Wednesday, June 12, 2013

Jersey: "90% of our business is discretionary trusts"

Update: we're still working on the question of how big the issue of discretionary trusts is. This blog below regarding Jersey isn't necessarily representative, but it does provide a big pointer. Here's another statement from a practitioner in the British Virgin Islands:

"Most British Virgin Islands trusts tend to be discretionary trusts." 
We've just come across a remarkable statistic from a Jersey trust practitioner. Here it is, via the Expat Channel. Our emphasis added.
"Despite the different types of trusts that have developed over the last half a century, the most enduring remains the discretionary trust. “Something like 90% of Jersey trusts we draft are fully discretionary ones as they give the maximum flexibility,” explains Giles Corbin, Partner with Jersey-based law firm Mourant."
We had heard even higher numbers than this 90 percent figure cited before in the general context of offshore trusts, but never seen anyone in the industry say as much in public.

The discretionary trust has particular potential for abuse. If you're not up to speed on trusts, take a look at our short primer In Trusts we Trust.   As our analysis of the Swiss-UK tax deal explains, the discretionary trust is a way to put assets into a legal limbo so that they are, in effect, 'ownerless' and can escape all those pesky transparency requirements to identify beneficial owners. We explained it like this:
The innnovation in a discretionary trust is that the beneficiaries are not fixed. Instead the question of who is to benefit from the assets is left to the 'discretion' of the trustees. So you might have several potential beneficiaries - some could even be children who have not been born yet - and at least for now, nobody is entitled to the assets or their benefits untl the trustee uses his or her 'discretion' (another highly slippery concept, especially when wielded by an offshore trustee) and shells out to that particular person at some point in the future. Behind these arrangements, undisclosed to anyone but the trustees, there will be a set of instructions about how to manage the assets, sometimes called a 'letter of wishes' or 'bylaws' that only the person who established the structure, and their trustee, will know about.

So until the payout happens - which may be decades in the future - you cannot know that any given individual is entitled to that benefit: so you cannot say who the beneficiary is. There actually isn't one: it's all up in the air since the trustee's discretion has not yet been fully exercised."
That Expat Channel article sums it all up:
"Alan Binnington, Private Client Director for RBC Trust Company says that a prime reason for the popularity of discretionary trusts’ is that once the assets have been transferred to the trustees the settlor ceases to own them, which may have advantages from a taxation point of view or for asset protection purposes. This transference of ownership also means that assets can be passed to future generations without the complication of having to obtain grants of probate."
It sounds great - until you unpack terms such as "may have advantages from a taxation point of view, or for asset protection purposes."  Protection from whom? Well, in many cases it is the tax or criminal authorities. Not only that, but Jersey foundations are designed to achieve basically the same trick.

This is a jurisdiction that likes to say how clean it is. Not on this evidence.

It will be very interesting to see if all the efforts to tackle tax evasion at the G8 look seriously at these slippery structures.

In case the link changes, here's the original.


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