which can be particularly important when a trust is challenged in matrimonial cases. Article 9 requires certain questions (such as those relating to powers of variation) to be determined in accordance with Jersey law, and Jersey law provides that the court cannot make or approve an alteration that the trustees could not themselves make.
Amendment No.7 makes a number of helpful amendments to the Trusts Law. Whilst recognising the importance of preserving the flexibility and reputation of the legislation, these changes will provide clarity where appropriate and also introduce new provisions to allow Jersey trusts to develop in a competitive and international market place. The amendments are welcomed and support Jersey's position as one of the world's leading private wealth jurisdictions.