Guernsey

Trust law framework

Guernsey trust law is codified in the Trusts (Guernsey) Law 2007, which replaced the earlier 1989 legislation. Like Jersey, Guernsey is a Crown Dependency with its own legal system rooted in Norman customary law, though its modern trust legislation draws on English trust concepts. The 2007 law is a comprehensive statute that governs trust creation, administration, variation, and termination.

Guernsey does not impose income tax on trusts where neither the settlor nor the beneficiaries are Guernsey-resident (the standard international trust). There is no U.S.–Guernsey income tax treaty. For U.S. tax purposes, Guernsey trusts are foreign trusts under Treas. Reg. §301.7701-7.

Common structures and purpose trusts

Guernsey is used for discretionary trusts, fixed-interest trusts, reserved powers trusts, and purpose trusts. The Trusts (Guernsey) Law 2007 expressly permits non-charitable purpose trusts, which are enforced by an enforcer appointed under the trust instrument.

Guernsey is also a significant jurisdiction for investment fund structures, captive insurance, and private wealth management. Many structures involve a Guernsey trust holding shares in a Guernsey-incorporated company or cell company (protected cell companies, or PCCs, and incorporated cell companies, or ICCs, are important Guernsey vehicles).

The U.S. classification analysis is the same as for other offshore trust jurisdictions: the grantor trust rules under IRC §§671–679 determine whether the U.S. person is the owner, and the trust's classification as foreign is determined under Treas. Reg. §301.7701-7.

Distinctions from Jersey

Although Guernsey and Jersey are both Channel Islands Crown Dependencies, their trust laws are distinct statutes with different provisions. The Trusts (Guernsey) Law 2007 includes specific provisions on forced heirship (the trust is valid notwithstanding foreign forced heirship rules), firewall provisions (limiting the effect of foreign court orders on the trust), and the perpetuity period (which can be up to 100 years, or unlimited for purpose trusts).

Practitioners should not assume that a legal analysis for a Jersey trust applies equally to a Guernsey trust, or vice versa. The differences can be material for U.S. tax classification and reporting purposes.

Reporting obligations and penalties

The standard §6048 reporting framework applies: Part I for transfers, Part II and Form 3520-A for U.S. owners, Part III for distributions.

Penalties under §6677(a) are 35% of the gross reportable amount for Parts I and III. Under §6677(b), the penalty for Part II and Form 3520-A is the greater of $10,000 or 5% of the gross reportable amount.

Guernsey's regulated trust industry (overseen by the Guernsey Financial Services Commission) generally means that financial records are available, but practitioners may still need to prepare a substitute Form 3520-A if the Guernsey trustee does not file directly with the IRS.