Setting Up a Purpose Trust in Gibraltar

1.?????What is a Trust, generally?

A Trust is a legal relationship whereby one or more people or a company (called the trustees) legally controls money or assets (trust property or trust corpus), with the fiduciary duty that such legal control over the assets and money is for the benefit of one or more persons/organization (the beneficiaries). In other words, a trust, fairly put, is an agreement (usually a deed) involving three main parties: the settlor who hands over the assets or money; the trustee who receives the assets or money and whose duties it is to manage and control these assets or money; and the beneficiary/beneficiaries in whose ultimate interest the trustee acts.

There are many types of Trusts which can be used by settlors to fit their objective. Some prominent Trusts include the following:

-?????????Revocable Trusts: these are trusts made during the lifetime of the settlor which can be altered, modified, or revoked entirely;

-?????????Irrevocable Trusts: the opposite of a revocable trust. Once the property has been transferred to the trustee, no one can take the property out of the trust, including the settlor. It cannot be altered, modified, or revoked under any circumstances;

-?????????Assets’ Protection Trust: meant to protect assets from claims by future debtors during bankruptcy. This was the kind of trust Michael Jackson used to transfer over 300 million US dollars to his family, despite almost being bankrupt;

-?????????Charitable Trust: as the name suggests, a trust set up to benefit a particular charity or charitable cause for the public in general;

-?????????Purpose Trust: set up for a particular purpose usually commercial and not charitable. This will be examined more below in the Gibraltar jurisdiction.

-?????????Discretionary Trusts: peculiar to English law, in a discretionary trust, the settlor can name multiple beneficiaries, and the trustee has the discretion to decide who will be the ultimate beneficiary.

Trusts are especially popular among the wealthy who intend to protect their assets, avoid estate taxes, and pass down property to their loved ones effortlessly. They are also a business tool that has been used by many, with offshore purpose trusts gaining traction in trust havens like Gibraltar, Belize, the Cayman Islands, etc.

Trusts are usually set up by lawyers, accountants, tax auditors, and notary publics. This is because it can be very complex work involving assets assessments, due diligence, auditing of accounts, drafting of the Trust Document/notarization of trust deed, etc. They may be registered with the Trust Registrar and indexed depending on the laws of the jurisdiction the settlor intends to use. In most cases, they are registered in a register of Trusts usually kept by trustees. In the majority of those jurisdictions, trustees are licensed professionals, most from the legal profession (barristers and solicitors) with good standing.

2.?????Why go for Gibraltar?

Gibraltar is one of the best (if not the best) jurisdiction to set up a Trust in Europe. As an English overseas territory, its Trust laws are inspired almost word for word by English Trust laws (such as the UK Trustees Act of 1893 and subsequent amendments). Needless to mention that, the UK is the brainchild of Trust practice dating back to the 12th Century.

As of today in Gibraltar, there are over 60 well-regulated and reputed Professional Trustees registered with the Gibraltar Financial Services Commission. Our Firm has worked with three in the past, and we maintain professional relationships with them. These Trustees manage billions of US dollars in assets for individuals and corporations from different parts of the globe. So, what is so attractive about Gibraltar to these clients? Well:

-?????????It is highly confidential. The trustees (especially for a Purpose Trust) are under no obligation to make any documentation public or available for inspection, nor is there an obligation to report on the activities of the trust.

-?????????Closely related to the above is the fact that in 2015, Gibraltar passed the “firewall legislation” in the form of the Trusts (Private International Law) Act. This Act shields Trusts that are governed under the Gibraltar law from attacks in foreign courts. It thus enables clients to feel more confident that their assets are going to be vigorously protected. The Act highlights circumstances under which questions relating to a Gibraltar Trust are exclusively addressed in a Gibraltar Court or under Gibraltar law. It likewise limits the application of foreign law and foreign courts on Gibraltar Trusts.

-?????????Gibraltar is a well-known for its tax benefits in Europe. Though a lot of the tax benefits associated with trusts have been eroded recently due to the anti-tax avoidance legislation, Trusts are not required to pay taxes on income that it does not receive in Gibraltar as well as for income for its founders and beneficial owners not resident in Gibraltar. This means that for an outsider, it is a perfect way to protect income and property and to transfer property to a third party without an estate tax. Moreover, the transfer of trust assets is not subject to stamp duty unless the estate or property is physically located in Gibraltar. Lastly, Gibraltar does not generally apply estate duty, inheritance tax, capital gains tax, wealth tax or gift tax.

-?????????The Trust managers, Trust protector or Trust enforcer’s residence in Gibraltar does not in any way affect the tax status of the Trust. As a matter of fact, when setting up the Trust, it is important to include a clause in the Trust Document that, the beneficiary of the trust cannot be resident in Gibraltar.

-?????????The currency choices for the Trust assets are limitless.

-?????????The Perpetuities and Accumulations (Amendment) Act 2014 which came into force 2014 extends the perpetuity period of a trust from 100 years to 250 years. This perpetuity and accumulations requirements do not even apply to certain trusts like the Purpose Trust (to be examined below).

3.?????What type of trust can we set up in Gibraltar to suit your venture and what are its essential features?

Taking into consideration our discussions of setting up a trust for business purposes, the most appropriate trust to set up in Gibraltar is the Purpose Trust. It was put in place by Purpose Trusts Act, a legislation enacted in 2015. This legislation is an innovative development of the modern offshore trusts industry that allows for the creation of trusts for specific purpose(s) as opposed to holding property on behalf of beneficiaries (the traditional trust).

This Act allows any person (settlors) to establish a Trust by a Trust Document (to be clarified below) declaring that the Act shall apply to that Trust and having as the objects of the Trust or power, any purpose that is not charitable. In other words, the Trust should be set up primarily for commercial purposes. The Act goes ahead to specify certain conditions of this kind of Trust to include the following:

-?????????The trust must be capable of being carried out;

-?????????It must be sufficiently certain to be capable of being carried out;

-?????????It must not be contrary to public policy;

-?????????It must not be unlawful;

-?????????It must be capable, subject to the exercise of any power of accumulation, of consuming the property held upon the Trust;

-????????? It must not benefit its trustees beyond the payment of fees for so acting as may be expressly provided for in the Trust Document.

One of the peculiar features of this Trust as passingly mentioned above is that, unlike nearly every other trust, it does not require a beneficiary. Contrarily, it requires a purpose(s) which must not be charitable. The purpose(s) must be clearly contained in the Trust Document. That explains why the Trust cannot fail for want of a beneficiary, as well as why there is an exclusion of the application of the legislation on perpetuities and accumulations. What this means is that, the settlor can reap the benefits (normally reserved for the beneficiary) of the commercial activities carried out by the trust in some form, while remaining hands-off.

One other remarkable aspect about this kind of Trust is that, there is a statutory obligation to appoint an “Enforcer” in the trust documents. While other trusts usually have a protector, who oversees the trustee’s management, this law provides for an Enforcer. The duty of the enforcer is to enforce the purpose(s) of the trust. In other words, he oversees the business/commercial activities [purpose(s)] that the Trust was created for. The enforcer cannot be the trustee or related directly or indirectly to the trustee in any way, shape, or form. To put it another way, the settlor can appoint a well-respected business savvy and dependable person in the Trust Document to be the enforcer of the trust because his work will primarily be overseeing how the assets of the trust are invested and managed by the trustee.

Another exceptional feature is the exclusion of the application of perpetuities and accumulations rule under Perpetuities and Accumulations (Amendment) Act 2014. Regarding the exclusion of perpetuities, this means that there shall be no time limit (usually known as the perpetuity period) set within which a future dealing with the assets of the trust must occur (250 years max.). While exclusion of accumulation means that the Trust can continue to add income to capital rather distribute it as usually required under Common Law.

An additional notable feature of this kind of trust is the expansion of the cy-près doctrine. The cy-près doctrine is a Common Law doctrine that takes its roots from French phrase cy près comme possible. The doctrine gives powers to the courts to interpret the terms of a will, trust, or gift when the intended wishes or conditions of the original Trust Document cannot be carried out, legitimately interpreted literally or legally performed. The Gibraltar Purpose Trust Act extends this doctrine to trustees or persons named and authorized in the Trust Document1. They are permitted – where the Trust Document so provide – to alter the Trust including its purpose(s) in the event that, in the opinion of the trustees, the Trust, its purpose(s) in whole or in part become impossible or impracticable; unlawful and contrary to public policy; or obsolete because the purpose(s) cannot be met. Where this is the case, the trustee or authorized person shall have unfettered discretion and full right, power, authority. by an instrument in writing to amend the Trust Document applying the cy-près doctrine to the trust to allow its continuous existence. The existence of the Trust shall be deemed to be uninterrupted. In a circumstance where the Trust Document do not provide for such powers to alter the trust, including its purpose(s) as explained above, the trustees or authorized persons can apply to the court to amend the Trust applying the cy-près doctrine.

Lastly, one more extraordinary feature of a purpose trust which is closely connected to the above feature is that, it cannot be rendered void for want of certainty or uncertainty because, an authorized person can seize the courts via an application and the court can at its discretion, take such steps including amending the Trust Document in a manner that gives effect to the intent of the Trust.

4.?????That said, what are the requirements to set up a Purpose Trust

The most important piece of the puzzle to set up a purpose trust is the Trust Document. You may have noticed it mentioned several times in this piece. The Gibraltar Purpose

Trust Act defines it as any written document, inclusive of a will, settling or declaring a Trust and evidencing its terms. This document could include any written document executed before the entry into force of the Act and which has been amended in writing thereafter as may be permitted by the relevant instrument/law.

The definition is filled with legalese as expected. But to put it in easier terms, Trust Document is in essence a trust deed. A trust deed is an agreement that basically creates the trust. It is drafted and put together by lawyers, in collaboration with accountants and financiers painstakingly to reflect the intentions of the settlor in the clearest possible terms, and to map out the role of each of the parties to the Trust notably the trustee, the enforcer and ultimately the beneficiary/beneficiaries (where that is the case).

Some of the following information is needed to constitute a trust deed:

-?????????The official name of the Trust;

-?????????The name of the trustee. The trustee must be a licensed trustee in Gibraltar with a registered office in Gibraltar as well. When the time comes, I can work with my contacts on the ground to set the ball rolling;

-?????????The purpose(s) of the trust (in this case the commercial/business activities to be carried out);

-?????????The country in which the trust is founded (Gibraltar);

-?????????The country of residence of the settlor;

-?????????The powers and duties of the trustees;

-?????????The powers and duties of the enforcer;

-?????????the name of each and every Authorised Person named (if any) in the Trust.

-?????????Any other information that the settlor and the trustee may deem useful when drawing up the Trust Document.

Once all these information is ready and the Trust Deed is drawn, signed, sealed, and delivered, the trustee creates a register of the Trust of which the trustee is trustee. The register contains all of the aforementioned information. It also contains information about the accounts and all supporting financial records of the relevant trust, including all amounts of property, capital and income applied by the trustees in accordance with the terms of the Trust.

In the absence of an express contrary provision or intention in the Trust Document and subject to the express terms of that Trust Document, the trustees of a Purpose Trust enjoys the full discretion to appoint property among any of the different purposes of that Trust if there is more than one Purpose; and to formulate, devise, develop, decide and determine the means and strategies by which to give effect to and achieve the purpose(s) of the Trust. What this shows is that, a Purpose Trust does have a discretionary aspect about it. The legislator must have built this into the law because discretionary trusts or settlements are the most used in Gibraltar because, the trustees enjoy breathing space to make decisions in the interest of the sustainability of the Trust.

In conclusion, this opinion does not contain every single nuance on how to set up a Purpose Trust in Gibraltar. What it does is, it gives a panoramic view of what the process entails. There are some practical nuances that can only be experienced on the ground. A Purpose Trust nevertheless remains one of the best offshore Trust options to invest money into diverse business ventures. Dayspring Law Firm can leverage our expertise, experience, and professional network in Gibraltar to set up the Trust with a reputable licensed trustee. We can also provide a similar service in the Cayman Islands, British Virgin Islands, Belize, Saint Kitts and Nevis.