Key things to know about purpose trusts
Purpose trusts are an intriguing concept within the realm of trust law, particularly distinguished from traditional trusts in several important ways. In the article below, Jonathan Marquis examines the essential aspects of purpose trusts and what makes them attractive.
What is a purpose trust and how do they differ from a traditional trust?
Purpose trusts are designed to serve a specific purpose rather than to benefit individual beneficiaries, unlike traditional trusts, where the objects are the beneficiaries who must directly benefit from the trust.
Purpose trusts exist without identifiable beneficiaries, which makes them quite unique and versatile and they generally have one or more purposes written into their governing documentation.
Traditional trusts under common law require the presence of three certainties:
- Certainty of subject matter (the assets within the trust fund)
- Objects (the beneficiaries who can benefit from the trust fund)
- Intention (i.e. the person settling assets into a trust must have the intention to do so)
A purpose trust requires assets and intention, but not necessarily beneficiaries.
Where can purpose trusts be structured?
While common law traditionally does not support trusts without beneficiaries for non-charitable purposes, some jurisdictions have taken a different approach. Offshore jurisdictions such as Jersey and Guernsey allow for purpose trusts without the need for direct beneficiaries. The flexibility of such jurisdictions has made purpose trusts a popular choice in places with more modern trust laws.
How are purpose trusts used?
Purpose trusts are set up for specific purposes such as holding shares in a private trust company (PTC), holding business interests, or managing assets for charitable or non-charitable purposes or specific activities.
A notable example of Purpose Trust use is the PTC structure, commonly used in offshore settings. These trusts are set up to hold shares or manage assets, with the PTC acting as the trustee.
Most commonly today, a purpose trust is set up by Ocorian to hold shares in a PTC. The PTC includes Ocorian, the client, and family members on its board, who act as trustees of the trust. This allows the family to retain some control over the trustee’s decisions and the investment of assets while being involved in the day-to-day management and preservation of family wealth.
In Guernsey, another popular use is when a fund manager wishes to close out a fund with a long-term liability. The assets of the fund are returned to the investors, and the amount of the liability is paid to a trustee of a purpose trust to settle the liability at a future date or return it to the investors.
The flexibility of purpose trusts?
Purpose trusts offer a unique solution for various needs, especially in scenarios where traditional beneficiary-focused trusts are not practical. Their ability to serve specific purposes without direct beneficiaries expands the utility of trusts in legal and financial planning.
How can Ocorian support in setting up a purpose trust?
Purpose trusts are a unique and flexible tool within trust law. Whether for charitable, preservation, or strategic purposes, they offer an alternative to the conventional trust model. Ocorian has expertise in establishing and managing purpose trusts and provides comprehensive support to ensure these trusts are tailored to meet specific goals. The team will guide you through the entire process, from initial setup to ongoing management, ensuring your purpose trust operates efficiently and effectively. For more information on purpose trusts, reach out to the team.
