Offshore Trusts Report: Guernsey
Legal Framework and Formation Rules and Fees
The Guernsey law of trusts was codified in 1989 along
broadly Anglo-Saxon lines in the Trusts (Guernsey) Law 1989, since
updated by the Trusts (Guernsey) Law 2007. On the whole it gives
extra protection to beneficiaries. This law does not apply directly
in Alderney or Sark, but has a substantial influence on trusts in
Trust documents are in English. There are no registration
requirements for trusts, no fees are payable on formation, and there
are no annual reporting requirements other than for resident trusts
(ie those with resident beneficiaries). Trust accounts must be kept
but there is no audit requirement.
The maximum perpetuity for Guernsey trusts was 100
years, although the introduction of the new legislation in 2007
changed this (see below). The law provides for non-recognition of
foreign judgements, and forced heirship provisions in foreign law
can be over-ridden.
Trust management, particularly for wealthy
UK individuals, was the island's traditional business. Successive
tightenings of UK anti-avoidance legislation have reduced the possibilities
for UK citizens, but Guernsey's trust business has continued to
grow based on a more international clientele. Many Collective Investment
Funds are also of course based on trusts.
Several hundred firms offer fiduciary trust services
on Guernsey. The island has a very well-developed legal and financial
infrastructure for trust management; the highly sophisticated professional
services which support the trust sector include lawyers, accountants,
investment managers and stockbrokers.
When the beneficiaries of a trust are non-resident,
full exemption from Guernsey taxation is given to foreign income
and Guernsey bank interest, by concession, whether or not the income
is distributed. The trustee of a trust with Guernsey-resident beneficiaries
may be charged with tax due on trust income, although the tax is
normally assessed directly on the beneficiary. The trustee is entitled
to any allowances which would apply to the beneficiary. Unit trusts
are treated in the same way as other trusts; the existence of Guernsey
unit-holders does not affect exemption, subject to some conditions.
As far as International Trusts are concerned, it is possible to
export a Guernsey trust replacing Guernsey trustees with nonresident
trustees and changing the proper law of the trust; equally, a trust
established in another jurisdiction may migrate to Guernsey by appointing
Guernsey resident trustees. Trust accounts must be maintained although
they do not require auditing and the trustees of a nonresident trust
do not need to submit returns or provide trust accounts to the administrator
of income tax.