Menu open icon Search icon Close icon facebook twitter youtube instagram linkedin Butterly graphic Facebook share icon LinkedIn share icon Email share icon Twitter share icon Download Icon

An Introduction to Guernsey Trusts

25th Nov 2014

What is a Guernsey trust?

A Guernsey trust separates the legal title, or ownership, of property from the right to benefit from that property. It involves a person (settlor) transferring property (trust fund) to another (trustee) to hold for the benefit of another person/s (beneficiary/beneficiaries) or purpose.


Forming a Guernsey trust

The actual formation of a Guernsey trust requires simply the execution of a trust deed by the parties and the receipt by the trustees of some property, which is often for convenience a nominal cash sum, upon which the trust can operate. Before this occurs, however, there will be additional matters to consider.

The intending settlor will wish to discuss the form of trust most suited to his requirements. A trust can be established during an individual’s lifetime (inter vivos trust) or upon their death under the terms of their will (testamentary trust). Nowadays, although a trust can still be established orally or by conduct, most trusts are formally established in a written instrument.

Trust deed

The trust deed is a legally drafted document that embodies the agreement wherein legal title in real property is transferred to a trustee, which holds in benefit for the beneficiaries of the trust.

Letter of wishes

A letter of wishes is a non-binding indication by the settlor of the manner in which he/she wishes the trustees to exercise their discretion in relation to a discretionary trust.

Trust fund

The trust fund means simply the assets held by the trustee. Generally speaking, assets can be added to a trust fund at any time, including by a person who was not the original settlor. Any type of asset can be held as part of the trust fund of a Guernsey trust. Often, however, the ‘real’ assets will be held in a private investment company the shares of which are held by the trustee and form the trust fund.


The trustee may be an individual or a company. In Guernsey there is no requirement for a corporate trustee to have particular status as a ‘trust corporation’. A settlor must choose a trustee with care, to ensure as far as possible that the trustee will carry out the terms of the trust competently. A Guernsey trust must have at least two trustees unless only one trustee was originally appointed or a corporate trustee resident in Guernsey is acting or the terms of the trust provide otherwise. Where there is more than one trustee, they must act unanimously unless majority decisions are permitted by the terms of the trust.


As noted above, this is the person who causes the trust to be established by transferring the initial assets of the trust fund to the trustee. He/she, or others, may subsequently transfer further assets. Usually, but not necessarily, the transfer is by way of absolute gift. Unless the trust deed reserves powers to the settlor, he/she has no subsequent right to interfere in the running of the trust or to enforce the terms of the trust – these rights are vested solely in the beneficiaries and the courts. A settlor may, however, be a beneficiary of a trust.

Settlor reserved powers

Under Guernsey law it is possible for a settlor to reserve certain powers within the trust deed. These can be reasonably wide ranging, and settlors need to be mindful of reserving too many powers in case it is deemed as if they are controlling the trustees and the trust becomes a sham. However, common powers are:

  • Power of appointment and removal of the trustees.
  • Power of appointment and removal of the protector.
  • Power of appointment and removal of beneficiaries.
  • Investment decision making for the trust funds.


There will usually be named individual beneficiaries and/or a ‘class’ of beneficiaries who are eligible to benefit from a trust. The nature of their interest will depend upon the nature of the trust and its terms. The beneficiaries are however entitled to expect the trustee to administer the trust for their benefit in accordance with the terms of the trust and the duties of trustees laid down by the trust law.

For this reason, beneficiaries are entitled to copies of certain trust documents (including the trust deed) and to the accounts of the trust unless the trust deed provides otherwise (in which case they will have right to apply to the Royal Court of Guernsey for such information to be disclosed to them).


The protector is a person who can act as a control/sense check upon the way in which the trustees can exercise certain powers. Most commonly, a protector is given a power of veto over the exercise of particular powers contained in the trust deed. A protector could also be given its own particular powers, such as the power to appoint new trustees. As such, the protector is not a trustee, but he/she may have duties of a fiduciary nature. A protector is often a trusted personal adviser of the settlor, and this is one means by which a settlor may retain some assurance that a trust will be administered as he/she had intended. It is possible for the settlor to appoint himself as protector to the trust, providing he/she is not a beneficiary of the trust.

Perpetuity period

A Guernsey trust may exist for an indefinite period or for any stated fixed period, and if the terms of the trust allow, income may be accumulated throughout that period.


Types of Guernsey trusts

Discretionary trust

Probably the most widely used type of offshore trust. The trustees are under a duty to use their discretion to apply the income and capital of the trust assets for the benefit of a class of beneficiaries. The trustees decide which beneficiaries benefit, and what proportion of the trust fund they receive. Whilst the trustees have discretion, they are subject to obligations as to how they exercise it and must do so only for the benefit of the beneficiaries. The beneficiaries have no right to either income or capital of the trust, but merely a hope that the trustees will exercise their discretion for their benefit. The settlor can give guidance (usually through a letter of wishes) to the trustees as to how they would like the trustees to exercise their discretion, but ultimately cannot control them.

Life interest or interest in possession trust

One or more specified beneficiaries (life tenant(s)) have a right to receive a fixed share of trust income for a specified period (usually life). Capital is held either on fixed interest trusts or at the discretion of the trustees for specified beneficiaries to benefit after the life tenant’s death.

A popular use of this trust is to grant the right to live in a property to a life tenant but stipulate that on the death of the life tenant the property falls into the estate of another beneficiary.

Charitable trust

A trust set up for charitable purposes, which commonly enjoy certain tax benefits.

Non-charitable purpose trust

These trusts are neither for individuals nor for charities, but instead used for a specific purpose. For example, holding shares in a company. Under Guernsey law, these trusts are only valid if in writing and the trust instrument nominates an enforcer who is responsible for ensuring that the trustees look after the trust fund and the purposes of the trust appropriately. Certain jurisdictions including England do not have the same wide concept.

Protective/asset protection trust

A sub-species of life interest trusts under which the income rights of a socially or financially vulnerable beneficiary, such as a bankrupt individual, automatically terminate if the beneficiary attempts to dispose of the rights, at which point the terms of the trust covering that income become discretionary, leaving the beneficiary with no defined right. These can be particularly useful, for example, as a way of preventing family assets dissipating in the event of a divorce.

Employee benefit trust and pension trust

A trust created to motivate employees by providing performance related benefits settled in trust by an employer or to house pensions funds (individual and occupational) for the benefit of their employees.

Private trust company (PTC)

A Guernsey PTC is a privately owned company that is incorporated specifically to act as trustee of a single trust or group of family trusts and is not permitted to offer trustee services to the public generally. PTC structures offer an opportunity for ultra-high-net-worth individuals to establish and manage, often with the assistance of their trusted advisors, their own trust company. Please see our separate briefing note on PTCs which expands in detail as to how these structures operate.


Trust uses

Trusts can be extremely useful structures for dealing with a variety of issues including:


Assets are held in the name of the trustees, thereby keeping the identity and interests of the beneficiaries confidential.

Succession planning

Subject to certain forced heirship rules, trusts enable clients to determine with greater flexibility exactly how their estate is distributed. For example, trusts are often established in wills to allow a second spouse to benefit from a property while alive, but ensuring that the children of a previous marriage receive the estate when the spouse dies.

Avoiding probate

The deceased settlor’s assets are legally held by trustees and so do not form part of their estate on death. Probate, with its associated difficulties and costs, is therefore avoided.

Asset consolidation and management and asset protection

A way of placing worldwide assets in one holding vehicle to simplify asset management and centralise financial reporting. In addition to establishing holding structures for wealth protection, growth and transition, a family office can be a tool to implement broader succession, leadership and governance plans. It may also be used to protect assets from claims of future creditors to the extent permitted by law.

Tax planning

May be used to reduce tax liabilities in some circumstances. For example, since assets settled in trust do not form part of the settlor’s estate if settled within certain time constraints, inheritance taxes can be reduced.

Protecting minors 

Trustees looking after assets until children are mature enough to deal wisely with their finances protects children from having control over too much money too early, whilst the trustees can, if the appropriate trust is drafted, direct money for their education, maintenance and other needs.

Taxation of trusts in Guernsey

Guernsey income tax is the only local tax that may be applicable to trust structures. Trustees may be Guernsey income tax payers and may be obliged to file tax returns when resident in Guernsey. To establish if Guernsey income is payable, one must first distinguish between income of the trust and income from the trust.

Income of the trust

Only where the settlor is liable for Guernsey income tax and they and/or their spouse can or may benefit under the trust or in any circumstances control the trust property will the settlor be liable to pay tax on the entire income arising to the trust.

Income from the trust

The position depends on the tax position of the beneficiaries.

Where the settlor and beneficiaries are non-Guernsey resident, Guernsey tax is only payable on Guernsey source income (other than bank interest, although this may be subject to a retention tax under the EU Savings Tax Directive).

Where the settlor is Guernsey resident but excluded, Guernsey tax is only payable in the hands of Guernsey resident trustees – unless income is paid from a non-Guernsey company. No tax is payable where the trustees are not Guernsey resident.

Where the beneficiaries are Guernsey resident, Guernsey tax is payable by them on what they receive, and the trustees may be taxed on that amount on the beneficiary’s behalf.


This publication is intended to provide an overview of the subject matter and is not comprehensive in nature or to be construed as legal or tax advice. We recommend that clients seek professional advice on any particular matter. 



Submit an Enquiry

Please use this short form to help us respond to your enquiry as efficiently as possible.