Jersey/employeebenefits/14434304 January 2008 The Role of Employee Benefit Trustees INTRODUCTION to the trust and the position should the settlor be liquidated or subject to the demands of its creditors. A common misconception amongst trust industry professionals and clients is that employee benefit trust Private client relationship arrangements are significantly different to private client trust structures. A true private client or family trust relationship between the beneficiaries and the trustee develops where the form Although employee benefit incentive structures can be of incentive compensation is delivered through a cash delivered in a variety of ways, many of them are provided based employee benefit trust, a pension arrangement or through discretionary trusts. Trustees of such a flexible share scheme where awards are segregated Client briefing discretionary employee benefit trusts have exactly the into distinct sub-funds for an employee and their family’s same fiduciary responsibilities as those that exist under a benefit. family trust structure. The type of benefit associated with a cash based Who is the Client? employee benefit trust is not dissimilar to that of a family trust. Benefit can be provided in many forms and can This is an age old debate amongst trustees and centres prove to be very tax efficient due to the fact that the around whether the settlor or beneficiary can correctly be settlor is a company, with no bounty or gift associated referred to as a “client” of the trustee company. with the settlements into the trust. This issue creates an interesting conflict within an It is important that the trustee understands the employee benefit trust relationship, where the company circumstances of the employee beneficiary and their establishing the structure and settling the assets into the family so as to enable the trustee to always act in their trust views itself as the client. best interest. This often entails meeting not only the employee beneficiary, but their family members who The structures usually cater for benefit to be provided to could conceivably benefit from the trust arrangement. current, future and ex-employees of the settlor group and This level of personal service and attention further will result in the trustee acting in the best interests of an enhances the beneficiary’s understanding and level of ex-employee, whom the settling company no longer has comfort surrounding the use and benefits of a any need to motivate or retain. discretionary trust. The experience, independence and professionalism of Investment responsibilities the trustee is important in these situations to retain integrity and trust between the two conflicting parties. Trustees of employee benefit trusts have a duty to maintain and enhance the capital of the trust. This is no Beneficiaries’ best interests different to the fiduciary responsibility attaching to a family trust. The overriding responsibility of an employee benefit trust trustee is to ensure that they act in the best interests of Employee benefit trustees have a variety of factors to the beneficiaries. This is one of the primary reasons for consider when investing trust assets that would not establishing a discretionary trust for delivering incentive otherwise apply to family trusts. compensation to employees. Pension trusts often need to comply with the UK pension In order to effectively provide an incentive programme for legislation as to the investment of trust assets. These executives, it is important that the executives themselves guidelines are acceptable to the trustee as they tend to are comfortable with the arrangement and their be conservative and focus on the maintenance of trust relationship with the trustee. assets with growth at an acceptable level of risk. The more esoteric investments in derivative products are not A discretionary trust, where the settlor is an excluded allowed and exposure to property investment is carefully person under the trust deed, provides comfort to controlled. beneficiaries. Beneficiaries would otherwise have concern as to the settlor’s ability to benefit from assets contributed The Role of Employee Benefit Trustees Share incentive schemes often confine the trust’s Conclusion investments to those of equity in the settlor company. This level of investment in one, often illiquid asset would The nature of trusts and the responsibilities and duties of provide a dilemma for the family trustee, but through plan trustees lend themselves to the provision of employee rules and restrictions on trustee investment powers, the remuneration planning. trustees are able to manage their investment of trust assets in these schemes. Both companies and employees receive comfort from the trust relationship. Where experienced, independent and The cash based incentive scheme has the widest scope professional trustees are involved, the company is able to of investment possibilities and mirrors the investment save on internal administration costs and time, as well as profile in private trusts. A trustee’s first choice is to have remain confident that their employees are receiving the trust assets managed by a discretionary investment service excellence for a scheme that was designed to manager. This provides the trust with professional motivate and retain them. Client briefing investment expertise that is carried out in line with the trustee‘s investment risk profile. This risk profile would be About Ogier developed based on the trustee’s discussions with the beneficiaries and will provide for trust investments that Ogier is an award winning offshore legal and fiduciary are aligned to the best interests of the beneficiaries. services provider. The group advises on all aspects of BVI, Cayman, Guernsey and Jersey law and associated Confidentiality and taxes fiduciary services through a global network of offices that cover all time zones and key financial markets. An employee benefit trust assists in preserving confidentiality of award and discretionary bonus details Ogier continues to be recognised as a leading law firm by for small to medium size companies where the human the principal legal directories, including Legal 500 and resources function may not be of a large enough size to Chambers. handle the communications of award and vesting details. The usual duty to maintain client privacy and confidentiality extends to employee benefit trusts. Due to the family trust relationship between trustee and beneficiary in a cash based employee benefit trust, the trustee is often involved in discussions as to how benefit from the trust may change, should an employee resign from the settlor company. It is therefore not appropriate for the trustee to inform the settlor of the potential loss of a staff member. Confidentiality as to benefit provided is not possible where the trustee has an obligation under the trust deed to report to the company for tax reporting purposes of any taxable benefits enjoyed by an employee beneficiary. This form of reporting extends, post employment, in the case of cash distributions as the payroll taxes associated with such a cash benefit extend past the beneficiary’s employment. Certain beneficiaries may be bound by the compliance rules of investment banks and similar organisations with respect to personal investment. Although the trust assets are wholly under the management and discretion of the trustee, in circumstances where an employee is able to make investment recommendations to the trustee and to the extent to which these recommendations are followed, the trustee may be under an obligation to report all investment transactions to the employee’s compliance department to ensure compliance with local legislation. ADMIN-14434304-2 The Role of Employee Benefit Trustees Contact details Jersey Legal: Clive Chaplin +44 (0) 1534 504240 email@example.com Philip Le Cornu +44 (0) 1534 504225 firstname.lastname@example.org Fiduciary: Simon Willing Client briefing +44 (0) 1534 504457 email@example.com Philip Norman +44 (0) 1534 504430 firstname.lastname@example.org Tania Bearryman +44 (0) 1534 753936 email@example.com This client briefing has been prepared for clients and professional associates of the firm. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations. Ogier includes separate partnerships which advise on BVI, Cayman, Guernsey and Jersey law. For a full list of partners please visit our website.
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