Isle of Man Trusts
Trusts law in the Isle of Man closely follows English law.
The principal legislation is the Trustee Act 1961, which was based on the English Trustee Act 1925. The Variation of Trusts Act, also in 1961, allows the Court to vary the terms of a trust and the Trustee Act 2001 widened trustees’ investment powers and introduced additional safeguards for beneficiaries.
In 1988 the Recognition of Trusts Act extended the Hague Convention on the recognition of trusts to the Isle of Man. Foreign forced heir ship laws were excluded by the Trusts Act 1995 and the creation of purpose trusts was made possible by the Purpose Trusts Act 1996.
Why Use a Trust?
Trusts provide individuals, families and companies with a highly flexible and advantageous way of arranging their financial affairs. A trust can be used for a variety of purposes. Some of the most common are:
Preserve Family WealthTrusts can be used to pass on wealth intact through generations, with the added benefit that nominated beneficiaries can enjoy the benefits of that wealth in the meantime. For example, a trust can ensure that a particular individual is provided for, without that individual having responsibility of managing family assets.
Protect AssetsWhen a settlor of a trust passes assets to a trustee, the legal title of those assets is vested in the trustee, and the settlor no longer has any legal control over the assets. Assets can also be secured and protected against future claims on them.
Estate PlanningA trust is a means by which a settlor can provide for his successors in a manner, which avoids costs, delay, legalities, publicity and unwanted probate procedures on his death. He remains able to influence how the assets are administered and, if the trust is drawn in a flexible manner, will be able to request the trustees to make distributions during his lifetime.
To Avoid Forced HeirshipA trust can circumvent the laws, which exist in some countries to limit the freedom to dispose of assets freely on death.
Tax PlanningA trust can be an effective method of reducing taxes on the assets, which are transferred to the trust. The effectiveness and range of options will vary depending on the nature of the assets and the countries in which they are located.
Protect Assets In Politically Sensitive areas Of The WorldIndividuals, who live in politically unstable regions, or where exchange controls could be imposed, may be able to protect their wealth by placing it in trust in a stable offshore jurisdiction.
Types Of Trust Commonly Used In The Isle of Man
Discretionary Trust
A trust where the trustees decide how income and capital of the trust assets is applied for the benefit of the beneficiaries. The trustees have wide discretion, but are subject to obligations as to how they exercise it and must do so for the benefit of the beneficiaries. The settlor can give guidance as to how he would like the trustees to exercise its discretion, but ultimately cannot control them.
Life Interest or Interest in Possession TrustA trust where the income of the trust assets automatically belongs to one or more named persons in specified shares. The trustees may be given discretionary powers to apply capital for the benefit of beneficiaries.
Purpose TrustA trust expressed to be to fund a purpose. The purpose must be certain, reasonably possible and not contrary to law, morals or public policy. An independent “enforcer” must be appointed to ensure that the trustees fulfill their duties. These trusts are subject to rules concerning perpetuities.
Charitable TrustA trust for charitable purposes. It is an exception to the general rule against trusts for purposes, and is not subject to rules concerning perpetuities.
Other Features of Isle of Man Trusts
- The statutory perpetuity period for trusts created after 2000 is 150 years and 80 years for trusts created before 2001, at the end of which the trust assets must vest as to interest (which means that all interests under the trust must become fixed and defined)
- There is no restriction on accumulation of trust income during the perpetuity period
- Foreign laws (except those concerning formalities) concerning transfer of assets into trust are excluded by statute
- The Isle of Man has legislation permitting fraudulent transfers of assets and transfers for less than full value to be set-aside in some circumstances
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