Trusts – A Global Update

Partner and head of Private Wealth Disputes at law firm Hugh James, Roman Kubiak TEP, looks at developments which have shaped the global trusts landscape.

Trusts have long been a cornerstone of wealth management and estate planning. However, in recent years, we've seen a significant shift in the global financial landscape, with an increasing emphasis on transparency and regulation. These changes have had profound implications for the trust industry.

In the UK, the implementation of the 5th Anti-Money Laundering Directive has been a game-changer. This directive has expanded the scope of trust registration requirements and increased the obligations on trustees. The creation of the Trust Registration Service requires many previously unregistered trusts to register with HMRC. That said, and despite the deadline by which to register I would estimate that most trusts have yet to be registered.

Offshore, we're seeing a similar trend towards increased regulation. There's been a marked rise in cooperation between jurisdictions, particularly in the realm of information sharing. The implementation of the Common Reporting Standard has facilitated automatic exchange of financial information between tax authorities, significantly reducing the potential for tax evasion through offshore structures.

We've seen enhanced due diligence requirements placed on trustees for Anti Money Launder (‘AML’) and the scope of AML obligations has expanded to cover more types of trusts with increased scrutiny on the source of funds and wealth. Trustees are now expected to have a much more comprehensive understanding of the assets they manage and the individuals involved in their structures. However, in the great words of Spiderman’s uncle, Uncle Ben (not the rice guy) with great power comes great responsibility…and great scope for litigation.

On the tax front, both the UK and international landscapes have seen significant changes. In the UK, reforms to non-dom tax rules are likely to have a substantial impact on many offshore trusts. Changes to the inheritance tax treatment of offshore trusts have also prompted many to reconsider their structures. Internationally, the OECD's Base Erosion and Profit Shifting project, or BEPS, has had far-reaching implications for how trusts are used in international tax planning.

While, therefore, trusts were historically seen as an easy way for people to place assets out of reach for the next generation, many of these trusts, and those who are tasked with looking after them, are now coming under increased scrutiny with people more willing to challenge the status quo.

As such, disputes are on the rise with increased challenges to trustee decisions, placing greater pressure on trustees to document their decision-making processes thoroughly. Perhaps the most significant development in recent years has been the heightened scrutiny and demand for transparency in the trust world. The introduction of public registers of beneficial ownership in many jurisdictions has been a landmark change. The automatic exchange of information between countries has made it much harder to conceal assets or evade tax obligations. High-profile trust arrangements have attracted media and public attention, often casting trusts in a negative light and increasing pressure for greater openness.

The days of opaque structures are rapidly becoming a thing of the past but this is something which, in truth, many trust jurisdictions have embraced, often leading the charge and firmly establishing themselves not as “tax havens” but as “safe havens” to settle and manage inter-generational wealth. As we move forward, it's clear that compliance, transparency and security will continue to be at the forefront of concerns for trustees and beneficiaries alike.

Some of the bigger changes and developments in more recent times include:

- Guernsey’s Trusts Law, which came into force in 2008. This has a well-thought-through purpose trust regime permitting perpetual trusts with flexible non-charitable purposes.

- Jersey's government is consulting on five draft amendments to the Trusts (Jersey) Law 1984, namely:

1. deciding the priority of claims between a former and current trustee and a secured lender in the light of the Jersey Royal Courts decision in Re Z Trusts [2018] JRC 164;

2. beneficiaries' powers to call for the termination or variation of a trust under either article 43 of the Trusts (Jersey) Law 1984 or the rule in Saunders v Vautier [1841] EWHC J82;

3. clarifying the position where a sole trustee purports to resign;

4. minor corrections to articles 24, 43 and 55 around purpose trusts, trustee security of liabilities and clarifying that notice need not be actual notice in the context of a ‘bona fide purchase for value without notice’; and

5. data trusts i.e. trusts which hold only digital assets.

- Over in the Cayman Islands, on 12 August 2024 parliament enacted the Perpetuities (Amendment) Bill 2024, removing the mandatory perpetuity period of 150 years for many existing and future trusts.

The Cayman Islands government also brought in the Beneficial Ownership Transparency Act 2023 into force on 31 July 2024 significantly expanding the scope of the beneficial ownership regime to include limited partnerships, exempted limited partnerships and foundation companies, though not foreign companies or trusts.

- Last September the UAE enacted Federal Decree-Law No. 31/2023, establishing a newly developed regulatory framework for the administration of trusts within the UAE, including increased transparency. It granted recognition to trusts in all Emirates (excluding financial free zones) irrespective of the location of the trust’s assets.

- In the States the federal Corporate Transparency Act came into force on 1 January 2024 requiring certain legal entities including partnerships, corporations and limited liability companies and any entity or arrangement that requires an application or registration to submit beneficial ownership information reports including for certain types of trust, family businesses and partnerships. The registration deadline is 1 January 2025 for first filing.

- The British Virgin Islands’ (‘BVI’) Financial Services Commission is preparing draft amendments to financial services legislation to address recommendations from the Caribbean Financial Action Task Force’s (CFATF’s) 2023 mutual evaluation report.

The report was tabled at the CFATF meeting in December 2023 but has not yet been published. The Commission’s 2024 work plan reveals it will draft a new Trust and Corporate Service Providers Act. It also plans to implement the register of persons with significant control to capture beneficial ownership information on all BVI companies, implement systems to collect economic substance information on all BVI companies and further develop the register of directors.

- In the Isle of Man, the Trusts and Trustees Act 2023 is now in full operation. Key changes include:

1. inserting a new Part 1A to the Trustee Act 2001 codifying the position set out in the Privy Council decision of Schmidt v Rosewood Trust Ltd [2003] UKPC 26 providing clarity on who is able to apply for trust information and when trustees can refuse to provide that;

2. restoring and codifying the so-called “Hastings-Bass rule” following the Supreme Court decision in Pitt v Holt, Futter v Futter [2013] UKSC 26 allowing the court to declare transactions void or voidable where trustees have failed to take account of relevant factors when exercising their powers;

3. inserting a new Part 3A allowing trustees to contract with themselves when acting as trustees of multiple trusts; and

4. inserting a new Part 4A limiting the trustee’s liability to the value of the trust property when transacting as a trustee with a third party, subject to providing written notice.

As we can see, the global trusts landscape has seen some significant changes, with many changes afoot. However, trusts still remain a robust and excellent tool for financial planning and to preserve family wealth for generations. Those jurisdictions which respond positively to, and embrace, the changes are likely to thrive in this new, more transparent and collaborative world. The key is to be proactive, stay informed and engage with all relevant stakeholders.