In May 1996 the Trusts (Jersey) Law 1984 ("the Law") was further amended to provide for the creation of non-charitable purpose trusts. This change was effected pursuant to the Trusts (Amendment No. 3) (Jersey) Law 1996. This represented a significant variation to the Law which hitherto provided that trusts would be invalid to the extent that they did not have ascertainable beneficiaries and/or charitable objects. Accordingly, it is now possible to establish a valid trust for specific purposes notwithstanding that the trust does not have charitable objects or ascertainable beneficiaries.

CHARACTERISTICS OF A PURPOSE TRUST

The Law, as amended, ascribes the following features to a non-charitable purpose trust:

Purpose

The terms of the trust must define the purpose(s) to which the trust fund may be applied. There are no statutory restrictions on the purpose(s) that may be included in the trust instrument, however, general requirements of certainty, consistency with public policy and lawfulness apply to purpose trusts as they do to all trusts governed by Jersey law. Attention is needed to ensure that there is a valid purpose. An example of a valid purpose might be the promotion of a specified field of endeavour or business activity.

Trustees

There is no requirement for the trustees of a trust written under Jersey Law to be resident in the Island.

Enforcer

The trust instrument must provide for a person to be appointed to enforce the trust (such person being referred to as an "enforcer"). The trustees must apply to the Court for the appointment of a new enforcer in circumstances where a purpose trust ceases to have an enforcer. The role of the enforcer is to ensure that the trustees apply trust finds for the proper purposes of the trust.

Duration

Although there is no rule against perpetuities and accumulations in Jersey, a trust may only exist for a period of 100 years or such lesser period as the trustees may determine. At the expiration of this period, the trust property should be distributed in accordance with the terms of the trust to the persons or objects entitled thereto. Trust property may be distributed to persons or charities upon determination of the trust if the trust instrument so provides.

Formalities

There are no particular formalities for the creation of a purpose trust. There is no obligation for the trust to be registered in Jersey or for the trust instrument or details in regard thereto to be filed with any governmental or other authority.

Beneficiaries

A purpose trust need not have ascertainable beneficiaries during the trust period.

THE USE OF JERSEY PURPOSE TRUSTS

The principal feature of a non-charitable purpose trust is that it need not have ascertainable beneficiaries. Strictly speaking, the property subject to the trust cannot be said to belong to anyone beneficially. Certain estate planning exercises and commercial transactions lend themselves to this kind of structure. Examples are as follows:

Private Trust Companies

A purpose trust may be formed to incorporate and hold shares in a private trust company to act as trustee of a particular trust or group of trusts.

Special Purpose Vehicles (SPVs)

Purpose trusts may be used to hold shares in an SPV. Typically, SPVs are utilised in off-balance sheet transactions, securitisation and debt defeasance transactions. As and when the SPV has achieved its objectives the trust period may be determined with any trust assets being distributed to beneficiaries or applied to charitable objects.

Altruistic activities

Purpose trusts may be established to promote objects which are in the public interest but which are not, ipso facto, charitable. Publishing a newspaper, researching and developing a new alphabet, erecting a statue, and preventing vivisection are just some of the examples of purposes that have not been regarded as charitable in the past. The Law, as amended, allows for the creation of trusts for such purposes.

Trade Associations, Clubs and Unincorporated Bodies

A non-charitable purpose trust may also be utilised as an appropriate vehicle through which to promote the interests of an association or a club. By incorporating a company, an association, club or similar unincorporated body can undertake commercial activity and/or enter into contractual arrangements which it would not otherwise be willing (or able) to undertake by reason of its lack of legal personality or limited liability. Ownership of the company may vest in a trust established expressly for the purposes of protecting or promoting the interests of the association, club or other body and/or its members.

CONCLUSION

When utilising offshore structures for complex tax estate planning or balance sheet restructuring, it may be of considerable assistance to create a vehicle that may be truly said not to belong to anyone beneficially, yet remains able to integrate itself into a commercial transaction without the problems associated with ownership by a person or company. Purpose trusts can achieve this objective. Volaw and Voisin are happy to assist in establishing purpose trusts in Jersey.