Jersey really does permit sham trusts

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I'm grateful for having had an article in the Jersey & Guernsey Law Review from 2010 drawn to my attention. By Filippo Noseda, it discusses The Foundations (Jersey) Law 2009 under the title 'A Civilian Perspective: Not so plain vanilla and possibly a tad wacky'.

It's not exactly complimentary about the law but perhaps the most damning paragraph is this:

From a civilian perspective, the policy statement that a [Jersey] foundation may accord more control to the creator of the structure than a trust appears quite bewildering, given the amount of powers that a settlor of an ordinary Jersey trust may retain for himself under art 9A of the Trusts (Jersey) Law 1984 (2007 revision) without turning it into a sham or nomineeship—

“Powers reserved by settlor

9A.(1) The reservation or grant by a settlor of a trust of … any of the powers mentioned in paragraph (2), shall not affect the validity of the trust nor delay the trust taking effect.

(2) The powers are—

·     to revoke, vary or amend the terms of a trust or any trusts or powers arising wholly or partly under it;

·     to advance, appoint, pay or apply income or capital of the trust property or to give directions for the making of such advancement, appointment, payment or application;

·     to act as, or give binding directions as to the appointment or removal of, a director or officer of any corporation wholly or partly owned by the trust;

·     to give binding directions to the trustee in connection with the purchase, retention, sale, management, lending, pledging or charging of the trust property or the exercise of any powers or rights arising from such property;

·     to appoint or remove any trustee, enforcer, protector or beneficiary;

·     to appoint or remove an investment manager or investment adviser;

·     to change the proper law of the trust;

·     to restrict the exercise of any powers or discretions of a trustee by requiring that they shall only be exercisable with the consent of the settlor or any other person specified in the terms of the trust.”

Even without any prior knowledge of foundation law principles, it is difficult to imagine a wealth management structure under which the founder may retain more powers than those described under art 9A TJL without exposing such a structure to an attack based on sham.

I have argued since 2006 that the powers referred to were deliberately designed to create sham trusts. It's good to see a lawyer agreeing that sich a possibility seems to be the case and the law helps it.

So much for the 'well regulated' offshore location that does not want anything to do with dubious activity.