Capacity to Create a Trust: The Onshore Problem, and the Offshore Solutions

The Common Law rules of private international law on the capacity of a person to create a trust are peculiarly difficult to ascertain. It is submitted that, despite the claims of other candidates (such as the proper law of the trust, the law of the situs of the trust assets, and even the settlor's nationality), the law of the settlor's domicile should govern capacity of the settlor (i) to make a contract to create a trust, (ii) to transfer ownership of moveable property to the trustee, and (in) to impose the trust obligation on the trustee. Capacity of the settlor to transfer immovables to the trustee is, however, governed by the lex situs. Some offshore trust jurisdictions have enacted special rules relating to capacity to create a trust. Two main models may be distinguished, that of Jersey and that of the Cayman Islands. These rules were mainly designed to deal with a quite different problem, namely that of the settlor whose personal law includes rules on the protection of family wealth, such as so-called “forced heirship”". Whether the offshore rules actually succeed in avoiding the problem is, however, open to doubt in some cases.