The Approach In Jersey To ‘Insolvent' Trusts: The Z Trusts

Much has been written in recent years regarding the somewhat vexed question of what happens when a trust becomes 'insolvent'. That bald question of itself begs closer analysis, particularly in view of the fundamental principle that a trust has no legal personality and therefore cannot technically be insolvent. The position in Jersey is further complicated by the presence of the statutory protection afforded to trustees whereby their liability, when contracting as trustee with another party who knows them to be so acting, is limited to the trust assets.¹ The traditional (English law) position differs in that (absent a contractual limitation) a trustee is personally liable for all debts it incurs in its capacity as trustee, and must rely on its right of indemnity to recover those liabilities from the trust estate.