Trusts: A timeless solution for UHNW estate planning

Trusts offer a blend of legal certainty and modern flexibility, making them an appealing choice for wealth preservation and succession planning in today’s rapidly evolving financial landscape.

What is a trust?

A trust is a legal arrangement created to protect assets by separating legal ownership from the beneficial use or enjoyment of those assets. This separation allows families to precisely define how their assets should be managed and distributed over the long term.
By utilising trusts, families can significantly reduce the risks that often accompany direct asset ownership or ownership through companies. Trusts facilitate a smoother transfer of assets from one generation to the next, ensuring that wealth is preserved and managed according to the family’s wishes.

What are the key characteristics of a trust?

Trusts are distinguished by several key characteristics that make them a powerful tool for wealth management and estate planning:

Safeguarding wealth
Trusts have long been recognised for their role in safeguarding wealth. Their ability to preserve assets across generations is well-documented, and they have continuously evolved to meet the demands of contemporary UHNW families. This historical resilience, coupled with their adaptability to current economic conditions, positions them as a dependable solution for protecting wealth against future uncertainties.

Asset protection 
Trusts allow for the separation of legal ownership from beneficial ownership, which helps mitigate risks such as family disputes around asset division upon passing, incapacity, creditor claims, and mismanagement. This separation ensures that assets are not merely held but are managed and distributed according to the family's long-term wishes and in accordance with the trust deed as well as relevant trust legislation. Trusts also offer privacy and can be structured to align with regulatory and tax laws, ensuring compliance while maintaining discretion. Trusts often provide complete confidentiality as they typically do not require public registration, unlike other legal vehicles such as foundations or companies that may be subject to public disclosure requirements.

Flexibility
One of the notable features of trusts is their flexibility. They can be tailored to address the specific needs of UHNW families, with discretionary trusts often being the most widely used type of trusts. Additionally, in most jurisdictions, trusts can be established for indefinite durations, allowing for the continuation of wealth across multiple generations—often referred to as ‘dynastic’ vehicles.

Hold a diverse range of assets
Trustees can hold on trust a diverse range of assets, from family businesses and cash, alternative investments (including private equity), to luxury items such as yachts and artwork. The management of these assets is usually entrusted by the trustee to 3rd party professional managers or advisors, with the option for the settlor to retain a degree of control .

Safety mechanisms protecting the beneficiaries
Trustees have a fiduciary duty to act in the best interests of the beneficiaries, ensuring their obligations are enforceable by law. These fiduciary duties are historically a product of common law, but in most well-regulated jurisdictions they have been also enshrined in trust legislation, giving beneficiaries extra protection and certainty.

How can IQ-EQ support?

Trusts offer a sophisticated solution for UHNW families aiming to protect and manage their wealth. But managing them can be overwhelming without professional support. That’s where our trust administration services come in. With our expertise, you can have peace of mind knowing that your assets are secure and can grow over time.

Our trust administration services:

We can support you with:
•    Bookkeeping and accounting 
•    Trust establishment and administration
•    Holding company formation, management and administration
•    Additional services to family offices
•    Tax filings and international tax compliance 

Mirek Gruna,
Regional CCO, UK, Ireland and Crown Dependencies

Email: mirek.gruna@iqeq.com

Learn more about our  trust services in Jersey, Isle of Man and Guernsey:

Jersey Trust

The trust industry in Jersey is amongst the most advanced in the world. In fact, Jersey Finance reports that there are circa £400 billion of assets in trusts by regulated trust company businesses in Jersey. Trusts have of course been around for centuries and there is extensive case law in both Jersey and the UK on which the judgments of Jersey authorities can rely. The Trusts (Jersey) Law 1984 removed many uncertainties in relation to administration and establishment of Jersey trusts, but the law is not entirely exhaustive and courts continue to consider English and other common law jurisdictions’ judgments as part of its wide body of case law. Indeed, Jersey has an independent legal tradition dating back more than 800 years. The jurisdiction has a very competent and well-regulated financial services industry and a stable, reputable and deep judiciary in its Royal Court. The Judicial Committee of the Privy Council is the final court of appeal for litigants in Jersey.

The island has a large and well-developed professional trust sector, not only in terms of trust practitioners and the supporting legal and accounting ecosystem, but also in the depth, reputation and experience of its judiciary. Jersey offers fiscal neutrality for trusts established for non-Jersey resident beneficiaries, which is a similar tax policy approach as other leading jurisdictions. Similar to a number of other jurisdictions with progressive trust legislation, Jersey trust statute specifically provides for the reservation or granting of powers over trusts, including the powers to revoke or amend the trust, to appoint and remove trustees, and to direct investment decisions. The legislation also makes it clear that such reservation or granting of powers will not invalidate a Jersey trust nor would a breach occur where a trustee is required to act in accordance with such reserved or granted powers.

Jersey’s robust ‘firewall’ legislation provides Jersey trusts with a high degree of protection against possible interference from other jurisdictions (e.g. forced heirship claims) and the Jersey Royal Court has an overall supervisory jurisdiction over trusts established under Jersey law. Clarity as to fraudulent conveyance rules is also found in Jersey and is very similar to that of Guernsey and the Isle of Man.

Isle of Man Trust

IOM trust law is closely modelled on and has developed in parallel to English trust law. Being a common law jurisdiction, there is a considerable amount of case law, which is persuasive authority for the well-respected IOM courts. The Judicial Committee of the Privy Council is the final court of appeal for litigants in the Isle of Man. IOM trusts are governed by a combination of judicial precedent and statute, most notably the Trusts Act 1961, the Variation of Trusts Act 1961, the Perpetuities and Accumulations Act 1968, the Trusts Act 1995 and the Trust and Trustee Act 2023.

As is common these days in a number of leading jurisdictions, the IOM has enacted robust ‘firewall’ laws, which seek to help ensure that IOM trusts are shielded against attack by any party (including a court in an overseas jurisdiction) on the grounds that the trust offends or denies rights arising under foreign law (e.g. rights of inheritance or rights arising through a former marriage). The perpetuity period of IOM trusts has recently been abolished, therefore the trust may now have an indefinite lifespan. However, a perpetuity period can be included within the trust deed if desired.

The Purpose Trust Act 1996 makes provision for the creation of a purpose trust, a valid trust for a specific non- charitable purpose. purpose trusts are often used in PTC structures, philanthropic trusts/purposes and securitisation structures. The Isle of Man also has a good network of 25 double taxation agreements.

Guernsey Trust

Guernsey’s legal system is derived in part from the customary laws of Normandy but has been strongly influenced by English common law. The Judicial Committee of the Privy Council remains the island’s ultimate court of appeal. Trusts are governed by the Trusts (Guernsey) Law, 2007 (as amended), supported by a wide body of case law from the island’s courts and other common law jurisdictions.

Important regulatory oversight and standards are provided by the Regulation of Fiduciaries, Administration Businesses and Company Directors, etc. (Bailiwick of Guernsey) Law, 2000, which imposes minimum standards on professional trustees and requires them to be licensed by the Guernsey Financial Services Commission (GFSC). The licencing requirements are quite rigorous including ‘fit and proper' tests and requirements to put in place adequate capital, insurance, liquidity, internal controls, codes of conduct and risk management frameworks along with related policies and procedures that are tested from time to time by the GFSC.

The island has a large and well developed professional trust sector, both in terms of trust practitioners and the supporting legal and accounting ecosystem, as well as in terms of the depth, reputation and experience of its judiciary. It also offers fiscal neutrality for trusts established for non- Guernsey resident beneficiaries, which is a similar tax policy approach as other leading jurisdictions.

Similar to a number of other jurisdictions with progressive trust legislation, the Guernsey trust statute specifically provides for the reservation or granting of powers over trusts, including the powers to revoke or amend the trust, to appoint and remove trustees, or to direct investment decisions. The legislation also makes it clear that such reservation or granting of powers will not invalidate a Guernsey trust nor would a breach occur where a trustee is required to act in accordance with such reserved or granted powers. Guernsey's robust firewall provisions provide Guernsey trusts with a high degree of protection against possible interference from other jurisdictions (e.g. forced heirship claims) and the Guernsey Royal Court have an overall supervisory jurisdiction over trusts established under Guernsey law.

IQ-EQ (Jersey) Limited is regulated by the Jersey Financial Services Commission.

IQ EQ (Isle of Man) Limited is licensed by the Isle of Man Financial Services Authority.

IQ-EQ (Guernsey) Limited, IQ EQ Fund Services (Guernsey) Limited and Provident Financial Services Limited are licensed by the Guernsey Financial Services Commission. For more information on IQ-EQ group, including details of the group’s principal operating subsidiaries and their regulatory status, please visit www.iqeq.com/legal-and-compliance.