Failing to prepare is preparing to fail
As a British Dependent Territory, Gibraltar is part of the Common Law world.
The principles of the Common Law and Equity which have evolved over the centuries in England are applied in Gibraltar as they are in England and Wales – with such necessary modifications as are required by the local conditions – including the Gibraltar Constitution Order 2006. Gibraltar has its own law relating to trusts which is substantially based on its English counterparts but additionally there are other provisions designed to facilitate the registration of settlements with a view to affording a measure of certainty regarding asset protection issues which may properly be in the mind of the settlor of the trust when creating the settlement. Uniquely in the Common Law world, provisions concerning the settlement of trusts with a view to protecting the assets in a trust from future creditors of the settlor are contained within the Bankruptcy Act which otherwise (as the name would suggest) deals with issues relating to personal insolvency.
Whereas for the greater part of the last thirty years it has frequently been the case that settlors based in onshore jurisdictions, traditionally taxed more highly than the so called “offshore” jurisdictions, would use offshore trusts as part of their tax and estate planning strategies, increasingly the scope of anti-avoidance legislation and the conversion of “avoidance” to “evasion” – whether this be in Britain or certain other countries worldwide – renders such offshore tax planning much less feasible and much less advantageous than it was formerly wont to be, though some legitimate tax planning may still be possible provided that certain other conditions are met – possibly including relocation by the client on a permanent or semi-permanent basis. Besides, in a world which is increasingly litigious, particularly for the business owner and high net worth individual, the use of offshore trusts for the purposes of protecting trust assets from future creditors (not actual creditors at the time of the settlement or within the period determined by law) such settlements may afford a useful opportunity to create a business partner for the strategic investor but without thereby exposing such assets to the predations of qualifying creditors of the settlor – whether actual or contingent.
With the benefit of nearly twenty-five years of reviewing, drafting and advising on offshore trusts, Stephen ffrench Davis is excellently positioned to advise prospective settlors, beneficiaries and trustees as to technical issues resulting from the creation of the trust relationship and the changing scenery which will reflect the conversion of assets, the relationships between trustee and beneficiary, between settlor and trustee, etc.
In this regard the offshore practitioner has brought about a development in trust law generally which was not initially to be found in the law relating to trusts and trustees in England and Wales, the United States or elsewhere in the “onshore” world. We refer here to the creation of a position commonly referred to as “protector” – being a person whose job is to ensure the trustees are abiding by the terms of their trust and fulfilling the proper wishes expressed by the trustees to the settlor from time to time. The office of protector is not generally speaking considered to be a fiduciary position (albeit in practice the obligations and rights of the protector may suggest otherwise). It is of great importance when determining whether and how to settle an offshore trust to determine what mechanism exists for ensuring that the trustees act properly and in the manner that the settlor reasonably believed they would do at the time he established the settlement. A properly drafted trust deed which makes provision for a protector can achieve exactly that: to ensure the adequate performance by the trustee of its responsibilities without placing the settlor in a position where he may be deemed never to have parted with ownership or control of the assets settled in trust at all and thereby treated accordingly whether for tax or other purposes or, in the case of the Protector, to be construed as being a Trustee with the attendant consequences that this might have for settlor, beneficiaries and trustee alike.
Issues upon which we have advised clients in recent years have included the following:-
- Breach of trust
- Trustee fraud
- Trustees acting in conflict of interest
- Trustees improperly ignoring the wishes of certain beneficiaries in preference to the interests of others
- Construction of trust deeds
- Creation of trusts
- Appointment and removal of Trustees
- Appointment and removal of Protectors
- Applications and resolutions under the rule in Saunders v Vautier
- Estoppel as it applies to the trust relationship
- Regulation of professional trustees
- Trustee remuneration
In addition we are regularly appointed as Protector for the peace of mind of the settlor, not being trustees but entirely independent of trustee, settlor and beneficiary.