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What is a Jersey trust and why should you make one?

What is a Jersey trust and why should you make one?

Learn what Jersey trust is and what international asset management strategies can offer significant financial planning advantages.

If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).

Introduction

A trust is a legal arrangement that is aimed at giving you more control over the safekeeping, management, and ownership of your assets.

In this article, we’ll discuss the specifics of setting up a trust to maximize its benefits and minimize the risks to your wealth, and why Jersey trusts are particularly attractive for doing so.

What is a trust?

A trust is an arrangement where a person (the settlor) transfers their assets to another person (the trustee) to manage on behalf of a third party (the beneficiary).

Trusts are often used by wealthy families to hold assets and protect them from tax, legal, and political risk. Often, trusts are created to give the assets of the trustor legal protection and guarantee that they are dispersed in accordance with their preferences.

Additionally, trusts can cut down on paperwork, save time, and occasionally even lower inheritance or estate taxes.

It is important to note that, similar to a person or company, a trust is a legal entity with unique rights that are separate from one another.

A trust can be used to specify how a person’s finances should be handled and dispersed, both during their lifetime and after. A trust aids in avoiding taxes and probate for an estate. It can specify the conditions of an inheritance for recipients and shield assets from creditors.

As a legal arrangement, trusts allow you to legally protect your assets from creditors, family members and other third parties who may be interested in your assets.

The most popular method of using trusts is to provide for a beneficiary who is underage or otherwise incapable of managing their finances owing to a physical condition or other circumstances. The assets kept in trust will be released to the recipient whenever they are found competent to manage them.

There are three main parts to a trust: the party known as a trustor grants the second party, the trustee, the authority to hold title to and administer assets for the benefit of a third party, the beneficiary.

Simply put, trusts are incredibly flexible tools that can be applied in a variety of ways to accomplish certain objectives. However, not all trusts are created equal—there are several types of trusts that differ in terms of how they work.

We will discuss the different types of trusts below, but first let’s talk about why Jersey trusts are special.

Jersey trusts can be a good way to plan inheritance
Jersey trusts can be a good way to plan inheritance for your children. | Photo credit: Pexels

What makes Jersey trusts so attractive?

The 45-square-mile island of Jersey, off the coast of France, has had a reputation for being a tax haven as far back as the 1920s, when the British wealthy began moving their assets to the island to benefit from its lack of wealth and inheritance taxes.

Jersey is ruled by the British monarchy but enjoys complete financial and political independence. The island has long used its independence and unique constitutional relationship with Great Britain to maintain some degree of financial independence, and those who are interested in making money have been taking advantage of Jersey’s tax laws for almost as long.

The Jersey government instituted an income tax of 2.5% in 1928. During the German Occupation of the Channel Islands, the income tax was raised to 20%, where it is today, but the island continues to be exempt from inheritance, wealth, corporate, and capital gains taxes.

This makes it a great place to set up international trusts. To hold assets in a tax-effective manner is one of the key justifications for establishing an offshore Jersey trust.

To clarify, once you transfer assets to a trust, they are no longer your property. The trustees, who are probably the directors of a special trust firm you’ve chosen, are the legal owners of the assets. There are some taxes you won’t have to pay because the assets are no longer yours, such as inheritance tax and capital gains tax.

Furthermore, a Jersey trust is not subject to tax on its income if none of its beneficiaries reside in Jersey.

It will only be required to pay tax on Jersey-related income (except interest received on a Jersey deposit bank account). As a result, the trust fund can grow without having to pay a lot in taxes.

If a trustee is headquartered elsewhere, the trust fund can be subject to taxation in that country. Therefore, it could be preferable to have a trustee who is based in Jersey, both for tax reasons and because the trustee will be familiar with Jersey law.

It should be noted, however, that several nations, including the United Kingdom, Guernsey, Hong Kong, China, Singapore, Estonia, Malta, and the State of Qatar have double-taxation agreements with Jersey.

Additionally, Jersey and the USA have a contract in place to exchange specific tax information. Jersey has announced its intent to establishing similar agreements with other nations, even if some be more limited.

Another factor feeding into the attractiveness of Jersey trusts is the fact that Jersey law does not follow many countries in applying mandatory inheritance.

For example, Sharia law in the Middle East contains specific guidelines for who can inherit upon death. In such a situation, you are forced by law to name heirs. This goes for many other countries, where you are forced to name your dependents or close family members as inheritors of your estate.

However, a settlor has complete control over who can inherit the assets put into a Jersey trust. The only catch is that the trust must be established and the property transferred to it before the settlor dies, and not after.

There is also the matter of privacy. The businesses that manage individual financial accounts on the island are not required to register trust accounts with regard to offshore accounts.

This means that such accounts are guaranteed privacy even as the Jersey Financial Services Commission applies that the trusts are subject to tight regulation regarding fund sources, ownership, beneficiaries, and anti-money laundering laws.

Banks, however, do demand extensive documentation detailing the source and purpose of deposits, such as sales contracts from real estate or commercial transactions and evidence of income from employers, to combat tax fraud or money laundering.

There is no necessity to make a trust public when it is established in Jersey, and there is no trust register under Jersey law. This maintains confidentiality.

As a result, a beneficiary might not be aware that they are one. This may even be to the benefit of minors, as they are given time mature before having access to the trust money. The trust may also still make provisions for minors, such as paying for maintenance and educational development.

This confidentiality in Jersey trusts is also particularly appealing to citizens in nations where their personal safety may be in jeopardy if their genuine wealth were discovered.

Finally, and perhaps most importantly, wealth can be protected against potential loss by being held in a stable, tax-neutral nation like Jersey or in a strong-based currency like the US dollar, British pound, or euro.

A Jersey trust structure can give peace of mind that the assets will be readily available, won’t lose value, and won’t be subject to social or political unrest.

Jersey is widely regarded as a secure location for property due to its economic and political stability, its clear regulatory framework, and supporting case law. Additionally, it is a location where property may develop unimpeded by outside legal rules.

Non-Jersey residents who reside in nations that might not provide the same stability, security, or financial prospects may find this to be particularly appealing.

All of these make Jersey one of the best places to establish a global asset-holding trust. Jersey’s stability and well-developed legal system, which recognizes and understands trusts and offers the highest levels of beneficiary protection, both contribute to the country’s stability.

Consult with your financial advisor if you want to make a Jersey trust
Consult with your financial advisor if you want to make a Jersey trust. | Photo credit: Wikimedia Commons

What considerations should I take into account when making a Jersey trust?

A Jersey trust is simply a trust established in Jersey. The trust is a legal structure that allows you to manage your assets and avoid probate. It’s also possible to use it for inheritance tax avoidance, capital gains tax avoidance or estate duty reduction.

It is a separate legal entity that holds assets on behalf of another person. It can be used to hold assets for the benefit of family members or other beneficiaries.

Jersey trusts are often used to hold assets on behalf of children who cannot make decisions themselves, or even mentally handicapped people or those suffering from substance abuse problems.

In all cases, the trustee is legally bound to act in the best interests of all beneficiaries, as well as any other legal or beneficial owners.

Beneficiaries are the individuals or organizations who will receive any income from an investment made under this arrangement. Take note that beneficiaries may include charities or other non-profit organizations as well, not just family members or companies that you own.

The different categories of trust that you can create are as follows:

A living trust, also known as an inter-vivos trust, is a written agreement that places a person’s assets in a trust for that person to utilize and benefit from while they are still alive. When a trust is created, a trustee is designated; this individual is in responsibility of managing the trust’s operations and distributing its assets to the trust’s beneficiaries once the grantor passes away.

A testamentary trust, sometimes known as a will trust, establishes how property will be distributed upon the grantor’s demise.

A revocable trust can be amended or revoked by the trustor at any moment while they are still alive. As the name suggests, once created, an irrevocable trust cannot be altered.

Revocable or irrevocable living trusts are both possible. When created, testamentary trusts are typically irrevocable; but, if the grantor is still living, the trust may be revoked through a will. Its immutability, holding assets that have been transferred permanently out of the trustor’s ownership, is what enables estate taxes to be reduced or completely avoided.

A funded trust is one that has been endowed with assets during the trustor’s lifetime. A trust that has no money consists solely of the trust agreement. Unfunded trusts have two options after the trustor’s passing: they can become funded or not. Making sure that a trust is properly financed is crucial since an unfilled trust exposes assets to many of the dangers that a trust is intended to avoid.

In Jersey, trusts can take many different forms and are established for a number of purposes.

When a trust is discretionary, the trustee is free to use its powers as it sees fit, including deciding how to distribute the capital and income (cash made from trust property).

A beneficiary in a discretionary trust simply has the right to be taken into consideration; they are not automatically entitled to the trust fund. Who receives a benefit from the trust, its value, and when it is granted are all decisions made by the trustee.

Letters of wishes are frequently included to discretionary trusts. This letter outlines the settlor’s intentions for the trust, both during his or her life and after death.

A discretionary trust and an accumulation and maintenance trust are similar in that they both Beneficiary does not have a set right to benefits, and distribution recipients are chosen by the trustee.

The optional feature, however, is only available for a predetermined time. Any money earned within this flexible time frame may be distributed for specific objectives or included into the trust’s capital.

Children’s interests are frequently served by this kind of trust. For their benefit, upkeep, and education, the trustee determines whether to distribute funds among the children (the beneficiaries) up to a certain age. Each child will then be entitled to a portion of the trust when they reach a certain age.

Life interests is a type of trust grants a specific beneficiary or beneficiaries a right to the trust’s revenue for a set length of time, typically their entire lives. One person’s life interests might be followed by another, such as a husband by his wife (or vice versa).

The trust’s terms frequently follow those of a discretionary trust after the death of the final specified life interest beneficiary, allowing the remaining discretionary beneficiaries to receive benefits at the trustee’s discretion after the termination of the life interests.

Under Jersey law, a settlor can also create a reserved powers trust, in which they can retain certain powers such as changing the terms of the trust or terminate the trust; directing the trusteed to make distributions of income and capital to beneficiaries; appointing or removing any trustee; and giving directions on investing the trust fund or appointing an investment manager.

There are also purposes trusts, set up for charitable or non-charitable purposes. There are attorney generals and enforcers responsible for enforcing the terms of these trusts.

The Island of Jersey is a well-regulated jurisdiction and one of the most stable jurisdictions in Europe. It’s also one of the most reputable EU jurisdictions, with strong legal systems and good business practices.

A Jersey trust is one of the most effective vehicles for wealth structuring, inheritance planning and tax minimization. High net worth individuals and their families can use offshore Jersey trusts as flexible vehicles for their wealth.

The complex nature of setting up a Jersey trust requires expert advice. It requires careful attention to detail, and it’s important to get expert advice from your lawyer or trust officer. A good relationship with your trustee will also help ensure that everything goes smoothly when you make changes over time.

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.

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