The Trusts (Amendment No. 4) (Jersey) Law 2006

INTRODUCTION

The Trusts (Amendment No.4) (Jersey) Law 2006 (the

"Amendment Law") came into force on 27 October 2006.

The Amendment Law makes a number of changes to Jersey's

existing law on trusts, the Trusts (Jersey) Law 1984 (the

"Trusts Law"). The purpose of this memorandum is to

summarise those changes.

References to articles in this memorandum are references to

articles in the Trusts Law.

ARTICLE 9 - EXTENT OF THE APPLICATION OF THE LAW OF JERSEY

TO THE CREATION OF TRUSTS ETC.

The old Article 9 provided some protection for a Jersey

trust against claims seeking to challenge the validity of the

trust itself or the validity of the transfer of assets into the

trust. However, it was thought that some offshore jurisdictions

had stolen a march on Jersey by introducing much tougher

protection for their trusts. The new Article 9 is intended to

strengthen Jersey's provisions in order to bring it into

line with those other offshore jurisdictions and provide

comprehensive protection against attacks on Jersey trusts based

on foreign law principles.

The validity or interpretation of a Jersey trust, the

validity or effect of any transfer or disposition of property

to a trust, the capacity of the settlor, the administration of

a Jersey trust and the existence or extent of powers under such

a trust are now determined solely in accordance with Jersey

domestic law (excluding, in the case of a settlor who is not

domiciled in Jersey, légitime and Jersey's

conflicts of law rules). As before, donner et retenir ne

vaut continues to be disapplied.

In addition, a new paragraph (4) provides that, to the

extent that a foreign judgment is inconsistent with the

provisions of the amended Article 9, that foreign judgment

shall not be capable of being enforced. This has become

significant in the case of attacks on Jersey trusts made by

spouses in matrimonial proceedings in other jurisdictions.

NEW ARTICLE 9A - POWERS RESERVED BY THE SETTLOR

A settlor sometimes seeks to retain certain powers under the

terms of a trust rather than confer them on the trustee. He may

also decide to confer powers on someone other than the trustee,

for example, a protector. However, if a settlor reserves too

many powers, it might be argued by third parties that the trust

is a sham. For example, although on the face of the trust

instrument a trust may be called a discretionary trust, if too

many powers are reserved it could be argued that, in reality,

it is a bare trust or nomineeship.

In addition, if powers were reserved by the settlor or

conferred on someone else the question sometimes arose as to

whether the trustee should go along with such powers if he

thought they were being exercised in a way which was not in the

best interests of the beneficiaries. For example, the settlor

might, in accordance with a power reserved to him under the

terms of the trust, direct the trustee to purchase certain

investments which the trustee might think unwise. The trustee

is subject to certain overriding duties and, to comply with the

settlor's direction in such circumstances, might result in

the trustee being in breach of those duties. Essentially the

question boiled down to which took precedence, the

settlor's direction or the trustee's overriding duties

which might require him to ignore the direction, in spite of

his obligation under Article 21 to carry out and administer the

trust in accordance with its terms.

The Amendment Law deals with these issues. The new Article

9A sets out for the avoidance of doubt the powers which may be

reserved by the settlor or granted to someone other than the

trustee without the validity of the trust being affected. These

include:

The power to revoke, vary or amend the terms of the

trust;

The power to advance, pay or apply trust property;

The power to direct the trustee to advance, pay or apply

trust property; and

The power to give binding directions to the trustee in

connection with the purchase, retention, sale and management

of trust property.

Where such a power has been reserved by the settlor or

granted to someone else, a trustee who acts in accordance with

the exercise of the power will not be acting in breach of

trust. For example, if the settlor, in accordance with the

terms of the trust, directs the trustee to invest the trust

fund in a certain way, the trustee will not be liable for

breach of trust in relation to that investment decision.

However, the trustee could be liable for breach of trust in

relation to the execution of that direction if he...