Jersey purpose trusts: A helpful corporate and finance structuring tool

What is a purpose trust?

At a high-level, a purpose trust is a trust established for a non-charitable or charitable purposes specified in the trust instrument, rather than for the benefit of beneficiaries.  Another distinguishing feature is that, for non-charitable purpose trusts, in addition to a trustee, there is requirement for there to be an enforcer, the role of which is to enforce the trust in relation to its non-charitable purposes (in the absence of beneficiaries who usually play this 'enforcement' role).  

For further information on what constitutes a purpose trust and how to create one, please refer to our guide which can be found here.

Practical uses for purpose trusts

Whilst perhaps historically considered a vehicle best used for wealth and estate planning purposes, we've seen a continued rise in the use of purpose trusts in corporate and commercial transactions and restructurings.  Some examples include:

• Private trust companies: When establishing a Jersey Property Unit Trust, there is often a need for special purpose vehicles (SPVs) to be incorporated to act as private trust companies (PTCs).  Having the trustee of a purpose trust as the sole shareholder of a PTC aids the requirement to keep ownership of these entities orphaned (often arising for UK tax and regulatory reasons), as well as providing additional optionality at exit (where the shares in the PTCs can be sold alongside the units in the unit trust), purpose trusts are often used to act as the sole shareholder of these PTCs. 
  
  
• Investor-held REITs: We understand that REITs held by certain institutional investors can still qualify for the intended UK tax benefits.  We further understand that the corporate structures being proposed to clients by tax advisors will often contain a UK collective investment scheme (CIS) partnership.  In such scenarios, we've had experience of needing the general partner of these partnerships to be orphaned in order to meet the relevant UK regulatory requirements for a CIS.  Similarly to PTCs, the use of a purpose trust to hold the shares in the general partner can achieve this.
  
  
• Distressed restructures: Restructurings of distressed groups often present unique structuring challenges, particularly where there are syndicated lenders that are due to take an equity position in the holding company but aren't fully commercially aligned.  In order to ensure that the transaction can proceed to closing notwithstanding non-alignment amongst the relevant parties, we've seen purpose trusts used as vehicles through which to hold a certain lender's equity interests for a transitional period and until such time as the lender either takes up their position or the interests revert to the remaining lender parties.
  
  
• Securitisation / finance transactions: while perhaps not as common in Jersey today as they were in the early 2000s, securitisation structures are another example of transactional use of purpose trusts.  In this regard, in order to enhance the 'true-sale' and 'bankruptcy remote' status of the structure, purpose trusts can be utilised to orphan an SPV and enable it to take legal transfer of the assets from the originator and to further ensure that the ownership of the SPV is held separately from the originator's ownership structure. 
  
  
• Employee benefit structures: Similar to unit trusts, PTCs are often incorporated to act as trustees of employee benefit trusts.  To aid the requirement to keep ownership of these entities orphaned from the employer company's group (often arising for UK tax and regulatory reasons), purpose trusts are often used to act as the sole shareholder of the PTC.

Conclusion

The introduction into Jersey law of the non-charitable purpose trust (through the Trusts (Amendment No 3) (Jersey) Law 1996) has created a well-trodden path for the use of such purpose trusts in a wide array of corporate and finance transactions over the years, and we've seen a rise in popularity of their use again over the last few years.  In this regard, they present a distinct advantage where clients require an orphaned structure for a specific purpose. The associated optionality and flexibility are yet further arrows in the quiver for Jersey as a finance centre of choice.