A thoroughly modern judgment
The recent judgment of the Jersey Royal Court, In the matter of the May Trust, which is a Public Trustee v Cooper application, is a hugely significant one. It demonstrates the way that societal attitudes towards wealth are changing, and shows trusts law evolving alongside those attitudes. It shows the importance of wealthy families agreeing a set of principles and values, and how doing so can materially impact the decisions that custodians of wealth might reach. It provides fascinating commentary on tax avoidance in Jersey trust applications, such as Hasting-Bass applications, and develops what it means in Jersey law to provide a beneficiary with a 'benefit'. It is essential reading for all trust practitioners, but especially those advising 'next gen' clients.
The May Trust was a Jersey resident trust created in 2000. Originally formed under the law of the Cayman Islands, the governing law was subsequently changed to Jersey. The assets of the Trust exceeded £150m.
The beneficiaries of the trust were various family members and a Foundation, registered as a charity with the UK Charity Commission. One of the beneficiaries was seen as the 'principal' beneficiary and a proposal was tabled to distribute almost half of the trust fund - £75m - to that individual. The individual had plans to utilise a portion of the distribution to make a donation to the Foundation, which was also a beneficiary of the trust. This was felt to be in accordance with The Giving Pledge, a commitment by many wealthy individuals to dedicate the majority of their wealth to charitable giving.
The unusual part is thus: as a beneficiary of the Trust, the Foundation could have received the distribution direct from the Trust. No tax would have been payable. However the proposal was to make the distribution via the principal beneficiary in order to incur a UK tax liability. The principal beneficiary then planned to claim gift aid on some of his charitable donation, but not on another part, in order to create a 25% UK tax liability on the total amount. The Foundation would be left with the other 75%.
The trustees made the decision in principle and then applied to the court under the Public Trustee v Cooper doctrine for the decision to be blessed, which the Court agreed to do in a fascinating judgment.
Points of interest
The case raises several points of interest to trust practitioners.
Meaning of benefit
The court determined that much of the old case law was too focused on 'financial' benefit, and that society has moved on. From a pure legal perspective this is the most significant part of the judgment, clarifying as it did that the meaning of providing a 'benefit' (i) goes wider than financial benefit, (ii) may include the application of trust monies to provide social or educational benefits for the beneficiary in question, and (iii) may include the application of trust monies in discharge of what a beneficiary believes to be his or her moral obligation.
This is a significant evolution in the law, which mirrors legal arguments relevant to ESG investing as to the extent to which fiduciaries should take into account non-financial factors when making investments. This is a fast-developing area - watch this space.
Values and purposes
The family had "agreed a briefing note setting out their purposes and values, specifically including values related to charity and philanthropy." The encapsulation of these values appears to have significantly influenced the decision to structure things in a way that created an otherwise easily avoidable tax liability. All of the family appeared to be in agreement. The process of agreeing and constructing these values-based documents can be a hugely positive one, and can have real influence on both the decisions that are taken and the level of family support for those decisions.
The decision was made to create the tax liability on the basis that "the payment of that tax enables government to provide a broader social benefit." Such a view, and the backing up of that view by then structuring one's affairs to pay more tax, remains a minority one amongst the very wealthy, although it is gaining increasing traction with the vocal support of groups such as Abigail Disney's Patriotic Millionaires. It may become more commonplace.
The role of the Jersey Court in tax-based applications
The court acknowledged that it was more typical for it to be asked to approve applications to avoid tax, sometimes by setting aside and undoing transactions through various mechanisms, including its powers under the rule in Hastings-Bass. This, the Court said, "has not always been an entirely comfortable exercise as far as this Court is concerned." However its role in doing so helped provide justification for approving this application, providing support for the proposition that the Court's role is simply to focus on trusts law and not the consequent tax liabilities: "Just as the Court has no function of ensuring that proper amounts of tax are paid, we also have no function of ensuring that proper amounts of tax are not paid".
In the matter of the May Trust is one of the most interesting trusts law cases in recent years. It signposts the changing attitudes of both society generally and wealthy individuals, and demonstrates how a modern trusts industry might move with them. It shows the importance of a family agreeing its values and principles, which can help create a sense of direction and instil family harmony. From a legal perspective, it provides an important evolution in the legal question of how a trustee might 'benefit' a beneficiary, with an acknowledgement that this can go beyond the financial. This line of thinking may have broader significance for ESG and responsible investing in due course.
Bravo to all involved. It is a thoroughly modern judgment.
About the author
Chris Moorcroft advises individuals and families on the structuring of wealth and estates. This includes the use of vehicles such as companies, trusts and foundations to help manage the passing of wealth between generations, to protect wealth from hostile third parties, to cater for death or incapacity, and to manage complex cross-border tax issues involving multiple jurisdictions.
He advises on will planning and probate, particularly those which involve multiple jurisdictions, and acts as executor and administrator of estates. He has a particular interest in intestate estates and conducting the administration of estates which are the subject of dispute.
He represents wealthy individuals and families from around the world, as well as their family offices and trustees. He has a particular focus on US-connected clients and counts a number of clients from South America, the Middle East and Africa.
He has an interest in the ‘next gen’ of wealth owners and speaks extensively on the topic of transitioning wealth to millennials and Gen Z. He has expertise in ESG and social impact investing, and advises trustees on associated issues of fiduciary risk.
A significant element of his time involves advising UK and international high net worth individuals who are resident, investing or spending time in UK on how to structure their assets, including advice on the res non-dom (RND) regime and the structuring of UK residential property.