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 those jurisdictions.
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.
Guernsey's 10-Year-Old Trusts Law 'Ahead Of Its Time' Friday 23/3/2018Guernsey's trusts law, which came into force 10 years ago, has been described as "ahead of its time" and "a reminder of the jurisdiction's ability to innovate and adapt to changing market conditions" by leading trust and fiduciary lawyer Russell Clark.