AABA How Jersey shot itself in the foot: an analysis of the implications of the Trusts (35 pages)

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The changes to the Trusts Law are intended to give statutory
certainty to a practice that is already widely carried out. Currently,
it is common for assets such as shares in a family company to be
placed in trust, but for the settlor to wish to retain control over how
the company is operated. Or an investment portfolio may be placed
in trust, but the settlor may wish to manage the investments.

Extraordinarily he recognised that under pre-2006 Jersey trust law (which as
noted above, broadly matched that of the UK):

if the discretion of the trustee is fettered [to give control for the
settlor] there is a risk that the trust could subsequently be attacked
as a sham. For an international client, these are reasons to not use a
Jersey trust.

Despite appreciating this he assisted the drafting of legislation that, instead
of respecting the norms of trust law did instead seek to legitimise the sham
he described by effectively reducing the role of the trustee to one of mere
nominee because all their powers have effectively been removed in Jersey
law. The consequence is obvious; whilst Jersey trusts that reserve powers
for the settlor are no longer a sham under Jersey law for the purposes of
most other states all Jersey trusts have become shams unless they are
declared to be the bare trusts that they actually are.

Almost amusingly it seems that Jersey anticipated the conflict between its
laws and those of other states. It did so in Section 9A of the new law which
says that in determining the law of trusts in Jersey the law of any other
country (and quite specifically one can assume in this case the UK, on whose
laws Jersey’s are usually modelled and with which this new law is in
fundamental conflict) must be ignored. That of course may work in Jersey,
but as is noted in this report, it certainly will not help the tax payer who is
resident elsewhere.

It is clear that the government of Jersey knew that this new provision would
be abused. For example, Malcolm Campbell, its head of taxation wrote on
the same day:

on the face of it, if the settlor has a new power to instruct the
trustees of a trust he has settled …. then, is it not possible for a
Jersey resident to settle assets / property in such a Jersey trust then
appoint, say, Guernsey resident trustees, thereby achieving a 'no tax'
situation in both jurisdictions and, after several years, he - the
settlor - becomes non resident in Jersey and then instructs the
Guernsey trustees as he wishes re the disposition of the assets in the
trust, ie, he gets the assets and income diverted for his own use?

The entire email correspondence was about the need to prevent this
happening in Jersey. Jersey knows it cannot afford such abuse. And yet, as

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