Trusts have many applications and advantages, including the protection and preserving of assets, tax planning or just avoiding the expense and delays of obtaining probate under a will. They also provide a high degree of confidentiality.
Guernsey is at the forefront of best practice development in the area of trusts and was one of the first jurisdictions to introduce the regulation and supervision of trust companies. The ‘Fiduciary Rules and Guidance 2020: Acting with Integrity’ (Fiduciary Rules) replace and strengthen previous Codes of Practice and ensure that Guernsey’s regulatory regime continues to be compliant with international standards. Professional trustees must be licensed under the Regulation of Fiduciaries Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law 2000 and are regulated by the Guernsey Financial Services Commission (GFSC).
While Guernsey’s legal system is based on ancient Norman French law, the island’s trust law is derived from English common law and the rules of equity. Trust law was largely uncodified until 1989, when a formal trust law was introduced. This was amended and updated by the Trusts (Guernsey) Law 2007 that was brought into force on 17 March 2008. Under the Hague Convention, Guernsey law trusts are recognised by the signatories to the Convention.
If all beneficiaries are resident outside of Guernsey, a trust will be exempt from both Guernsey income tax on income arising outside Guernsey and income on bank deposit interest arising from within Guernsey. A trustee may therefore make distributions out of a trust fund established in Guernsey without any withholding or deduction of Guernsey income tax. There are no inheritance, wealth, gift or capital gains taxes levied in Guernsey. Other indirect forms of tax, such as stamp duty and VAT, do not apply in Guernsey.
Regulations require trustees to know the identity of the settlor and ultimate beneficiaries of a trust. This information is kept completely confidential. Disclosure to third parties is only required in very particular circumstances and must be accompanied by a court order. There is no public register of trusts in Guernsey. The ownership of trust assets can remain entirely confidential in most circumstances.
Forced heirship – mandatory laws that dictate the persons to whom and proportions in which an estate must be passed – is a particular problem in continental Europe and other civil law jurisdictions, as well as in countries of Islamic tradition. S14 of the Trusts (Guernsey) Law 2007 was specifically drafted to provide that no Guernsey trust will be invalidated simply because the trust avoids or defeats claims that may arise under forced heirship rights.