The demand for so-called “asset protection” trusts has continued in recent years. Whether in the context of creating a new trust or restructuring and reorganizing existing trusts, asset protection considerations are often a primary concern for clients.
As a starting point for these considerations and discussions with clients, it is important to be clear both about what is meant by “asset protection” and how this fits into the context of Jersey law.
5 things to know about asset protection
What is an “asset protection trust”? The term “Asset Protection Trust” has developed as an informal description of a trust whose primary purpose is to protect trust assets.
What are they protecting themselves from? These generally protect against claims made against the settlor or beneficiaries of a trust.
Who could make such claims? Potential claims can arise from a variety of sources, including creditors under a contract claim, forced inheritance claims, insolvency or bankruptcy claims, or divorce or community property rules.
Why this recent interest? The global political risk landscape remains particularly volatile in various parts of the world, which has contributed significantly to the continued demand for protection of fiduciary assets.
What can be done? The asset protection measures taken will depend on the specific concerns of the client and a wide variety of mechanisms may be available, ranging from very simple structuring solutions to bespoke drafting.
5 things to know about Jersey and asset protection
Jersey and asset protection The key question is often how well a Jersey trust, once established, will protect assets from future claims by creditors.
Asset Protection Legislation Express asset protection legislation has not been enacted in Jersey, as such provisions have not been deemed necessary or desirable in light of Jersey’s modern and robust trust and insolvency legislation.
Jersey Asset Protection and Trust Law: General Rule The general position is that once the assets have been transferred to the trust, they will only be available to the settlor’s creditors if (i) a procedure exists to reverse the transfer in trust or (ii) the settlor is entitled to receive benefit or request distributions from the trust.
Exceptions to the general rule The general rule may not apply if: (i) the settlor retains a power of revocation; (ii) the arrangement by which the trust was established was invalid, or where the trust is a sham, or the settlor lacked capacity; or (iii) the trust was created with the intention of defeating a known creditor.
Firewall Provisions The Trusts (Jersey) Act contains strong firewall provisions to ensure that matters relating to a Jersey trust are governed by Jersey law.