 |
||||
|
|
|
|
|
|
|
|
||||
|
|
||||
|
Anatomy of a Standard
This
Briefing Note is designed to explain the anatomy of a typical form of
discretionary trust. The draft clauses given below are based on a standard
precedent drafted jointly by James Kessler of counsel (and author of
"Drafting Trusts and Will Trusts", published by Sweet & Maxwell)
and Advocate Peter Cushen. IMPORTANT.
It is essential to appreciate that this is not intended as a
"draft-it-yourself" guide for the establishment of a Jersey trust.
It is not (and is not intended to be) sufficient for such a purpose. You must
obtain specific legal advice before taking or refraining from any action in
connection with this Note. Examples
of these clauses are set out below.
Clause 1 - Definitions
A
standard set of definitions follows. Please note that most of the definitions
are formalities. The definition of "The Beneficiaries" is important,
and should be changed as appropriate to reflect the Settlor’s instructions.
It should be drawn to the Settlor’s notice that the Trustees are given power
to nominate additional Beneficiaries. The definition of "Children"
includes illegitimate and adopted children. This is of course up to the
Settlor. ‘1.
Definitions In
this Trust: (1)
"The Beneficiaries" means: (a)
the Settlor and the Children and remoter Descendants of the Settlor; (b)
the spouses and former spouses of any Person in (a) above; (c)
any Person or class of Persons nominated by Instrument in Writing by the
Trustees whether now living or in existence or born or coming into existence
during the Trust Period. (2)
"Charitable" means exclusively charitable according to the laws of
Jersey, and "Charity" means a trust, body corporate or
unincorporate, organisation, association, foundation or institution whose
purposes are Charitable. (3)
"Children" includes illegitimate and adopted children and
"Descendants" includes descendants traced through an illegitimate or
adoptive relationship. (4)
"Instrument in Writing" means a document in Writing which is signed
or executed by the person making the same, and includes a resolution of a
corporate person evidenced in Writing. (5)
"Person" includes any individual, body corporate, trustee or Charity
anywhere in the world. (6)
"The Trustees" means the Original Trustee or the trustees of this
Trust for the time being. (7)
"The Trust Fund" means: (a)
property transferred to the Trustees to hold on the terms of this Trust; (b)
accretions to the above by way of accumulation of income or otherwise; and (c)
all property from time to time representing the above. (8)
"The Trust Period" means the period of 100 years beginning with the
date of this Trust or such shorter period as the Trustees may by Instrument in
Writing declare. (9)
"Trust Property" means any property comprised in the Trust Fund. (10)
"Writing" includes printing, lithography, photography and other
modes of representing or reproducing words in a visible form. (11)
The singular includes the plural and vice versa. (12)
The masculine includes the feminine and vice versa and each includes the
neuter.’
Clause 2 - Trust Income
Trust
income may either be accumulated or distributed to any Beneficiary. ‘2.
Trust Income During
the Trust Period, and subject to the Overriding Powers below: (1)
The Trustees may accumulate the whole or part of the income of the Trust Fund.
That income shall be added to the Trust Fund. (2)
The Trustees shall pay or apply the remainder of the income to or for the
maintenance, education, advancement or benefit of any Beneficiaries as the
Trustees think fit.’
Clause 3 - Overriding Powers
The
Trustees are given wide powers to appoint new trusts (which power can be used
to remove Beneficiaries or otherwise alter the terms of the Trust), transfer
trust property to another trust and distribute trust property to any
Beneficiary. At the request of a Beneficiary, trust property may be paid to
charity. ‘3.
Overriding Powers The
Trustees shall have the following powers during the Trust Period: (1)
Power of Appointment (a)
The Trustees may appoint that they shall hold the Trust Fund for the benefit
of any Beneficiaries, on such terms as the Trustees think fit. (b)
An appointment may create any provisions and in particular: (i)
discretionary trusts (ii)
dispositive or administrative powers exercisable by any Person. (c)
An appointment may be revocable or irrevocable but shall be made by Instrument
in Writing. (2)
Transfer of Trust Property to New Trust The
Trustees may by Instrument in Writing declare that they hold any Trust
Property on trust to transfer it to trustees of a Qualifying Trust, to hold on
the terms of that trust, freed and released from the terms of this Trust. "A
Qualifying Trust" here means any trust, wherever established, under which
at least one Person who may benefit is (or would if living be) a Beneficiary
of this Trust. (3)
Power of Payment or Application The
Trustees may pay or apply any Trust Property to or for the maintenance,
education, advancement or benefit of any Beneficiary. (4)
Power to make Charitable Payments The
Trustees may at the request of any Beneficiary pay or apply any Trust Property
to or for the benefit of any Charity or for any Charitable purposes specified
by the Beneficiary.’
Clause 4 - Default Trusts
This
provision is a formality, since it only takes effect if for any reason the
previous provisions fail. In that event, the trust property is held for the
Settlor or (if the Settlor is then dead) for the Settlor’s estate. ‘4.
Default Trusts Subject
to that, the Trust Fund shall be held on trust for the Settlor or, if the
Settlor is not then living, for the estate of the Settlor absolutely.’
Clause 5 - Additional Provisions
Clause
5 incorporates the additional administrative provisions set out in the second
schedule. ‘5.
Additional Provisions The
additional provisions set out in the second schedule below shall have effect.’
Clause 6 - Irrevocability The
Trust is stated to be irrevocable. Jersey law permits revocable trusts, if
that is preferred. ‘6.
Irrevocability This
Trust is irrevocable.’
The First Schedule - The Trust
Property
The
property held by the Trustees at the date the Trust is created is specified
here. Without any trust property there can be no trust.
The Second Schedule - Additional Provisions
This
schedule contains administrative provisions of a more routine nature. Paragraph
1 confers various trust powers. The Settlor’s attention should be drawn in
particular to paragraph 1(1) which is intended to give to the Trustees very
wide investment powers and protection to the Trustees if the value of trust
property is not preserved or enhanced. It should also be noted that although
paragraph 1(12) confers on the Trustees power to pay taxes, prudent trustees
will usually require the directions of the Royal Court before doing so in
order to obtain protection from any future claim by the Beneficiaries that
they should not have done so. The
Settlor’s attention should also be drawn to paragraph 1(16) which provides
that the Trustees need not generally supervise the activities of an underlying
company. The
general effect of paragraph 1(24) and paragraph 1(25) is to confer on the
Trustees the general and wide powers of an individual beneficial owner of
property, free from any constraints imposed by law. Paragraph
4 seeks to remove the requirement of general law for trustees and other
fiduciaries not to profit from their office. It is often required that
professional trustees should make their general services and the services of
associated companies available to the Trust, and to receive their usual
payment for doing so. Paragraph
7 provides that the Trustees may charge their usual fees unless otherwise
agreed with the Settlor during the Settlor’s lifetime or with a majority of
the adult individual Beneficiaries after the Settlor’s death. It
is important for paragraph 8 to be drawn to the Settlor’s attention. That
paragraph provides that a Trustee shall only be liable for a loss to the trust
property arising from his or its own fraud, wilful misconduct or gross
negligence. It also seeks to indemnify directors of corporate trustees out of
the trust property and the beneficial interests of the Beneficiaries in
respect of their statutory guarantee for breaches of trust. Paragraph
9 gives to the Trustees power of appointment of new or additional trustees.
There is no power conferred on any person to remove trustees, though that is
possible.
1. Administrative Powers
The
Trustees have the following additional powers: (1)
Investment (a)
The Trustees may invest Trust Property in any manner as if they were
beneficial owners, and "invest" shall include the employment of
Trust Property whether for profit or not. (b)
The Trustees are under no obligation to diversify the Trust Fund, nor to
preserve or enhance the value of the Trust Fund. (c)
The Trustees may invest the Trust Fund in a speculative manner. (d)
The Trustees shall not directly acquire immovable property situated in the
Island of Jersey. (2)
Joint Property The
Trustees may acquire property jointly with any Person. (3)
Income and Capital (a)
The Trustees may acquire: (i)
wasting assets and (ii)
assets which yield little or no income for investment or any other purpose. (b)
The Trustees are under no duty to procure distributions from a company in
which they are interested. (c)
The Trustees may pay taxes and other expenses out of income although they
would otherwise be paid out of capital and vice versa. (d)
The Trustees are under no duty to hold a balance between conflicting interests
of Persons interested in Trust Property or its income. (e)
(i) The Trustees may (subject to the jurisdiction of the Court) determine
whether money is to be considered as capital or income, and whether expenses
and liabilities ought to be paid out of capital or income. (ii)
The Trustees shall not be liable for any act done in pursuance of such
determination (in the absence of fraud, wilful misconduct or gross negligence)
even though it shall have subsequently been held to have been wrongly made. (4)
Application of Trust Capital as Income The
Trustees may apply Trust Property as if it were income arising in the current
year. In particular, the Trustees may pay such Trust Property to a Beneficiary
as his income, for the purpose of augmenting his income. (5)
Use of Trust Property The
Trustees may: (a)
permit a Beneficiary to occupy or enjoy the use of Trust Property, (b)
lend money which is Trust Property to a Beneficiary without security, or (c)
charge Trust Property as security for debts or obligations of a Beneficiary on
such terms as the Trustees think fit. The Trustees may acquire any property
for this purpose. (6)
Trade The
Trustees may carry on a trade, business or other activity in any part of the
world, alone or in partnership. (7)
Borrowing The
Trustees may borrow money for investment or any other purpose. Money borrowed
shall be treated as Trust Property. (8)
Insurance The
Trustees may insure Trust Property for any amount against any risk or pay the
premiums on any insurance or assurance policy in which any Beneficiary has or
may have a beneficial interest. (9)
Delegation A
Trustee may delegate by Instrument in Writing any of his functions to any
Person and the Trustees may employ any Person to act in relation to any of the
affairs of this Trust on such terms as to remuneration and otherwise as the
Trustees think fit. A Trustee shall not be responsible for the default of any
such Person (even if the delegation or employment was not strictly necessary
or expedient) provided that he acted in good faith and without neglect in his
selection and supervision. (10)
Deposit of Documents The
Trustees may deposit documents relating to this Trust (including bearer
securities) with any Person on such terms as to remuneration and otherwise as
the Trustees think fit. (11)
Nominees The
Trustees may vest Trust Property in any Person as nominee, and may place Trust
Property in the possession or control of any Person on such terms as to
remuneration and otherwise as the Trustees think fit. (12)
Payment of Tax The
Trustees may pay tax liabilities of the Trustees as trustees of this Trust,
the Settlor or any Beneficiary (and interest and penalties on such tax) even
though: (a)
The liabilities are not enforceable against the Trustees. (b)
Payment is not to the advantage of any Beneficiary. (13)
Indemnities The
Trustees may indemnify and give security over Trust Property to any Person for
any liability relating to this Trust or any Beneficiary. (14)
Security The
Trustees may give security over Trust Property for any liability incurred by
them as Trustees or by any Beneficiary. (15)
Formation of Company The
Trustees may form a company of any kind in any part of the world and may
transfer to such company any Trust Property by way of subscription, loan or
otherwise. (16)
Supervision of Company The
Trustees are under no duty to enquire into or interfere with the management or
conduct of the business or affairs of a company in which they are interested,
unless they have actual knowledge of circumstances of a dishonest nature which
call for enquiry. (17)
Receipt by Charities Where
Trust Property or its income is to be paid or transferred to a Charity, the
receipt of the treasurer or appropriate officer of the Charity shall be a
complete discharge to the Trustees. (18)
Release of Powers The
Trustees may by Instrument in Writing release any of their powers wholly or in
part so as to bind future trustees. (19)
Power to follow Legal Advice A
Trustee may act in accordance with the advice of a lawyer with respect to this
Trust, unless: (a)
he knows or has reasonable cause to suspect that the advice was given in
ignorance of material facts; or (b)
proceedings are pending to obtain the decision of the court on the matter. (20)
Power to compound Liabilities The
Trustees may: (a)
accept any property before the time at which it is transferable or payable; (b)
sever and apportion any blended trust funds or property; (c)
pay or allow any debt or claim on any evidence that they think sufficient; (d)
accept any composition or any security for any debt or for any property
claimed; (e)
allow time for the payment of any debt; (f)
prosecute or defend any claim, action or proceeding relating to this Trust; (g)
compromise, compound, abandon, submit to arbitration, or otherwise settle any
debt, account, claim, action or proceeding or thing whatever relating to this
Trust and for any of those purposes may do such things as seem expedient,
without being responsible for any loss occasioned thereby if the Trustees have
acted in good faith and without neglect. (21)
Waiver The
Trustees may waive the payment of income before it becomes due. (22)
Audit The
Trustees shall have power to cause the accounts of this Trust to be audited at
such intervals as they think fit. (23)
Power to act by Majority The
Trustees may exercise any of their functions by a majority in their number
(after consultation, so far as may be practicable in the particular
circumstances of the case, between all the Trustees) provided that a Trustee
who dissents from a decision of such majority may require his dissent to be
recorded in Writing. (24)
Ancillary Powers The
Trustees may do anything which is incidental or conducive to the exercise of
their functions. (25)
General Power of Management and Disposition The
Trustees may effect any transaction whatsoever relating to the management or
disposition of Trust Property or its income, whether or not similar to the
foregoing, as if they were beneficial owners.
2. Minors and Persons under Disability (1)
Where the Trustees may pay or apply the Trust Property or its income to or for
the maintenance, education, advancement or benefit of a minor or person under
any other legal disability, they may do so by paying the Trust Property or its
income to the parent, guardian, tuteur or other person having the care or
custody of such minor or person or their property on behalf of the minor or
such person, or to the minor if he has attained the age of 16. The Trustees
are under no duty to enquire into the use of the Trust Property or its income.
(2)
Where the Trustees may apply income for the benefit of a minor, they may do so
by resolving that they hold that income on trust for the minor absolutely and:
(a)
The Trustees may apply that income for the benefit of the minor during his
minority. (b)
The Trustees shall transfer the residue of that income to the minor on his
ceasing to be a minor. (c)
For investment and other administrative purposes that income shall be treated
as Trust Property. (3)
In this clause "minor" means a Person who under the law of Jersey
has not yet reached the age of legal capacity.
3. Apportionment
Income
and expenditure shall be treated as arising when payable, and not from day to
day, so that no apportionment shall take place.
4. Conflicts of Interest (1)
In this paragraph "A Fiduciary" means a Person (including a Trustee
of this Trust) subject to fiduciary duties under this Trust. (2)
A Fiduciary may: (a)
exercise any power conferred on the Fiduciary by this Trust or by law, or (b)
enter into a transaction with the Trustees, or (c)
be interested in an arrangement in which the Trustees are or might have been
interested, or (d)
act (or not act) in any other circumstances even though his fiduciary duty
under this Trust conflicts with other duties or with his personal interest. (3)
The powers of the Trustees may be used to benefit a Fiduciary (to the same
extent as if he were not a Fiduciary). (4)
A Fiduciary may retain his usual or reasonable fees, remuneration or
commission and act on his usual or reasonable terms in respect of any
transaction relating to this Trust notwithstanding that the receipt of such
fees, remuneration or commission or agreement to act on such terms was
procured by an exercise of fiduciary powers (by that Fiduciary or some other
Person) provided that the Fiduciary would in the normal course of business
receive and retain the fees, remuneration or commission on such transaction or
agree such terms. (5) A bank may make loans to the Trustees and generally provide banking services upon its usual terms and shall not be liable to account for any profit so made notwithstanding that the receipt of such profit was procured by an exercise of fiduciary powers (by the bank or the Trustees or some other Person). 5. Trustees Powers (1)
The powers of the Trustees may be exercised: (a)
at their absolute discretion; and (b)
from time to time as occasion requires. (2)
The Trustees need not be impartial and may exercise their powers for the
advantage of one Beneficiary at the expense of others. 6. Trust for Sale The
Trustees shall have power at any time to sell or call in any Trust Property or
transpose or convert any Trust Property into any other property or may leave
any Trust Property in the state of investment in which it may be from time to
time. 7. Remuneration of Trustees (1)
A Trustee may charge and be paid remuneration in accordance with the Trustee's
scale of fees or usual or reasonable charges from time to time applicable in
connection with this Trust, including charges for work which a layman could
have done personally, or otherwise as agreed from time to time with the
Settlor during the Settlor's lifetime and after that time with a majority in
number of the adult individual Beneficiaries for the time being at the time of
such agreement. (2)
A Trustee may remunerate himself as in (1) above for work done for a company
connected with the Trust Fund. (3)
A Trustee may charge and be paid for all expenses and liabilities reasonably
incurred in connection with this Trust. 8. Liability of Trustees (1)
A Trustee shall not be liable for a loss to the Trust Fund unless that loss
was caused by a breach of trust arising from his own fraud, wilful misconduct
or gross negligence. (2)
Every director within the meaning of Article 52(3)(a) of the Trusts (Jersey)
Law 1984 of a corporate Trustee who is deemed to be a guarantor of such
Trustee by virtue of such Article shall be indemnified out of the Trust Fund
and the beneficial interests of the Beneficiaries in the Trust Fund in respect
of all loss or damage incurred by him through the application of that Article
in relation to this Trust unless that loss or damage was caused by his own
fraud. 9. Appointment and Retirement of Trustees (1)
In this paragraph "the Appointor" means: (a)
the continuing Trustee or Trustees, or if there are none (b)
the Trustee or Trustees desiring to be discharged, or if there are none (c)
the personal representatives or liquidator or similar officer of the last
surviving or existing Trustee. (2)
Where a Trustee is dead, or desires to be discharged, or refuses or is unfit
to act, or is incapable of acting, or is a corporation which has been
dissolved, the Appointor may by Instrument in Writing appoint one or more
other Persons to be a trustee in place of that trustee. (3)
The Appointor may by Instrument in Writing appoint one or more other Persons
to be trustees in addition to the Trustees. (4)
A Person may be appointed trustee of this Trust even though he has no
connection with the Island of Jersey. (5)
On the appointment of a trustee for the whole or any part of the Trust Fund: (a)
the number of trustees may be increased; (b)
a separate trustee or set of trustees may be appointed for any Trust Property
held on trusts distinct from those relating to any other Trust Property,
notwithstanding that no new trustees are appointed for other Trust Property. (6)
A new or additional Trustee shall have such rights as to remuneration and
expenses at and prior to his appointment as if he were at all material times a
Trustee of this Trust. (7)
A Trustee who resigns or retires may require to be provided with reasonable
security for liabilities whether existing, future, contingent or otherwise
before surrendering Trust Property. (8)
There is no requirement to have more than one Trustee. 10. Proper Law (1)
The proper law of this Trust is the law of the Island of Jersey and the forum
for the administration thereof is the Courts of Jersey. (2)
The Trustees may during the Trust Period by Instrument in Writing declare that
this Trust shall from the date of such declaration take effect in accordance
with the law of some other place in any part of the world and that the forum
for the administration thereof shall thenceforth be the Courts of that place. 11. Perpetuity Restriction This
Trust shall terminate on the expiry of the Trust Period and (except so far as
the law of Jersey allows) no power conferred by this Trust shall be
exercisable after that time.’ Execution
of a Trust In order to complete a Trust, both parties should execute the document (it is customary to have one independent witness to signatures). The Trust will then be effective, assuming that trust property has been transferred to the Trustees. Consideration should also be given to the drafting of a letter of wishes from the Settlor to the Trustees for the guidance of the Trustees in the exercise of their powers and discretions. |
||||
