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PURPOSE TRUSTS

Gibraltar’s legislation has been brought into line with a number of other jurisdictions, including the British Virgin Islands, Cayman Islands, Jersey and Guernsey, to provide for the establishment of trusts for non-charitable purposes.

Gibraltar’s legislation has been brought into line with a number of other jurisdictions, including the British Virgin Islands, Cayman Islands, Jersey and Guernsey, to provide for the establishment of trusts for non-charitable purposes.

Historically, subject to limited exceptions, only trusts which had identifiable beneficiaries were recognised as valid, the rationale being that identifiable beneficiaries were required to enforce the trust against the trustees, that is, to ensure the trustees were administering the trust and discharging their duties properly. The new legislation contains provisions for the enforcement of purpose trusts.

Therefore, under the Purpose Trusts Act, trustees may hold property on trust to carry out any specific purpose or purposes.

Requirements
Any individual or corporate entity may create a Purpose Trust for any purpose or purposes providing the purposes are capable of being carried out and not contrary to public policy or unlawful. At least one of the trustees must be a licensed trustee. The trust instrument must appoint an enforcer and provide for the appointment of another enforcer on any occasion in which there is no enforcer.

Duration
Gibraltar Purpose Trusts are exempt from the rule against perpetuities, meaning they may last indefinitely. The instrument which creates the Trust may, however, specify a date or event on which the trust will cease to be a Purpose Trust (a terminating event) and set out how the trust assets will be distributed on the terminating event.

Uses
A Purpose Trust may be used in a number of ways for commercial, succession or tax planning reasons, including:

  • to hold the shares in special purpose vehicles used in connection with securitisations and off-balance sheet transactions, particularly where the parties to the transaction would like the relevant special purpose vehicle to be ‘orphaned’ (have no beneficial owner);
  • to hold assets which need to be isolated from commercial transactions;
  • to hold title to investments on behalf of the investors in a fund, or to hold the management shares in a fund.
  • to hold the shares of a private trust company (“PTC”) which acts as trustee of, or otherwise provides trustee-related services to, a settlor’s family trust(s) (A Purpose Trust acts as the shareholder of the PTC in place of a settlor and or another family member in case where the direct holding of the shares might have tax consequences);
  • to hold the shares in a family business to aid with succession planning, with the trustees of the Purpose Trust acting neutrally and independently of family dynamics;
  • for investing in family companies where economic performance is likely to be poor or uncertain;
  • to hold high risk assets, such as aircraft, as a way to limit litigation exposure; and
  • for public and private social benefit or philanthropic projects which are not recognised as charitable, such as the building or maintenance of community facilities or areas, the preservation of monuments, and the furtherance of political purposes.

Abacus Financial Services Limited (“Abacus”), will be able to advise and to provide all the services necessary for the formation and administration of a Purpose Trust.

Need support? Contact:

Brenda Dominicy

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Abacus Gibraltar