The Trusts (Amendment No. 7) (Jersey) Law 2018 (the Amendment Law), which came into force on 8 June 2018, refines and further enhances Jersey's trusts legislation, the Trusts (Jersey) Law 1984 (the Law). Here, Carey Olsen senior associate Nichola Aldridge summarises the key provisions of the Amendment Law.
Disclosure of trust information
Perhaps most significantly, Article 29 of the Law, which relates to disclosure of trust information, has been redrafted to bring the provision in line with current judicial sentiment.
Previously, Article 29 provided that a trustee shall not be required to disclose to any person any document in connection with the trust, unless the person is a beneficiary and the document sought relates to, or forms part of, the accounts of the trust.
The use of a ‘double negative’ and the potential for ambiguity had been criticised. Further, although the ability to hold a trustee to account for the conduct of its trusteeship is fundamental, it may be undesirable or inappropriate for trust information to be disclosed in certain circumstances; for example to a young or spendthrift beneficiary, or where there are genuine concerns as to the effect of disclosing sensitive information.
The newly restated Article 29 provides that the terms of a trust can restrict a beneficiary's right to information and expressly provides that a trustee may refuse disclosure where it is satisfied that such disclosure would not be for the benefit of one or more of the beneficiaries, or the beneficiaries as a whole. The court retains ultimate power regarding disclosure, so that it can overrule the trustee's decision and override the terms of the trust concerning disclosure, either in relation to a particular instance or more generally.
Reservation or grant of powers by a settlor
Clarifying amendments have been made to Article 9A of the Law, which governs the reservation or grant of powers by a settlor. Article 9A sets out a list of powers that can be reserved or granted by a settlor without affecting the validity of the trust or delaying the trust taking effect, and provides that a trustee who acts in accordance with the exercise of any reserved or granted powers does not act in breach of trust.
The amendments to Article 9A put beyond doubt that the reservation or grant by a settlor of ‘all’ of the powers listed in that article (as opposed to ‘any’, as before) will not affect the validity of the trust or delay the trust taking effect, and that the grant of such powers does not constitute the power holder as trustee.
Furthermore, it has been made explicit that, in respect of a trust where powers have been reserved or granted, unless otherwise expressed, it shall be presumed that the trust shall take immediate effect. This clarification has removed any residual doubt that the trust instrument signed by the settlor may be construed as a form of testamentary disposition.
Trustee security and indemnities
It is generally accepted industry practice that a trustee parting with trust assets (whether on a change of trusteeship or by distribution) is entitled to seek ‘reasonable security’ before it transfers such assets. Reasonable security typically takes the form of an unsecured indemnity from the recipient trustee or beneficiary (as the case may be). It is also usual for the benefit of such an indemnity to extend to the officers and employees of the trustee[1].
However, while various articles of the Law provided that a trustee was entitled to require reasonable security on ceasing to be a trustee or on the termination of a trust, there was no provision explicitly permitting a trustee to require security on a distribution of trust property during the life of the trust or on revocation of the trust. There was also no specific reference to indemnities, even though (as mentioned above) this is by far the most common form of security taken.
The Amendment Law brings the legislation in line with current industry practice. A new Article 43A has been introduced, which entitles a trustee to require reasonable security in all scenarios previously provided for and, in addition, specifically includes the scenario where a trustee distributes trust property during the life of the trust. Article 43A also provides that indemnities may be required in favour of a wide range of persons ‘engaged in the management or administration of the trust on behalf of the trustee’, thereby including employees, officers and other agents, who can enforce such indemnities whether or not they are contracting parties. Furthermore, such persons will be able to enforce the indemnity if it is later renewed or extended by contract or other arrangement (i.e. on a subsequent change of trustee), even if they are not parties to the said contract or other arrangement.
Trust income
The rules in relation to income accruing to a trust fund have been clarified and widened. Previously, the default position was that any income of the trust which is not accumulated must be distributed. The absence of more detailed provisions created the potential for uncertainty, e.g. as to the permissible retention period before income was deemed accumulated, and whether accumulated income could remain as income or had to be added to capital.
The Amendment Law has changed the default position so that, unless otherwise provided in the trust instrument or a power to accumulate and add to capital is exercised, income shall now be retained in its character as income. The newly amended Article 38 also provides that, subject to the terms of the trust, there shall be no time period within which the power to accumulate income and add it to capital, to retain income in its character as income, or to distribute income, must be exercised.
Separately, the trustee's power of advancement has been clarified so that all (not just part) of a beneficiary's interest may be advanced.
The Court's power to vary trusts
The Royal Court of Jersey has the power under Article 47(1) of the Law to approve on behalf of certain categories of beneficiaries who cannot consent for themselves (e.g. minors, unborn persons, persons lacking capacity) any arrangement varying or revoking the terms of the trust, provided such variation appears to be for the benefit of such person.
The Amendment Law helpfully widens Article 47(1) to permit the Court to provide consent for any person who cannot be found despite reasonable effort, and also any person falling within a large class of beneficiaries where it is unreasonable to contact each member (again, if such variation appears to be for their benefit).
As part of the continuing work to ensure that the legislation supports the needs of the industry and leads the way internationally, the Amendment Law brings welcome clarification and further develops certain existing provisions of the Law.
[1] Adopting the definition of ‘Indemnified Persons’ from the precedents published by STEP in A Practical Guide to the Transfer of Trusteeships, Third Edition