What is a Private Trust Company?
Private trust companies (a “Private Trust Company”) are used by high net worth clients who wish to create trustees for the trusteeship of their personal family trusts and not transfer assets to a regulated offshore trustee.
What are the benefits of using a Private Trust Company structure?
The major benefits are perceived to be:
Control: the client can retain a greater degree of control over the trust affairs;
Retirements: appointing a Private Trust Company removes the requirement for future changes of trusteeship;
Confidentiality: the ownership of the structure can remain confidential; and
Flexibility: the Private Trust Company is more nimble than a usual trust structure.
Are Private Trust Companies required to be regulated?
Private Trust Companies are exempt to the requirement to register under the Financial Services (Jersey) Law 1998.
Under what circumstances may a Trustee be considered a ‘Private Trust Company’ and be permitted to be exempt from registering under the Financial Services (Jersey) Law 1998?
A Private Trust Company is exempt from the requirement to register as a trust company business pursuant to the Financial Services (Trust Company Business (Exemptions) (Jersey) Order 2000), on the basis that:
the Private Trust Company is a company;
the Private Trust Company does not offer services to the public;
the Private Trust Company is administered by a ‘registered person’ who is registered to carry out trust company business under the Financial Services (Jersey) Law 1998;
the Private Trust Company provides the trust company business services only in respect of a specific trust or trusts; and
the Private Trust Company notifies its name to the Jersey Financial Services Commission.
What requirements are placed on a Private Trust Company?
The creation of a Private Trust Company must be notified to the Jersey Financial Services Commission by letter.
However, there are no requirements on Private Trust Companies in Jersey in relation to the following:
to seek exemptions from regulation by the Jersey Financial Services Commission;
to pay specific Private Trust Company fees to the Jersey Financial Services Commission;
to capitalise the Private Trust Company in a particular way;
to submit to the Jersey Financial Services Commission documents in relation to the relevant trust;
to employ dedicated money-laundering or compliance reporting officers;
to contract a regulated trust company to manage the Private Trust Company. There is however a requirement that the “administration” of the Private Trust Company is carried out by a regulated entity in Jersey.
What is the definition of ‘Administration’ of a Private Trust Company?
There is no definition or published guidance but generally it is considered by industry that it constitutes more than secretarial services but not that the regulated entity must appoint a board member to the Private Trust Company.
How can Private Trust Company’s be owned?
A Private Trust Company’s ownership is usually structured so it is not attributed to any particular person. In many cases a Private Trust Company’s shares are held under the terms of a charitable or non-charitable purpose trust (a “Purpose Trust”). An enforcer must be appointed to enforce the purposes of Purposes Trusts and such enforcer should be a separate entity from the Private Trust Company.
A second method of owning the shares in a Private Trust Company is a Jersey foundation. The foundation may be created for the purpose of holding the shares in a Private Trust Company. A foundation is created by the founder but is not owned by any person - it exists for its foundational purpose. It is common for foundations to act in the place of the Private Trust Company on the basis that a foundation benefits from the same exemptions from registration under the Financial Services (Jersey) Law 1998 that apply to Private Trust Companies.
Individuals may own Private Trust Companies, but such structuring can create issues upon the individual’s death. Probate and succession concerns make this an unfavourable approach.
Who should be appointed to the board of a Private Trust Company?
In many instances, the settlor of the trust may wish to appoint the board of directors to the Private Trust Company and/or become a member themselves. By acting as a board member, the settlor can participate in the decisions of the Private Trust Company.
Generally, the regulated service provider will wish to appoint an employee as a director of the Private Trust Company. The regulated provider will want sufficient and immediate information about the nature and conduct of the Private Trust Company’s business to comply with its obligations under Jersey law.
Family members can be appointed as directors of the Private Trust Company although indemnities and/or appropriate director and officer insurances should be put in place.
Concern can arise if one or more of the directors of the Private Trust Company is resident in an unfavourable tax jurisdiction and this adversely affects the location of the Private Trust Company’s management and control.
How can the Settlor remain involved in the administration of its Trust and Private Trust Company?
The settlor may act as a protector of the trust and then retain reserved powers. The settlor may also act as a member of the board of directors of the Private Trust Company or be appointed to a committee which provides advice in connection with important decisions. The Settlor may also act as a protector or enforcer of the Purpose Trust which owns the shares in the Private Trust Company.