Benefits to Register a Trust in
Isle of Man
Isle of Man
The benefits and practical uses of a trust are varied, depending of course on the particular scenario but they are often used advantageously in the following circumstances:
To enable the Settlor to plan for future generations of his or her family;
To ensure that the wishes of the Settlor are honoured after his or her death;
For advantageous tax planning purposes, often structured with Isle of Man companies;
To enable assets to pass outside of the Settlor’s estate and thus avoid the probate procedure;
To protect the Settlor’s estate and assets, perhaps from spendthrift or irresponsible family members;
To provide funds for educational purposes;
To benefit charitable causes;
To make provision for a vulnerable or incapable family member; and
In specific cases, to avoid forced heirship rules.
With the correct planning it may be possible for an individual, family or business to take advantage of these benefits through the utilisation of an Isle of Man trust or in conjunction with a corporate structure.
The Isle of Man has earned a reputation as a premier offshore jurisdiction for the establishment and administration of trusts. Each settlor’s circumstances and requirements will be specific to them with the result that no two trusts are the same. Anyone considering setting up a trust should obtain expert advice as to what type of trust (if any) best meets their needs.
Duties of a Trustee
Trustees stand in a fiduciary relationship vis-à-vis the beneficiaries of the trust. In carrying out their functions in relation to the trust, the trustees are bound by overriding duties to act honestly, in good faith and in the best interests of the beneficiaries. They must never allow personal interests to conflict with their fiduciary duties.
Generally, trustees are subject to the following duties:
– to familiarise themselves with the terms of the trust and to obey them unless directed otherwise by the court;
– to protect the trust property and keep it separate from their own property and that of other trusts;
– to exercise such care and skill as is reasonable, having regard to any special knowledge or experience that they hold themselves out as having, and, if they are professional trustees, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession;
– to act fairly and impartially as between the differing interests of the beneficiaries;
– to exercise their powers in good faith and only for the purposes for which they have been conferred;
– to account to the beneficiaries and to be ready with their accounts If the beneficiaries so request, trustees must provide them with accounting information regarding the current status of the trust fund. This duty is fundamental to the concept of a trust being the means by which beneficiaries may monitor and protect their interests;
– to keep trust investments under regular review. When making or reviewing investments, trustees are required to consider certain investment criteria, and, unless they reasonably conclude that it is unnecessary or inappropriate to do so, to obtain appropriate professional advice. Trustees must formulate an investment policy and keep this policy under regular review. If there are investment managers or other professional advisers appointed, they should also receive a copy of the current investment policy of the trust;
The trustees may be held to account personally to the beneficiaries to make good any losses to the trust arising from a breach of their duties.
Duration of a Trust
The rule against remoteness of vesting (the rule which prevents property from being tied up in trust for too long) was abolished on 16 June 2015 in the Isle of Man in respect of (a) transfers of property into trust made after that date and (b) transfers of property into trust (whenever made) where the governing law of the trust is changed to Manx law after 16 June 2015. Prior to that, generally, a trust set up in the settlor’s lifetime had to come to an end within 150 years of its creation. Now, whilst a settlor may still impose a fixed trust period if they so wish, it will be possible for a Manx trust to exist without any limit on its duration.
Private Trust Companies
A private trust company (PTC), a company which exists for the sole purpose of acting as trustee of a specific trust or trusts, can be an attractive alternative to using an institutional trustee. In essence, the settlor incorporates his own company to act as the trustee of the trust he is settling. The PTC regime in the Isle of Man is straightforward and practical, and, with no associated government licensing or registration fees, is one of the most cost-effective among the offshore finance centres.
Provided they are not held out to the public as undertaking trust business, and that the administration of the underlying trust or trusts is carried out by a regulated corporate services provider in the Isle of Man, PTCs are exempt from the normal licensing requirements of the Financial Services Act 2008.
Typically, the shares of the PTC would be held in an Isle of Man purpose trust, the purpose being to incorporate, promote and maintain the PTC. The terms of the trust may provide for a mechanism by which board appointments are effected in accordance with the settlor’s wishes (or any other formula). A Manx foundation might also be used for these purposes.
Resistance to Foreign Laws
In common with many offshore finance centres, the Isle of Man has enacted “firewall” laws which seek to ensure that, as far as possible, a trust is shielded against attack by any party (including a court in an overseas jurisdiction) on the grounds that the trust offends or denies rights arising under foreign law – typically, rights of inheritance (such as forced heirship rights prescribed in certain civil law jurisdictions or under Sharia law) or rights arising through marriage or former marriage. It should be borne in mind that no firewall legislation provides absolute protection against such claims, particularly where the underlying trust assets are situated in the foreign territory where the claimant is bringing the claim.
The protection, found in the Trusts Act 1995, has three aspects:
– All questions concerning a trust (including the gift of property into the trust, the powers and obligations of the trustees, and the administration of the trust) are to be determined according to Manx law without reference to the laws of any other jurisdiction.
– No Manx trust, and no transfer of property into a Manx trust, is void or vulnerable to being set aside, nor is the capacity of a settlor, trustee, protector or beneficiary to be questioned, nor is any person to be subjected to an obligation or liability or deprived of a right, claim or interest, by reason that the law of any foreign jurisdiction does not recognise trusts, or the trust or transfer avoids or defeats any right, claim or interest conferred by foreign law upon any person by reason of a personal relationship to a settlor or beneficiary or by way of heirship rights.
– No judgment or order of a foreign court is to be recognised or enforced or give rise to any right, obligation or liability if inconsistent with the above principles, or if the High Court so orders for the purpose of protecting the interests of the beneficiaries of the trust or in the interests of the proper administration of the trust.
The effect of these provisions is that the party seeking to attack the trust will have to do so in the Manx court which will decide the matter applying only Manx law. A judgment of a foreign court which is inconsistent with these principles will not be recognised or enforced in the Isle of Man.
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