In brief
In a previous briefing, we wrote about the amendment to Article 43 of the Trusts (Jersey) Law 1984 – which mirrored section 53(3) of the Trusts (Guernsey) Law 2007 (the "Trusts Law") – in light of the 2019 Guernsey Court of Appeal decision of Rusnano Capital AG (in liquidation) v Molard International (PTC) Limited and Pullborough International Corp ("Rusnano").[1]
Guernsey has now almost caught up and is proposing a targeted update to its trust legislation, with an amendment to section 53(3) of its Trusts Law being one of the key proposed changes. This section is the local statutory approximation of the rule in Saunders v Vautier,[2] an old English case that established the principle that where all persons entitled absolutely and indefeasibly to the whole of the income and capital of the trust property have been ascertained, and have full legal capacity to act in their own right, they are entitled to call for the termination of the trust and the distribution of the assets to them.
Current position under section 53
The relevant wording of section 53(3) is
"[…] where all the beneficiaries are in existence and have been ascertained, and none is a minor or a person under legal disability, they may require the trustees to terminate the trust and distribute the trust property among them."
In Rusnano, the Court of Appeal upheld the lower court's decision that a sole beneficiary can use section 53(3) of the Trusts Law to bring a trust to an end, notwithstanding there being a power to add beneficiaries.
This caused much disquiet amongst trust practitioners, as the power to add beneficiaries is sometimes a way in which trusts are used to keep the identity of the primary beneficiaries of a trust confidential. These are typically known as 'Red Cross trusts', where one beneficiary – usually a charity such as the Red Cross – will be named as the sole or default beneficiary, and the power to add beneficiaries will be exercised at a time when the primary beneficiaries (usually described in a Letter of Wishes) are due to benefit.
The Rusnano decision meant that beneficiaries of trusts whom the settlor never intended to benefit could collapse Guernsey law trusts in their favour. It is therefore unsurprising that Jersey amended Article 43 of the Trusts (Jersey) Law 1984 to prevent the termination of a trust where there is a power to add.
The proposed amendment
It is proposed that the section 53(3) be amended so that it can only be used to terminate the trust where the class of beneficiaries is closed, which will not be possible if there is a power to add beneficiaries.
Practical implications
If implemented (and these authors cannot see why it should not be, given the positive reception the proposal has received so far), this amendment will bring the Trusts Law into line with the prevailing view in English law and other common law jurisdictions that the existence of a power to add will prevent a termination of a trust. It will also ensure that the intentions of most settlors of Red Cross trusts are protected.