Purpose Trusts in the Isle of Man.
What is a Purpose Trust?
All trusts are created with a purpose. However, a Purpose Trust is different from a traditional trust, which is typically set up to benefit one or more family members.
A traditional trust requires the “three certainties”:
Certainty of Intention – the settlor clearly intends to create a trust.
Certainty of Subject Matter – the property being placed into the trust is identified.
Certainty of Objects – the beneficiaries are clearly defined.
Courts in the UK and other common law jurisdictions have generally held that there must be identifiable beneficiaries who can enforce the trust. This has historically prevented non-charitable trusts from being recognised, with limited exceptions such as trusts for animals, monuments or specific loan purposes (Quistclose trusts).
Purpose Trusts in the Isle of Man
Unlike the UK, the Isle of Man Purpose Trusts Act 1996 (as amended) allows for non-charitable purpose trusts. Under the Act, a purpose trust is a trust created for a purpose other than:
The benefit of identifiable persons;
The benefit of persons related through a defined relationship; or
Charitable purposes.
For a Purpose Trust to be valid, it must meet strict requirements, including:
A defined perpetuity period.
A clear, reasonable, and lawful purpose.
Creation by deed or by will.
At least two trustees, one of whom is a “designated person” (legally qualified, auditor, or licensed under the Financial Services Act 2008).
Appointment of an independent enforcer to ensure the trust is carried out properly.
The enforcer has an absolute right of access to trust documents and information and ensures compliance with the stated purposes of the trust.
Why Use a Purpose Trust?
Purpose Trusts in the Isle of Man are flexible vehicles that can be used for a wide range of commercial, succession, and tax planning reasons. These include:
Private Trust Companies (PTCs): Holding shares in a PTC that acts as trustee for a number of family trusts.
Family business succession planning: Independent trustees can hold shares, removing family conflict from decision-making.
Investment structures: Holding shares in companies with uncertain performance where traditional trustees may face challenges.
Philanthropic or social projects: Supporting initiatives that are not legally recognised as charitable.
Special Purpose Vehicles (SPVs): For securitisation, financing, and asset-backed transactions in a bankruptcy-remote structure.
Escrow arrangements: Holding funds securely between buyer and seller.
Separating control and ownership: Allowing voting rights and economic rights to be divided.
Orphan structures: Used in bond issues where no beneficial owner exists.
Fund structures: Supporting hedge funds and mutual funds as unit trusts.
Alternatives to Purpose Trusts
Other jurisdictions have developed alternative vehicles such as Foundations and STAR Trusts, but these are not currently available under UK law. The Isle of Man, however, continues to provide a trusted and flexible environment for establishing Purpose Trusts.
Why the Isle of Man?
The Isle of Man offers a stable legal framework, professional trust services, and internationally recognised legislation. The Purpose Trusts Act 1996 makes the Island one of the few jurisdictions where non-charitable Purpose Trusts can be validly created and enforced, making it an attractive choice for international families, corporates, and financial planning structures.
Contact Us
If you would like to know more about setting up a Purpose Trust in the Isle of Man, please get in touch today.