Jersey Unreported Judgments

Trust

[2024]JRC041

Royal Court

(Samedi)

21 February 2024

IN THE MATTER OF THE REPRESENTATION OF PAICOLEX TRUST MANAGEMENT AG AND

PAICOLEX TRUST COMPANY (BVI) LIMITED

AND IN THE MATTER OF THE R, Q AND P TRUSTS

AND IN THE MATTER OF ARTICLES 47, 51 AND 53 OF THE TRUSTS (JERSEY) LAW 1984

Advocate N-L. M. Langlois for the Representors.

Advocate G. C. Staal for the Minor and Unborn Beneficiaries.

judgment

the COMMISSIONER:

Introduction

1.        This judgment follows on from our previous judgment in this matter dated 21 July 2023, reported at Representation of Paicolex Trust Management AG and Paicolex Trust Co. (BVI) Ltd [2023] JRC 127.  We adopt the background and definitions set out in the July judgment.  In the July judgment, we set out our detailed reasons for adjourning an application by the Representors to vary three trusts on behalf of minor and unborn beneficiaries pursuant to Article 47 of the Trusts (Jersey) Law 1984, pending the provision of further information. 

2.        As set out at paragraph 14 of the July judgment, the Representors sought approval on behalf of minor and unborn beneficiaries, for the removal of the reference to the Settlor being an excluded person, and then the Court's blessing for the addition of the Settlor as a beneficiary of each of the three trusts.  Since the July judgment, we have received more information and more detailed submissions.  As a result of this further information and the written and oral submissions made by both Advocates, we were satisfied on behalf of the minor and unborn beneficiaries that it was appropriate to approve removal of the reference to the Settlor being an excluded person and to bless the addition of the Settlor as a beneficiary of each of the three trusts.  This judgment contains our reasons for these decisions.

The further information required

3.        The Act of Court dated 19 June 2023, at paragraph 2, set out the further information we were looking for as follows:

"(i) [the Settlor] and his background;

(ii) the Trustee, including the fee arrangements between [the Settlor] and the Trustee;

(iii) the source of assets that have gone into the Trust;

(iv) whether [the Settlor] is working, and if so, for himself or others, and if others, on what basis and to what extent;

(v) any other Trusts that exist for the benefit of either his other children or for [M];

(vi) the investment manager of these Trusts, the relationship between the Trustee and any investment manager and [the Settlor]'s role in relation to that investment manager, details of any fees, any proposed investment strategy and of historical performance;

(vii) tax planning and how assets from the Trusts might be distributed to address the tax concerns and provision for [the Settlor]'s children;

(viii) any other terms of the Trust that may need to be varied to account for different roles held by [the Settlor];

(ix) arrangements reached with [the Settlor]'s current wife in relation to the advice received from [Country 1]."

4.        In response to this order, the Representors filed a second affidavit sworn by Yayoi Kitani Stadelmann for the Representors, and a second witness statement of the Settlor.  Both Miss Stadelmann and the Settlor also attended the oral hearing to answer any questions that might arise.

5.        Miss Stadelmann's affidavit contained further information about the Representors.  Advocate Langlois, to whom we are grateful for her careful and thorough written and oral submissions, also explained that the Representors had recently become registered to act as professional trustees under a new regulatory regime that had recently been introduced in Switzerland.

6.        The affidavit in summary:

(i)        explained the structure in place between the Representors and the Settlor;

(ii)       confirmed that all of the assets settled on the terms of the three trusts came from the Settlor and were derived from salary and other benefits generated by him;

(iii)      explained that the Settlor had retired in 2002 and his current occupation consisted solely of managing and investing his own funds which were significant, as well as managing the investments of the trusts through his investment management company; and

(iv)     set out that the Settlor had acted as investment advisor since the trusts were established and that the current investment management agreement had been entered into in September 2021 where the Representors had requested the Settlor to follow an investment strategy consisting of long-term capital appreciation, coupled with a medium to high risk profile. 

7.        During oral submissions, we pressed Advocate Langlois for more information about the historical performance which, as the Settlor had recognised in his second witness statement, had only produced modest returns.  In particular, we were given explanations that we accept about the reasons leading to this modest performance.  It is however not necessary to set these out in this judgment because as the Representors stated at paragraph 24 of Miss Stadelmann's second affidavit:

"The Trustees are acutely aware of their investment obligations and consider the appointment of [the Settlor's Investment company] to be in the best interest of the beneficiaries of the[  ] Trusts  in all the circumstances.  The Trustees have confidence in the Settlor's investment capabilities given his strong track record of self-made wealth through investment."

8.        It was therefore clear to us  that the Representors, through Miss Stadelmann, were aware of their ongoing obligation to monitor the performance of the Settlor as investment manager. 

9.        We raised these questions because in addition to being investment manager, as noted in the July judgment, the Settlor is also the Protector.  The application before us was to also add him as a beneficiary.  We therefore wished to be satisfied that allowing the Settlor to benefit as a beneficiary, given his other significant involvement with the trusts, was a situation that the Representors were aware of, and in particular, that they were aware of their responsibilities as trustee.

10.     We also received more information about the provision made for the Settlor's two children from a previous marriage and his stepson, M.  It is not necessary, again, to set out the detail of these arrangements.  The only relevance to our decision was as an indication of the Settlor's approach to providing for his older children and stepchild, as well as the three children of his late wife, N.

11.     In relation to the reason for the Representors wishing to add the Settlor as a beneficiary, this was encapsulated at paragraph 27 of Miss Stadelmann's affidavit which, in summary, allowed them flexibility to make distributions to the Settlor for the benefit of P, Q and R.

12.     The most significant likely benefit as matters stood at present related to future capital gains based on the investment strategy that had recently been set between the Representors and the Settlor referred to at paragraph 6(d) above.  The need for flexibility was not therefore in respect of past gains, because these were not significant, but rather future capital gains.  As noted in the July judgment, the Settlor and his current wife moved to Country 1 in 2021.  Distributions to him do not attract capital gains tax in the same way as distributions to or for the benefit of P, Q and R do, for so long as they remain resident in the United Kingdom.  The Representors' evidence also recognised that any of P, Q or R might reside in other high tax jurisdictions where distributions direct to them might also attract significant tax charges of one kind or another.  The residence of the Settlor in Country 1 however allowed for a re-basing of assets. 

13.     In that regard, Miss Stadelmann in her affidavit explained that there was no present intention to make any distributions were the Settlor to be added as a beneficiary.  Rather, the Representors' intention was "simply to keep matters under review so that they preserve their freedom to act in the most appropriate way as and when it is necessary to do so" (paragraph 29).

14.     Significantly, at paragraph 31, Miss Stadelmann also stated "They do wish to emphasise that they have no intention of distributing trust assets to [the Settlor] in the circumstances where those assets would then remain held by [the Settlor] in his own name for a long period of time".

15.     The same affidavit continued, "the [Representors] recognised that [the Settlor's] current neutral tax position affords opportunities for restructuring that could be hugely beneficial for the children at some point in the future.  Thus, consideration may, in future, be given to distributing assets to [the Settlor] in the expectation that he would settle those assets onto new trusts either during his lifetime or on his death".

16.     Ms Stadelman's second affidavit also canvassed the possibility of distributing funds directly to the Settlor in the expectation that he would make those funds directly available to P, Q or R either during the Settlor's lifetime or on his death.  In that regard, in relation to distributions of income, the tax advice received previously allows for distributions of income to be made to the Settlor which are not taxable because of his residence in Country 1, to enable him to then make gifts to his children.  Again, however, in relation to this alternative, the Representors repeated that they had "no intention of following any course of action which would be likely to result in [the Settlor] holding assets in his own name for a long period of time". 

17.     Ms Stadelman's second affidavit also addressed whether any arrangements had been reached between the Settlor and his current wife based on matrimonial law advice from a legal advisor of Country 1 received for the hearing that led to the July judgment.  The evidence explained at paragraph 39 that it was not intended to enter into any form of nuptial arrangements because at present the Representors did not consider that there was a high risk of an acrimonious divorce.  The Representors in particular referred to the fact that the Settlor's current wife was in the process of adopting P, Q and R under the law of Country 1.

18.     In relation to the Settlor's second witness statement, he provided more details about his background, the countries he had lived in and the various citizenships he held.  He also provided details about the intended future investment strategy in relation to the trusts which was starting to bear fruit and about how he provides for his stepson, M, and for the two children from his first marriage.

19.     He explained in particular that he had established "pilot trusts" for each of his children, including the two children from his first marriage and that his estate plan was to treat each of his children and his wife "fairly and (effectively) equally".  Advocate Langlois clarified that this meant essentially six equal pots one for each of his children and one for his current wife.  The Settlor set out that his executors would "apply a formula that takes into account the valuation of the assets in the trusts".  Why he wanted tax flexibility was because without it, there was a greater risk of P, Q and R being disadvantaged, compared to the other members of the Settlor's family.  The structure of the present trusts meant that they would have to pay capital gains tax on any distributions, where there were capital gains within the relevant trust.  The flexibility therefore allowed for a restructuring to take place to re-base such capital assets so that P, Q and R would not be disadvantaged by significant charges to tax - in particular capital gains tax - if they remained living in the United Kingdom.

20.     It is also right that we set out paragraph 25 of the Settlor's witness statement which states as follows:

"25. Maintaining family harmony is extremely important to me and my estate planning (as more particularly described above) seeks to treat each of my children fairly. In no circumstances would I wish money to be a cause of conflict in my family. In the event that any assets were to be appointed to me in the future from the [   ] Trusts, I would have no wish to deprive the Children of the benefit of those assets."

21.     He also confirmed that his current wife was in the process of adopting P, Q and R. 

Submissions

22.     We set out in this part of the judgment the pertinent submissions  and further clarification provided to us by Advocate Langlois.

23.     In relation to the Settlor being Protector, she confirmed that the powers of protector were vested in him as a fiduciary.  While therefore he could benefit from the trust as a beneficiary, if appointed, any Protector approval required for his appointment or for a distribution to him had to be given or refused in the interests of the beneficiaries as a whole.

24.     Advocate Langlois reminded the Court that the Settlor had significant wealth based on his own career and had supported and continued to support all of his children from his own personal assets.

25.     In relation to investment performance, the more recent strategy was, so far, proving to be successful.  Ultimately, any historical concerns were issues for the Representors and were not ultimately relevant to the present application.  What was clear, however, by reference to the information about his career that he had provided, was that the Settlor had significant experience of trading and investing.

26.     If the Court was minded to grant the application in relation to the trusts, the Court approval would also have to address the deeds executed in 2017 and 2019 which sought to vary the classes of secondary beneficiaries as set out at paragraph 9 of the July judgment.  This is because those deeds confirmed the exclusion of the Settlor as beneficiary.  We had no difficulty, if we were minded to approve the application in relation to the trusts, with the order extending to any subsequent confirmation of the Settlor as an excluded beneficiary recorded in deeds executed in 2017 and 2019.

27.     Advocate Langlois also referred to the recent judgment of Deputy Bailiff MacRae in the matter of the Representation of Accuro Trust (Switzerland) SA re The Colling and Palmyra Trust [2023] JRC 215 dated 14 November 2023, which Advocate Staal had drawn to the attention of the Court and the Representors, because the Accuro judgment was published only a few days before the hearing leading to this judgment.  Advocate Langlois contended that there was no distinction between the position in Accuro and the present application.  In both cases, the settlor was an excluded person but resided in a country where, if the settlor became a beneficiary, no charges to tax would arise.  This allowed for assets in existing trusts to either be gifted directly by the settlor to other beneficiaries without charges to UK tax arising, or to be re-settled on new trusts to re-base assets for the purposes of UK capital gains.  The Court in Accuro was satisfied that the ability to take either course and to create the flexibility to do so by removing a restriction on an excluded person was for the benefit of minor and unborn beneficiaries and so granted that part of the relief sought.

28.     The Court however, interestingly, refused to bless the trustee's "in principle" decision to exercise its overriding power of appointment under the trust instrument to widen the class of beneficiaries so as to include the settlor as a momentous decision.  Advocate Langlois sought to distinguish that case because of the reasons why the trusts were established.  As we noted at paragraph 31 of the July judgment, "the priority of the Settlor in creating the trusts was to provide reassurance to N that her children would always be well provided for".  We also stated, in relation to the risk of the Settlor re-marrying, "we regard that as but an example of more general concern that N wished for her children to be provided for whatever occurred in the future".

29.     Advocate Langlois therefore contended that the decision to add the Settlor as a beneficiary was momentous because it gave rise to a risk, should a significant proportion, or all, of the assets of the trusts be appointed to the Settlor, that the wishes of N for her children to be provided for, would not be met. 

30.     Advocate Langlois also submitted that, in her view, N would not have expected assets of the magnitude settled in each trust to have been earmarked for her children and would have been content with a smaller sum.  It was also relevant that the Settlor was a loving and responsible father, both in terms of the care he was taking of P, Q and R and of the provision he had made for N's stepson M.  As long as the interests of P, Q and R were still protected, N would have accepted the Settlor as being added for the reasons advanced by the Representors and endorsed by the Settlor.

31.     In the course of submissions, it is right to record that we raised with Advocate Langlois the question of légitime and how far any future arrangements the Representors and the Settlor wished to put in place to achieve a re-basing, might be affected if assets were in the name of the Settlor on his death whilst residing in Country 1 at that time.  Advocate Langlois fairly accepted that the Representors' focus had been on divorce, rather than any form of forced heirship claim and submitted that the question raised by the Court was another factor for the Representors to consider, should they arrive at a position where they wished to engage in some form of restructuring and appoint assets out to the Settlor as a beneficiary for that purpose. 

32.     Advocate Staal provided us with detailed written submissions in support of the application.  It was clear, and we are grateful to him also, that he had considered all the relevant questions carefully and therefore was able to confirm on behalf of P, Q and R that he regarded the application as being for their benefit.

Discussion and decision

33.     We set out in the July judgment the general principles in relation to our jurisdiction to approve the removal of the Settlor as an excluded person under each of the trusts.  Our analysis has not changed.  In addition, we note that in the Accuro judgment, the Court noted the conclusions we had reached and was also satisfied that it had power to make the order sought in that case on essentially the same facts as exist in the matter before this Court. 

34.     Secondly, we are now satisfied that what is proposed is for the benefit of P, Q and R.  In particular, we take comfort from the words of Miss Stadelmann on behalf of the Representors referred to at paragraphs 14 and 16 above that any distribution of assets to the Settlor, as circumstances stand, would not involve him holding any assets for any significant length of time.

35.     We also accept, based on the material provided to us for the July judgment and, in particular the additional information, that the additional flexibility sought by the Representors is for the benefit of P, Q and R.  How that flexibility might be exercised is for another day and will depend on the receipt of detailed tax advice of the sort provided in Accuro.  Any significant restructuring is also likely to be the sort of restructuring that would be capable of amounting to a momentous decision and therefore in principle could be blessed by this Court if an application were made.  Whether such an application might be made and how the court might view it, is however, a matter for another day, and we accept that circumstances may arise where there is a degree of urgency that prevents any such momentous decision being blessed by this Court.  If, however, the Representors are making a momentous decision, and time permits, we would encourage them to seek Court approval of such a decision. 

36.     We accept also that the question of past investment performance is not directly relevant to the present application.  However, again, we take comfort from the more detailed information provided and from the presence of the Representors in Court where Ms Stadelmann was able to hear our concerns.

37.      We were also satisfied that the Representors are alive to the possibility of issues that might arise should matrimonial relations between the Settlor and his current wife alter.  At present we accept wholeheartedly that there are no present concerns, and that the Settlor's current wife is looking to adopt P, Q and R.  Likewise, the Representors will, at the time of any proposed restructuring, have to be aware of any possible forced heirship claims depending on where the Settlor and his current wife reside at the time any proposed restructuring is contemplated.

38.     We were therefore satisfied that it was appropriate, and in the interests of P, Q and R, to remove the Settlor from the list of excluded persons in each of the trusts and in the deeds executed in June 2017 and December 2019 to the extent (and only to the extent) that they operated to confirm the Settlor's exclusion from benefit under the trusts.

39.     We also blessed the appointment of the Settlor as a beneficiary of each of the trusts as being a momentous decision for the reasons advanced by Advocate Langlois.  While ordinarily we can see that the simple exercise of a power to appoint an additional beneficiary would not be regarded as momentous, in the circumstances in which these trusts were established and the wishes and concerns of N referred to in paragraph 31 of the July Judgment and the extracts we have summarised at paragraph 28 above, mean that this case is very far removed from the simple addition of a person as a beneficiary of a trust where they have previously been excluded.

40.     Finally, we approved payment of the Representors' and Advocate Staal's costs out of the trust assets on the trustee basis, split equally between each of the trusts.

Authorities

Representation of Paicolex Trust Management AG and Paicolex Trust Co. (BVI) Ltd [2023] JRC 127.

Trusts (Jersey) Law 1984. 

Representation of Accuro Trust (Switzerland) SA re The Colling and Palmyra Trust [2023] JRC 215.