Q&A on asset protection
Jersey law and asset protection
The demand for so-called "asset protection" trusts in Jersey has continued in recent years. Whether this is in the context of a new trust being established or existing trusts being restructured and reorganised, asset protection considerations are often a key concern for clients.
As a starting point to such considerations and discussions with clients, it is important to be clear as to both what is meant by "asset protection" and how this fits within the context of Jersey law.(1)
What is an "asset protection trust"?
The term "asset protection trust" has developed as an informal description of a trust whose primary purpose is to safeguard trust assets.
What are asset protection trusts protecting against?
They are usually protecting against claims made against either the settlor or beneficiaries of a trust.
Who might be making such claims?
Potential claims may arise from a variety of different sources, including creditors under a contractual claim, forced heirship claims, insolvency or bankruptcy claims, or from divorce or community property rules.
Why the recent interest?
The global political risk landscape remains particularly unsettled in various regions throughout the world and this has contributed significantly to the continued demand for the protection of trust assets.
What can be done?
The steps taken in relation to asset protection will depend upon the specific concerns relevant to the client and a wide variety of mechanisms may be available – from very simple structuring solutions to bespoke drafting.
Jersey law and asset protection
The key question is often to what extent a Jersey trust, once established, will protect assets from future creditor claims.
Asset protection legislation
Express asset protection legislation has not been passed in Jersey as such provisions have not been considered necessary or desirable in light of Jersey's modern and robust trust and insolvency legislation.
Asset Protection and Trust (Jersey) Law
The general position is that once assets are settled on to trust, they will only be available to the creditors of the settlor if:
- some procedure exists to enable the transfer into trust to be set aside; or
- the settlor is entitled to receive a benefit or call for distributions from the trust.
Exceptions to general rule
The general rule may not apply if:
- the settlor retains a power of revocation;
- the arrangement by which the trust was settled was not valid, or the trust is a sham, or the settlor lacked capacity; or
- the trust has been settled with the intention of defeating a known creditor.
The Trusts (Jersey) Law does contain robust firewall provisions to ensure that questions concerning a Jersey trust are governed by Jersey law.
For further information on this topic please contact James Campbell, Josephine Howe or George Yates at Ogier by telephone (+44 1534 504 000) or email ([email protected], [email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.
(1) For more information, see the infographic version of the "At A Glance Guide to asset protection trusts in Jersey".