Rethinking ‘benefit’: a new direction in trust law?

Can a decision still benefit trust beneficiaries if it leaves them financially worse off? A recent Guernsey case suggests that the answer may be yes, with ethical, social and moral considerations potentially carrying weight alongside financial outcomes.

The decision in X Protector Limited v The Minor and Unborn Beneficiaries concerned a proposal to move an offshore trust to the UK, increasing its tax burden but reflecting the beneficiaries’ values and their wish to contribute to the society in which they live.

Although arising from Guernsey law, the reasoning outlined within this case suggests a broader evolution in the approach to modern trusts.

Here, Grace Dobson, Tate Furlonge-Walker and Amanda Bailey from our private client team explore the Court’s decision and what this evolving interpretation of ‘benefit’ could mean for trust structuring and administration. 

Trusts, protectors & beneficiary interest

A trust is a legal arrangement under which assets are held by individuals (trustees) for the benefit of others (beneficiaries).

Some trusts appoint a protector. Their role is to oversee the trustees and ensure that the trust is administered as intended. Their powers are set out in the trust deed and often include approving major decisions relating to the trust. They’re most commonly associated with Channel Island trusts, particularly those in Jersey and Guernsey.

Whether exercised by trustees or protectors, trust powers must be used properly and for the benefit of the beneficiaries. Traditionally, that benefit has often been viewed through a financial lens, with decisions generally assessed by reference to whether they preserve or enhance the value of the trust fund.

However, the recent case of X Protector Limited v The Minor and Unborn Beneficiaries suggests a notable shift in how ‘benefit’ may be interpreted, recognising that beneficiaries' ethical, social and family values can also be relevant considerations.

What happened in X Protector Limited v The Minor & Unborn Beneficiaries? 

The case involved a multi-million-pound offshore trust structure governed by Guernsey law, borne from a wealthy European businessman referred to as ‘Mr X’.  

Mr X settled his assets into various trust funds for the benefit of his four children and generations to come. All four of Mr X’s children were born and raised in the UK. However, he himself was never domiciled there. He appointed various corporate entities based in Guernsey to act as trustees.

All four children were raised with strong philanthropic values, and the trust structure reflected that ethos. In May 2024, a board of trust protectors — which included four family members — was appointed to look after some of the trusts to ensure that the trustees were acting in good faith.  

Just over a year later, the adult beneficiaries unanimously requested that the board of protectors apply for their share of the trust to be brought to the UK. This is a process known as ‘onshoring’. Their motivations for doing so were described as “ethical, social and moral”.  

The adult beneficiaries felt that the trust assets from which they benefitted ought to be subject to a “fair amount” of UK taxation. They wanted to properly contribute to the society in which they lived.

Following these requests, the protectors of the trust sought guidance from the Court to exercise their fiduciary powers. In essence, they wanted the Court's blessing to remove the existing Guernsey-based trustees and appoint UK-based trustees. 

How did the Court reach its decision? 

The Court applied a four-stage test, considering whether:

1. the protectors had the power to make the decision in question
2. the protectors had acted in good faith and for a proper purpose
3. the decision was one that a reasonable protector could have reached
4. the decision was free from any actual or potential conflicts of interest. 
    

Ultimately, the Court was satisfied that the protectors met all parts of the test. As a result, the decision was upheld. 

Can ‘benefit’ mean more than financial gain? 

A central issue underpinning the Court's decision was the meaning of ‘benefit’ in the context of trust administration. 

It was widely acknowledged that moving the trust onshore wouldn’t result in a direct financial advantage for the beneficiaries. However, could ‘benefit’ mean more than financial gain in this instance? 

Here, the adult beneficiaries collectively felt that the moral benefits outweighed the financial disadvantages of moving the trust onshore.

Specifically, they felt that — in its current form — the offshore trust contradicted their family’s “philanthropic foundation”. They argued that moving the trust onshore would benefit both minor and unborn beneficiaries. Tax paid as a result of the move would go towards public services and create “societal good”.

Ultimately, the adult beneficiaries sought to re-shape the trust to ensure that it aligned with what mattered most to them as a group. 

What did this actually mean for the trust fund? 

Based on current assumptions about distributions and tax rates in Guernsey and the UK — and taking into account inheritance tax and inflation — bringing the trust onshore would increase the overall tax burden. 

On those assumptions, however, the trust fund would still be expected to support the family for many years, potentially lasting until around 2134. 

By contrast, if it remained offshore, it could grow significantly, potentially reaching £82bn over the same period. 

What could the decision mean for trust administration? 

While this decision isn't one of UK law, it demonstrates a wider direction of travel within the realm of trusts. 

The Court's approval of the protectors' request suggests a broader appreciation of the meaning of ‘benefit’. In some instances, the concept could become more subjective as personal views and values begin to carry greater significance. 

While trust administration decisions need to be reasonable and based upon well-founded evidence, going forward, this case suggests that wider factors, such as the ethical and moral values held by the beneficiaries, may be taken into consideration. 

Key takeaways for trustees, protectors & beneficiaries

• Trustees and protectors should aim to take beneficiaries' values, beliefs and concerns into account when exercising their powers.
• Trustees and protectors should maintain regular dialogue with beneficiaries and, where possible, review trust structures to ensure that they continue to meet beneficiaries' needs and objectives.
• Trustees and protectors should maintain records of significant decisions and the reasoning behind them.
• Specialist advice should be sought when establishing, reviewing or making significant changes to a trust.

Talk to us

Our award-winning private client team advises on the creation and administration of trusts, tailoring its advice to each client’s circumstances and objectives. 

If you need advice on establishing a trust, administering an existing structure or understanding how decisions should be made in beneficiaries’ interests, our specialists are here to help. 

Talk to us today by giving us a call on 0333 004 4488, sending us an email at privateclient@brabners.com or completing our contact form. 

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