I've been accused on occasion of focusing too strongly on dubious practice in Jersey. I accept that it's the haven I know best, but sometimes another needs attention. Take the Isle of man for example, and Lorne House Trust Limited in particular. I'll ignore for now the complete nominee service they provide for running an Isle of Man company, which makes the arrangement an obvious charade, and will instead focus ion their trust services.
Their questionnaire for someone wishing to set up an Isle of Man trust is available on their web site. Please read it. It's a staggering document. Then note:
- Question (d) which allows for a nominee Settlor... or no settlor at all, if that's more convenient and prevents inconvenient questions being asked.
- Question (j) that asks which charity the real settlor would like to be a beneficiary (because it is normal for there to be a fake charity beneficiary for any offshore discretionary trust);
- Question (m) that then asks who the real beneficiaries are to be (i.e. not the above charity);
- The note on reasons for wanting a trust on page 5 which says regarding the avoidance of probate that trust assets do not form part of deceased person's estate, which will not be true in many cases if they retain control over them, as is implicit in this document;
- The note on page 6 concerning 'Who do you wish to be a settlor?' which provides a range of increasingly tenuous options, all of which are apparently acceptable to the company;
It is apparent that what is being supplied here is a sham. The trustees are clearly going to act on the real settlor's instructions whoever is assigned that role on creation and in the future. In that case there is no trust.
What's particularly interesting about this example though is that it has been subject to litigation before the Privy Council. If you've time the case is worth reading. What happened was that in the case that was appealed the true deceased settlor had allowed the Lorne House trustees to use the nominee corporate settlor, and those trustees then claimed, when challenged by the true deceased settlor's son who wanted access to the trust property that the real settlor was not that person because the trust documents he'd authorised they create named the settlor as Pacquerette Limited, which was their nominee company. The court saw through this and said on page 4 of the opinion that:
It appears that Rosewood Trust Limited does not accept that Mr Schmidt was a settlor of either settlement. Certainly he was not named as a settlor. But (in responses filed in the High Court of the Isle of Man) Rosewood has described Pacquerette Limited ("Pacquerette"), the named settlor, as "simply a nominee" and has stated that Mr Schmidt "was involved in the setting up" of each trust. Rosewood also stated in its answer that its involvement was "simply to receive and pay out such funds as [Mr Schmidt] chose to channel through the Isle of Man". In the absence of other evidence that justifies the conclusion that he was one of those who joined in causing the settlements to be made and funded, and was in substance a co-settlor.
To put it another way, the Privy Council said the Trustees were not telling the truth. It should be stressed that the opinion also notes that:
Lorne House (an Isle of Man company apparently controlled by the same persons as Rosewood Trust Limited) retired from the trusteeship of both settlements and Rosewood was appointed as sole trustee in its place on 3rd May 1997.
Which is pretty amazing stuff. The arrangements set up by the company have been found to be a mere front for Mr Schmidt and yet the company denied this to the Privy Council, somehow believing in its own facade of deception. And its still selling the same facade now.
Those who use offshore should beware. Their Lordships who opined in this case noted:
It has become common for wealthy individuals in many parts of the world (including countries which have no indigenous law of trusts) to place funds at their disposition into trusts (often with a network of underlying companies) regulated by the law of, and managed by trustees resident in, territories with which the settlor (who may be also a beneficiary) has no substantial connection. These territories (sometimes called tax havens) are chosen not for their geographical convenience (indeed face to face meetings between the settlor and his trustees are often very inconvenient) but because they are supposed to offer special advantages in terms of confidentiality and protection from fiscal demands (and, sometimes from problems under the insolvency laws, or laws restricting freedom of testamentary disposition, in the country of the settlor's domicile). The trusts and powers contained in a settlement established in such circumstances may give no reliable indication of who will in the event benefit from the settlement. Typically it will contain very wide discretions exercisable by the trustees (sometimes only with the consent of a so-called protector) in favour of a widely-defined class of beneficiaries. The exercise of those discretions may depend on the settlor's wishes as confidentially imparted to the trustees and the protector. As a further cloak against transparency, the identity of the true settlor or settlors may be concealed behind some corporate figurehead.
It's clear their Lordship's are not convinced as to the merit of this course of action. Nor am I. Caveat emptor - let the buyer beware.