By Marc Guillaume, Director of Advisory and MLCQ at Highvern Trustees. As featured in Connect Magazine.
On the face of it, a proposal that you should transfer a significant portion of your wealth to a stranger who will then charge you for looking after it is not particularly attractive. Even setting aside the issue of cost, why should your assets be owned and administered by somebody else -somebody who may subsequently make decisions in relation to the transferred property without reference to you?
It seems an odd thing to do, yet Jersey has a healthy industry based on exactly this pitch. Why, exactly, are trusts popular? For a wealthy Jersey resident there are a number of reasons which include the following:
- Jersey law imposes certain rules as to the proportion of your estate that can be disposed of in the manner of your choice. These provisions (normally referred to as ‘forced heirship’ rules) specify that regardless of your wishes your spouse and children are entitled to a certain percentage of the assets you own at your death irrespective of their ability to properly manage such assets. Assets in trust are not subject to these rules. Instead they will be dealt with in accordance with the terms of the trust taking into account the wishes that you will have communicated to the trustees. This is particularly useful where the assets contain shares in a family company or some other item that is either not readily saleable, not easily divided or needs to be administered in a particular way to maximise its value.
- Suppose that one of the individuals you wish to benefit from your assets is temporarily resident in a particularly high tax jurisdiction – perhaps as a student. On your death assets may well devolve immediately upon that person and trigger an unexpected tax liability which might in turn force the sale of one or more of the estate’s assets in order to satisfy that liability. If, on the other hand, the assets are in a trust then no immediate devolution happens. Rather the trustee (taking into account your wishes) will work with the beneficiaries to ensure that they receive whatever it is that you would want them to receive at an appropriate time and in an appropriate manner – perhaps when they move back to Jersey.
- Furthermore, whilst there is no inheritance tax in Jersey, before the assets in your estate can be distributed a grant of probate must be obtained. Obtaining a grant attracts stamp duty which is payable on a sliding scale depending on the value of your estate. To obtain probate for an estate valued at £5 million, for example, would currently cost £37,250 (with legal and associated costs on top). Assets held on trust, however, do not form part of an estate. Not only do these not attract stamp duty on the death of the settler of the trust, there is also no delay in administering those assets since the trustee simply carries on as normal. All well and good, but the key issue is knowing that the trustee of your trust will do the right things by you and your loved ones. A good trustee is one that you have faith and confidence in and with whom you build a relationship over the course of time so that the trustee can properly understand your intentions and wishes. An independent and locally-owned and managed trust company staffed by experienced professionals that has no loyalties to anybody except its clients may well be the answer. After all, the clue is in the name – who can you ‘trust’ with your family’s future?