Jersey Shore: Where Trusts and Taxes Meet

In recent months, Fairway has seen growing interest from ultra-high-net-worth US persons establishing structures in Jersey (Channel Islands), attracted by the jurisdiction’s reputation for exemplary corporate governance standards and robust asset protection laws. In this article, Chris Mourant, Associate Director in Private Client, outlines why this might be, and provides a guide to Jersey trusts for US individuals.

This increase in enquiries appears to be driven primarily by growing concerns around political uncertainty in the United States and the knock-on effect this has on markets. Geopolitical tensions and aggressive policy moves are shaking markets which is exacerbated by investigations into the Federal Reserve leadership. Despite positive economic indicators, such as a 4.3% growth rate in Q3 2025, there is still a degree of nervousness in the market which stems from fresh threats of trade tariffs and the escalating rhetoric around the US taking control of Greenland. European nations and Greenland itself are strongly resisting, leading to troop deployments, protests, and significant international friction. For high-net-worth individuals, this volatility can have a direct impact on investment portfolios, highlighting the importance of careful planning and strategic diversification.

Adding to this instability, the US launched “Operation Southern Spear” capturing the President of Venezuela, Nicolás Maduro and his wife - a move that marks the most forceful US military intervention in Latin America since Panama in 1989. While the fallout ensues, investors are already shifting into safe-haven assets such as gold which reinforces the nervousness already felt across the US.

Navigating the Tax Maze: A US Person's Guide to Jersey Trusts

Few things capture attention quite like taxes, and for good reason. But don’t worry, if you’re a US person considering a Jersey trust, this guide will help you make sense of the tax landscape and approach it with confidence.

Why Jersey?

Imagine Jersey as the superhero of trust jurisdictions. With its robust legal framework and long-standing case law, Jersey acts as a safe haven for asset protection for US personal liability claims. Plus, it offers access to a world of international investments that are often out of reach of US domestic trusts. Think of it as your financial passport to global opportunities.

The Trust Residency Test

To determine if your trust is a US resident for tax purposes, it must pass both the Court and Control tests. If a US court can exercise primary supervision over the trust, and US persons control all substantial decisions, then it's a US resident trust. But if your trust is administered under Jersey law, it will be considered a foreign trust, regardless of who the trustees are.

Mont Orgueil Castle, Jersey, Channel Islands

Grantor vs. Non-Grantor Trusts

For US tax purposes, a trust can either be a Grantor or Non-Grantor trust. If the grantor (that's you) is a US person and retains certain powers or benefits, the trust will likely be a Grantor trust. This means you get to enjoy US tax neutrality, as the income and gains are taxed directly to you. But beware, upon your demise, the trust will transform into a Foreign Non-Grantor Trust, bringing with it a whole new set of tax complications.

The Tax Treatment of a Foreign Grantor Trust

As the grantor, you'll be taxed on all the trust's income and gains, even if you don't receive any distributions. Your beneficiaries, on the other hand, will only have to report distributions to the IRS, but won't be subject to additional US tax. The trust itself isn't a taxable entity, but it does have annual filing requirements.

Beware of PFICs

Passive Foreign Investment Companies (PFICs) are the tax equivalent of stepping on a Lego in the dark. Most non-US collective investments fall into this category, and they come with additional filing requirements and punitive interest charges. To avoid the pain, consider directly held stocks or Private Placement Life Insurance (PPLI) wrappers.

Reporting Requirements

Settling a Foreign Grantor trust will increase your annual US filing requirements. From Form 709 for gift tax to Form 3520 for reporting transactions with foreign trusts, there's a lot to keep track of. Failure to file these forms can result in hefty penalties, so it's best to stay on top of your paperwork.

Future Considerations

The death of the grantor triggers a change in the trust's classification and who is subject to US tax. To avoid the potentially punitive US tax treatment of a Foreign Non-Grantor Trust, consider converting the trust into a US domestic trust or managing distributions to limit the throwback tax charge.

Bonne Nuit, Jersey, Channel Islands

Expatriating Americans

For those US persons wishing to renounce US citizenship, a Jersey trust could represent the perfect vehicle for pre-expatriate planning. Some of the benefits may include:

• Reduction of the individual’s net worth to mitigate the US “exit tax” for covered expatriates;
• Allows the use of the current US gift tax exemption; and
• Affords robust asset protection from any creditor claims.

The favourable US/UK Estate and Gift Tax Treaty is fairly favourable to US persons and many US resident HNWI’s are looking at the UK as a viable destination away from the US. While the UK’s new non-domiciled changes curtail the income and capital gains tax advantages of offshore trusts after a few years, a Jersey trust may still help optimise the transition. Think of it as tax triage – the trust can’t completely avoid UK tax in the long run (unless you relinquish personal benefit), but it can delay and dilute the impact, and crucially, it sets the stage for the far greater benefit; UK inheritance tax mitigation.

Fairway's Expertise

At Fairway, we understand that navigating the complexities of US tax law can be daunting. Our team of experts are here to provide you with tailored support, ensuring that your Jersey trust structure is set up for success. Whether it's asset protection, succession planning, or tax efficiency, we've got you covered.