Only people and horses

All law students studying equity and trusts learn about the beneficiary principle. All private trusts must have human beneficiaries. Without beneficiaries who are capable of suing the trustees, you cannot have a trust at all.

Half a century ago, Lord Astor, through his proprietorship of The Observer and his parliamentary political career, knew a thing or two about journalists. He wanted to set up a trust for the preservation of the independence and integrity of newspapers, high standards of professional journalism, the avoidance of management of newspapers being manipulated by powerful financial or special interest groups, the establishment, maintenance and improvement of good understanding, sympathy and cooperation between nations and between different sections of people in any nation or community. Such sentiments may have been laudable, but English trust law could find no way of upholding this as a valid trust. The deeply entrenched beneficiary principle meant that this attempted trust was emphatically rejected.

Perplexingly, however, that very same system of law has nonetheless managed to uphold trusts for pet dogs and horses, tombstones and monuments, despite the fact that these kinds of purpose trust clearly lack human beneficiaries.

In the wake of the banking-led economic crisis of the last two years, confidence in the banking industry has collapsed. Confidence in the quality of professional legal advice and the basic integrity of the English legal system has not. The English legal system remains a forum of choice for dispute resolution and asset management, and there is widespread international use of the concept of the trust. Many jurisdictions with a historical and common law root in the English legal system have utilised the trust, but in doing so have not placed such talismanic importance on the necessity for human beneficiaries for the trust to be valid. Established and reputable offshore jurisdictions have thereby attracted significant wealth and activity to their economies.

Time to adapt

The law of equity is a creative and flexible discipline and has frequently demonstrated its ability to adapt to changing social and economic conditions. Desperate economic conditions in the UK should be a force for constructive changes. The time is right for English law to catch up with developments which have already taken place in younger jurisdictions and to allow trusts to exist without the need for individual human beneficiaries. If the English law of equity has been able to find room for sentiment in permitting purpose trusts for pet horses and dogs, it is surely capable of facilitating the development of a category of trust where enforcement can be independent of the beneficiaries, or which could permit trustees to hold assets on trust for carefully defined private benevolent purposes.

A development on this model could be a catalyst for attracting or retaining wealth in the onshore economy. With high levels of confidence in the legal system and legal profession already located here, such a development in trust law ought not to be controversial, and would be economically advantageous.

A well-established model of a trust which can exist with or without human beneficiaries and with the alternative method of enforcement being carried out by an 'enforcer' was created by the Cayman Islands Special Trusts Alternative Regime Law 1997. Such trusts may include human beneficiaries, but they have no standing to enforce the trust which is the job of the enforcer. Numerous other jurisdictions have permitted similar trusts, with those closest to home being Cyprus, the Isle of Man and Jersey. It should be possible for trusts on these models to run in parallel with the traditional express private trust with human beneficiaries in English law, it being a decision for the settlor as to which regime to choose.

Negative attitudes

Finance Acts enacted in England in the last seven years have displayed an antagonistic attitude towards trusts, and seem to regard them all as vehicles for tax avoiders or money launderers. This is to be regretted. Such a hostile attitude stands in the way of a more constructive engagement with the trust as a useful tool for settlors. It is to be hoped that a new administration might adopt a fresh engagement with trust law and facilitate the creation of a private purpose trust independent of the necessity of human beneficiaries for enforcement.

Fears that this kind of trust would be used by money launderers can be countered by the application of the existing robust anti-money laundering regime. After all, other international jurisdictions which currently allow these trusts have sophisticated anti-money laundering legislation.

Permitting private purpose trusts without the need for human beneficiaries as enforcers need not be seen as iconoclastic.

It would be a widening of current trust principles but would offer exciting opportunities to consolidate the position of the English legal system at the forefront of trust law and asset management. If today's equivalent of Lord Astor exists, English trust law should be able to accommodate his objectives.