The private trust company (PTC) is a useful and increasingly popular vehicle to consider in the planning and establishment of trust structures for wealthy families and is frequently being used as an alternative to other options such as the reservation of powers by the settlor or the involvement of a third party in the role of protector.

When an offshore structure is being proposed in a location which is geographically distant from the settlor, the use of such options reflects an understandable concern on the part of the settlor that, at the time of establishment of the structure, he simply does not know the chosen trust company service provider and so may not feel wholly confident to transfer title to the relevant assets into the hands of what is effectively an unknown entity at that stage.

Further, especially when a family business is to be put into trust to provide for its preservation for the benefit of future generations, the settlor may be concerned at the prospect of not having any ongoing involvement with the business that he has built once the structure has been established.

The PTC can offer a solution to both of these concerns. In relation to the first, the PTC allows for the creation of a trustee which is not an unknown entity to the settlor, as family members and trusted advisers can be appointed to the board of directors. In relation to the second, the PTC provides a mechanism pursuant to which the settlor and other family members with the key working knowledge of the business can have an ongoing role to play as directors of the trustee which will in future own the business.

Not only does this structuring appeal to settlors who might be concerned at the prospect of relinquishing control of the businesses they have created, it also has clear advantages for the trustee itself as the inclusion of family members on the board of the PTC harnesses the working knowledge within the trustee so that, as decision-maker, it has integrated access to that information and will not be reliant upon third-party knowledge which may or may not continue to be available as the lifetime of the trust progresses.

In circumstances where a PTC is appropriate to meet the individual needs of a settlor, the Jersey regulatory environment is such that a PTC can readily be established and available for use without the need to follow a protracted or expensive registration procedure. Indeed, there is neither a registration nor a licence fee requirement.

Trust company business is regulated in Jersey as a category of financial service business pursuant to the Financial Services (Jersey) Law 1998. Regulation applies to a business that involves the provision of company administration services or trustee or fiduciary services where, in the course of the provision of those services, one or more of a list of specified services is provided.

The listed services include acting as a trustee of an express trust.

While the establishment of a corporate vehicle to act as trustee of a family trust may therefore fall within the definition of trust company business, there is an exemption to the 1998 law that allows a PTC to operate without the need for registration.

The exemption is contained in the Financial Services (Trust Company Business (Exemptions)) (Jersey) Order 2000. The three prescribed conditions are as follows.

. The only purpose of the PTC as a corporate entity must be to provide trust company business services in respect of one or more trusts.

There is no requirement for the constitutional documents to name the particular trust or trusts involved or to incorporate any additional or prescribed language to comply with this condition and standard private company memoranda and articles of association can be used. Jersey company law allows for the incorporation of single member companies and a PTC limited by shares can be incorporated with the issue of one subscriber share. There is no prescribed minimum paid in capital requirement in relation to PTCs operating under the trust company business exemption.

. It is a condition that the PTC does not solicit from or provide trust company business services to the public.

The intention underlying this requirement is that the PTC will be acting as trustee in relation to one or more trusts established for a particular family and will not be providing or marketing its services to third parties.

. The PTC must be administered by an entity that is itself registered under the 1998 law to conduct trust company business.

There is no statutory definition or published guidance from the Jersey Financial Services Commission in relation to what constitutes 'administration' and a frequent question is whether it is necessary for one or more of the directors of the PTC to be supplied by the registered trust company service provider.

In the absence of a statutory or regulatory requirement in relation to the provision of directors, the composition of the board will be a matter for discussion on an individual basis although, in the experience of the author, it is typically the case that the registered trust company service provider does supply one or more members of the board. This may well be appropriate for a variety of reasons, including tax planning and as a means of ensuring (and demonstrating to the regulator) involvement on the part of the administrator with the decisions being taken by the PTC and compliance with the terms of the exemption.

To operate pursuant to the PTC business exemption, so long as the above three conditions are satisfied, all that is required is for the name of the registered trust company service provider which will administer the PTC to be notified to the commission. The commission does not need to be provided with copies of the documents in relation to the trust or trusts in respect of which the PTC is to act as trustee and the notification requirement is satisfied simply by letter to the commission.

While the exemption has, since its inception, been readily available within the island and there are significant numbers of PTC business exemptions currently in operation under the 1998 law, the potential attractions of the exemption have historically been perceived to be tempered by the existence of article 56 of the Trusts (Jersey) Law 1984. Article 56 effectively operates as an exception to the general rule that directors' duties are owed only to the company and not, for example, to the beneficiaries of a trust in respect of which the company acts as trustee.

Article 56 applies to a corporate trustee which is a trustee of a Jersey trust, resident in Jersey or is carrying on business in or from a Jersey address and provides that every director of such a trustee which has committed a breach of trust will automatically be deemed to be a guarantor of the corporate trustee in respect of any pecuniary damages and costs awarded by the Royal Court against the trustee in respect of such breach, unless the court orders otherwise.

As it will frequently be contemplated that the board of the PTC will include members of the settlor's family and his established advisers, this express statutory provision has been considered to represent a potential concern to such individuals, albeit the guarantee has rarely (if ever) been used in practice since the time of its introduction in the 1980s.

However, the Draft Trusts (Amendment Number Four) (Jersey) Law 2006 that has been passed by the States of Jersey and is awaiting Privy Council approval will repeal article 56 in its entirety, so that any such perceived concerns based on the existence of this provision will disappear. It is anticipated that amendment number four will be brought into effect in the latter part of this year.

Following the anticipated repeal of article 56, the potential liability of the directors of a Jersey PTC will not be assessed and determined in accordance with general principles. In Jersey, as elsewhere, it will therefore be appropriate for directors to be aware of the possibility of being found liable for dishonestly assisting a PTC to commit a breach of trust or, alternatively, of being found indirectly liable to beneficiaries under what is known as the 'dog leg' claim.

Such a claim is put forward on the basis that a director owes a duty of care to the company and that, where there is a breach of that duty that causes loss, the company has a right of action against the director.

On the premise that this cause of action constitutes trust property (which may be easier to establish in circumstances where a PTC acts exclusively as the trustee of one trust than in other situations), the suggestion is that the beneficiaries of the trust should be able to enforce it in the event that the trustee is not prepared to do so.

This type of claim was considered in the context of a strike-out application in the English High Court case of HR v JAPT [1997], where Justice Lindsay was "not prepared to describe the plaintiff's dog leg claim as unarguable".

This judgment was subsequently referred to by the Guernsey Court of Appeal in Rowe and Rich v Cross and Cross [1998-99], but the dog leg claim was not pleaded in that case and the President simply commented that "if it is to become a binding principle of law it still has some progress to make".

Accordingly, it remains to be seen whether this type of claim will be adopted by the courts in Jersey or elsewhere and, if so, how it might develop in the future.

However, with the anticipated introduction of amendment number four and the consequent repeal of article 56, it will be possible for Jersey to compete more effectively in an international marketplace for the establishment of PTCs as discussions regarding the potential liability of directors will be based on the same principles as apply in the majority of the other jurisdictions wishing to attract this type of business.

The significance of this anticipated amendment to the Trusts Law has already been demonstrated by the increased number of enquires for the establishment of Jersey PTCs that has been observed over recent months.

It is hoped that, in view of the established reputation of the trusts industry in the island and the ready availability of the PTC business exemption from registration under the 1998 law, more PTCs will be established in Jersey, enabling clients to benefit from the structuring advantages that they can offer.

Zillah Howard is a partner at Bedell Cristin in Jersey.