Spoilt for choice

The prospective offshore settlor is spoilt for choice. No longer is a neutral tax base and stable government sufficient; jurisdictions now deploy ingenious new ways to attract your business.

As summer approaches, three Caribbean IFCs have particularly impressed (and not just for the hope of a 'networking' trip): the British Virgin Islands (BVI), Cayman Islands, and Bermuda.

BVI

BVI rejoices in a capital city with the piratical name of Tortola, and in its VISTA trust structure. This structure is particularly suited to trust funds holding shares in family companies, or where the settlor wishes to retain management control.

Disapplying the 'prudent investor' rule, the trustee can be prevented in most circumstances from monitoring and intervening in the management of any company in which the trust holds a controlling interest. Trustees also have a power to retain specified assets (doubloons?) within the trust fund, rather than requiring them to sell them in search of a higher return.

A raft of 2013 legislation has sought to further widen usage of the structure. Non-BVI individuals and trust companies can now be appointed trustee, removing a disincentive for foreign advisors to promote VISTA.

The VISTA provisions may now cover assets transferred from other trusts. The transferor trust must be BVI, but that is easily accomplished by changing the choice of law and appointing a BVI trustee. Finally the perpetuity period has been extended to 360 years, long enough for any buried treasure.

Cayman Islands

While taking a break from Cayman's Stingray City, Turtle Farm or Pirate Festival, the visitor may consider a STAR trust. This flexible structure grows ever more popular. It allows for a mixture of charitable and non-charitable purposes and beneficiaries.

Only appointed 'enforcers' can enforce the trust; these can be beneficiaries but do not have to be and therefore certain beneficiaries, e.g. troublesome heirs, can be prevented from enforcing. It is often used by unincorporated associations (which struggle with English purpose trust rules) and increasingly by families from Shariah and other forced heirship regions.

Cayman's justice system has shown a helpful attitude, for example in Schroder Cayman Bank v Schroder Trust AG [2015]. Although the judge decided that transfers from a Cayman trust to Jersey benefit schemes were more closely connected to Cayman, he also agreed to hear evidence on Jersey law to assist with an application to the Jersey Court confirming the order.

Bermuda

Bermuda has had a somewhat low-key reputation, relying on its advantageous position (less than two hours flight from New York), instead of creating new trust structures like other Caribbean jurisdictions. The new government, elected in 2012, is updating this image.

A business development agency is promoting the island - attendees of recent STEP awards ceremonies will recall their rum cakes and Dark n' Stormy cocktails. New legislation has been produced to reflect this updated image.

Many settlors, particularly those from civil law jurisdictions, struggle with the limitation on their powers that a trust involves. The Trusts (Special Provisions) Amendment Act 2014 allows the settlor to retain extensive powers that would invalidate an English trust.

The Act's schedule lists a range of fiduciary powers, including advancement and appointment of capital, removing and appointing trustees or beneficiaries, revoking or varying the trust and, so on. Bermuda is now in line with other Caribbean jurisdictions on this issue.

The 'rule' in Hastings-Bass was restricted here in Pitt v Futter, but has been much mourned as a non-contentious way to resolve trustee mistakes. The Trustee Amendment Act 2014 enshrines it in Bermudan statute.

It states;

a) where the holder of a fiduciary power did not take into account relevant considerations, or took into account irrelevant considerations; and

b) were it not for [this], the holder would not have exercised the power, or would have exercised it in a different occasion or in a different manner, then the court has discretion to set aside the exercise of the power, in such terms as the court thinks fit.

This Act differs from comparable Jersey legislation in two respects. First, it applies to all fiduciary power holders (including receivers, attorneys etc) not just trustees. Second, the court may only set aside the power, rather than directing it in a completely different way."

Matthew Howson is an associate in the private client team at Penningtons Manches

The firm writes a regular blog for Private Client Adviser

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