The new trust legislation (the Trusts (Guernsey) Law, 2007), which was approved in July 2007 and came into force on March 17th, 2008, is one of the most recent innovations within the Island's legislative framework.

The changes overall are designed to create a more flexible framework for the local trust industry, and to ensure that Guernsey, as a jurisdiction for the establishment and administration of fiduciary structures, remains well placed and competitive.

Some of the key major changes incorporated in the new law are summarised by Carey Olsen below:

Non-Charitable Purpose Trusts

"A significant change is the introduction of non-charitable purpose trusts. Under the new legislation it is made perfectly clear that trusts established to hold property or to exercise functions without conferring benefit on any person are valid. Rather than bringing in a completely separate regime for purpose trusts - a route preferred by certain other jurisdictions such as Cayman and the BVI - Guernsey has simply revised the law to remove the requirement for there to be beneficiaries to a trust.

Purpose Trusts are commonly employed to incorporate private trust companies which in turn act as trustees to specific trusts (or groups of trusts). Private trust companies in Guernsey may apply to the Guernsey Financial Services Commission for a discretionary exemption from licensing. As part of the exemption process the Commission will normally impose restrictions on the activities of the company to prevent it providing services to the public.

Removal of limits on the length of a trust's duration

It was never really clear why in 1989 the draftsman limited the duration of Guernsey trusts to 100 years as the rules against perpetuities have never formed part of Guernsey law. Perpetual obligations were well known to Guernsey's customary law and formed the bedrock of our land law and conveyancing system.

Instead of extending the period during which a trust can exist, the new law reverts to the status quo ante and removes the previous 100 year time limit for Guernsey trusts allowing perpetual trusts to be created. The limit of 100 years for existing trusts is retained.

It will of course be possible for the draftsman of a trust to provide for a limited trust period where, for example, it is necessary to consider the application of a foreign rule against perpetuities in relation to the transfer of assets from a foreign trust to a Guernsey trust. The revised legislation also permits assets to be decanted from one trust to another even where the second trust is of a longer duration than the first - putting an end to the ongoing debate amongst local practitioners as to whether this was allowed under the original 1989 law.

Clarification of the position of retiring trustees

The new law creates a non-possessory lien over trust assets in favour of the retiring trustees and simplifies the ability of a previous trustee to enforce an indemnity given in its favour where it is not a party to the document by which the indemnity is given. This should facilitate speedy changes of trustee and will minimise the need to revert to the occasionally complex chains of indemnities that are often required at present in cases where there have been successive changes in trustee. The process of negotiating indemnities of this nature has, at times, become laborious and occasionally slows down the whole transfer process.

Coupled with the recent STEP initiative on the transfer of trusteeship which has been endorsed by most of the island’s leading trust practitioners it is hoped that the new law will make the transfer process more efficient and streamlined for all concerned.

Clarification of reservation of powers

Although it was always the case under our law that a settlor could reserve powers or grant powers to third parties, this was not always well understood, especially by settlors. The new law now expressly provides for the reservation (or grant) of certain powers.

Clarification of the circumstances under which information has to be given to beneficiaries

Under the new regime it is recognised that there can often be good reasons for some beneficiaries to be denied information relating to the trust. The 2007 law has been redrafted in such a way that the terms of the trust may expressly exclude discretionary beneficiaries' rights to information, but without denying the overriding right of any beneficiary to apply to the court for information. The person seeking the information which the settlor has taken the trouble to deny him would have the burden of proving why disclosure was necessary.

The objective of this change is not to routinely deny beneficiaries information, but where a settlor is genuinely concerned that certain information should be kept confidential from beneficiaries until, for example, they have demonstrated an ability to provide for themselves, the facility is available.

Disclosure of letters of wishes

The new law revises the provisions that relieve a trustee from disclosing material upon which its decisions were or might have been based, specifically with regard to letters of wishes following the decision of the Guernsey Royal Court in Countess Bathurst v Kleinwort Benson & Others [2004]. The 2007 law makes it plain that letters of wishes or documents which reveal the intentions of the Settlor or a beneficiary of a trust are preserved from disclosure but subject to the terms of the trust or any order of the Court. The burden of proof in any application to the Court rests on the beneficiary seeking disclosure.

Abolishment of liability of directors of corporate trustees

Under the 1989 law, directors of corporate trustees based in Guernsey or acting as trustees of Guernsey law trusts are personally liable as guarantors in respect of damages or costs awarded against the corporate trustee for a breach of trust. The 2007 law repeals this clause in its entirety. Directors will remain personally exposed in relation to any breach of trust claim initiated before the Royal Court prior to the date when the new law comes into effect.

Power of accumulation

Until now our law allowed for accumulation of income only if the trustee had the express power to do so. Income not accumulated had to be distributed but the law did not provide to whom. The new law reverses this position and reiterates that, unlike the law in England, our law has no rule against excessive accumulations.

Limitation periods and alternative dispute resolution

As currently drafted the period within which an action founded on a non-fraudulent breach of trust may be brought against a trustee by a beneficiary is three years from delivery of the final accounts of the trust to the beneficiary or three years from the date on which the beneficiary first has knowledge of the breach of trust whichever period first begins to run. Where a beneficiary is a minor or a person under legal disability the period of three years does not start to run until his minority or disability, as the case may be, ceases.

The 2007 Law imputes the knowledge of the guardian to any minor beneficiary and also introduces a longstop period after which no action founded on breach of trust could be pursued. Accordingly, it is intended that no action founded on breach of trust may be brought against the trustee after the expiration of 18 years immediately following the date of the breach.

In addition, as well as any order, judgment or finding of law or fact of the Court in an action against a trustee founded on breach of trust being binding on all beneficiaries of the trust, whether or not yet ascertained or in existence, provided they were represented either personally or as a member of a class, there are similar provisions for ADR procedures. If there is a mediation, arbitration or similar process regarding a breach of trust which results in a conclusion, that result will bind unborn and minor beneficiaries if they were represented in the proceedings. It is hoped that this will encourage the use of alternatives to litigation.

Powers of attorney

The existing somewhat complicated rules regarding powers of attorney granted by trustees have been overhauled and liberalised. A trustee power of attorney may now have a duration of 3 years instead of 12 months as before and this limitation no longer applies to arrangements for the subordination of debt or having the effect of conferring security over any part of the trust fund.

In Summary

The above is merely a synopsis of some of the more important changes. There are a number of other improvements that have been made to the law in order to clarify certain matters under the existing legislation. In general terms however, the key changes that have been made should certainly benefit the industry and create an even higher level of flexibility in an area of business where the Island already thrives."