Offshore Trusts

Setting Up A Guernsey Trust

For expats who have acquired a sizeable chunk of assets or property overseas, then setting up a trust is one way of ensuring that this wealth is protected for future generations.

Setting up a Guernsey trust is one option for property owners who do not want to submit to the rules of succession that are law in many European countries. Called ‘forced heirship’ laws they dictate to whom your property and assets must be passed and in what proportion. The concept is a pretty strange one for Brits who are used to having discretion in terms of who gets what when it comes to distributing assets on death. Forced heirship is most prevalent amongst civil law jurisdictions as well as some Islamic countries. Countries that operate forced heirship include Belgium, Cyprus, France, Spain and Italy to name a few. Guernsey trust law does not recognise foreign rules of forced heirship, so setting up a Guernsey trust is one way of retaining control over assets if you live in a civil law jurisdiction. Of course, it is also necessary to take into consideration how these countries treat the concept of trusts, so it is extremely important to take specialist advice on whether setting up a Guernsey trust is the most effective option and, if so, to ensure it is structured correctly.

Types of Guernsey trusts

Guernsey offers a range of trust structures, but perhaps the most popular is the discretionary trust whereby a letter of wishes is drawn up by the settlor. This acts as a guide to the trustee, but at the same time the trustee has the flexibility to adapt to a number of different scenarios that may crop up in the future. In this respect, it is often wise to incorporate a protectorship. Stephen Collier, Director, Mercator Trust Company in Guernsey explains: “This is where the relationship with the family comes in and we encourage the incorporation of protectorships in our deeds. A protector's role is to oversee what the trustees are doing as well as oversee what the beneficiaries are asking for, particularly if we think the beneficiaries are asking for something unreasonable. The trust protector will take a balanced look at the views of both beneficiaries and trustees.” A settlor has the power to hire and fire a protector or if, for example, a protector dies without appointing his own successor, “The trustees would appoint a protector after speaking to the family. The replacement would usually be from the family's side but should not be a beneficiary,” explains Collier. This could be someone who knows the family well, such as a close family friend or legal adviser.

Flexibility

The beauty of a trust is it can be as flexible or as inflexible as circumstances require. Most trusts will have a degree of flexibility and have inbuilt provision for variance to account for future changes. “A trust deed complies with rules today, but with powers to vary the trust or to decant the trust into another vehicle, another trust or a foundation or some other structure should circumstances require so in the future,” explains Russell Clark, a Partner at Guernsey-based law firm, Carey Olsen. On the other hand Olsen gives the example of a trust established following a family dispute negotiated between all family members. “It’s absolutely rigid in that the income will be divided equally between the grandchildren - there is no flexibility if one grandchild needs more because they need medicine and the parents can't afford it, for example,” he explains.

What to look out for

Regulation should be at the top of your agenda. Guernsey was one of the first jurisdictions to ensure trustees had to be regulated. One of the stipulations of regulation is the requirement for professional indemnity (PI) insurance to provide a measure of comeback against any problems associated with the trustee. In addition, when it comes to tax planning it is important the trust is crafted in such a way that the tax advice is pertinent in terms of your current country of residence as well as the UK, if you are UK-domiciled.

What wealth bracket should set up a Guernsey trust?

The benchmark figure is probably a £1m as this is the minimum trust level in order to justify set up and administration costs.

Who is on hand to help you with your Guernsey trust?

Guernsey offers a range of experts to help you sent up a trust. From trustees, lawyers, to tax advisers and accountants. Additional experts include consultants, or gatekeepers, who help trustees and beneficiaries monitor the performance of the trust. This is a relatively new role in the trust world, but one that is considered increasingly important in ensuring your trust investments stay on track. According to Sanna-Liisa Valtanen, Director at ARC Asset Risk Consultants in Guernsey, this function gives trust clients a helicopter view of the overall assets held in the trust. “We are also approached when there is a perceived problem with a portfolio and an independent specialist in investments is required, or because the structure has become so complicated they need an investment expert to pull it all together and help identify any problems, particularly where there are several managers involved. We will monitor the performance on an ongoing basis and review the strategic asset allocation,” explains Valtanen.

What happens if a problem occurs?

As well as the requirement that trust companies must hold professional indemnity insurance, settlors and beneficiaries can also go to the Guernsey regulators (see below) for additional help once they have exhausted the normal complaints procedure with an individual firm.