In a recent case, a Jersey trustee applied to the Royal Court of Guernsey to vary an order previously made by the Royal Court and to invoke the court's power to construe a trustee power under its Public Trustee v Cooper jurisdiction.
The trustee was trustee of two Guernsey law trusts, both of which were established by the same settlor for the sole benefit of his daughter (the beneficiary), a long-term US-resident. Under the terms of one of the trusts (the V Trust), the beneficiary had a right to withdraw the whole of the trust fund on a given date, which, pursuant to a court order made in 2001, had been postponed by 20 years.
The beneficiary was considering moving away from the United States and had been advised by her New York legal advisers that it would be substantially preferable if the V Trust could be deemed a grantor trust and thus not be subject to a 30% withholding tax with respect to any taxable distributions made to the beneficiary once no longer a US-resident. This conversion from a non-grantor to a grantor trust could be achieved by bringing forward the date on which the right to withdraw could be exercised to a current date, which in turn could be achieved only by order of the Royal Court, as there was no appropriate power of amendment under the terms of the V Trust.
The beneficiary had also been advised to simplify the structure by amalgamating the trust fund of the other trust (the I Trust) with that of the V Trust such that the I Trust would be terminated. However, the terms of the trust instrument establishing the I Trust were very narrow and did not permit a prima facie construction allowing the trustee to transfer the trust fund for the beneficiary's benefit as opposed to transferring the same directly to her (an opinion which was endorsed by Chancery Queen's Counsel).
Having taken advice and considered its options, the trustee determined that it was in the best interests of the beneficiary (as the sole beneficiary of the trusts) for the trustee to seek orders from the court:
- varying, pursuant to Section 69 of the Trusts (Guernsey) Law 2007, the previous order with respect to the V Trust to bring forward the date on which the right to withdraw may be exercised;
- confirming, pursuant to Section 68 of the law and the court's jurisdiction under the first limb of Public Trustee v Cooper, that the trustee had the power to appoint the trust fund of the I Trust to the trustees of the V Trust for the beneficiary's benefit; and
- granting, pursuant to the court's inherent jurisdiction and principles laid down in case law, the sealing of all documents put before the court which contained private details relating to the beneficiary, while maintaining suitably redacted versions of those documents on the court file.
In hearing the application, the court directed that Her Majesty's procureur be convened in her capacity as partie publique (ie, to represent the interests of the class of charitable causes that might ultimately benefit as remote contingent back-stop beneficiaries in the event of the beneficiary dying without having withdrawn or otherwise received the whole of the trust fund of the V Trust and further without having appointed recipients of the same by instrument or will). The court also requested that the parties jointly instruct an independent tax expert to confirm that the advice provided to the beneficiary with respect to her proposed emigration from the United States was correct.
In the court hearing, the trustee was granted all three orders by the bailiff.
When establishing a trust, it is important to consider including a power to vary which can be exercised by the trustee (with the settlor's or professional protector's consent if necessary) to avoid the need for applications to the court should circumstances change in future.
When applying to the court for an order with respect to a trust (as the previous trustee had done with respect to the V Trust), it is important to ensure that thought is given to potential future changes and consider how this might be provided for without the need for further recourse to the court.
When establishing a trust, it is important to ensure the dispositive provisions are clear insofar as appointments for the benefit of beneficiaries are concerned.
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