British Virgin Islands: Christopher Mckenzie Analyses The Significant Amendments To VISTA And Other BVI Trust And Estate Legislation

With effect from 15 May 2013, some important changes were made to the Virgin Islands Special Trusts Act (VISTA), the Trustee Ordinance, 1961 (Trustee Act) and various other BVI statutes relating to trusts and estates. The main alterations are discussed below.

Amendments to VISTA

Trusteeship of VISTA trusts

The BVI's VISTA legislation has been amended so that co-trusteeship of VISTA trusts is now permitted. Furthermore, the statute now allows the qualifying trustee of a VISTA trust to be an unlicensed BVI private trust company (PTC), as an alternative to a licensed BVI trustee. Thus clients have several options when selecting trustees of VISTA trusts: the sole trustee may either be a licensed BVI service provider or a BVI PTC; alternatively, one or more foreign companies or individuals may act as co-trustee together with the licensed BVI trustee or BVI PTC. These changes in the law should provide significant opportunities for family-controlled VISTA trusts to be established and for service providers without a BVI-licensed trust company to provide co-trusteeship of VISTA trusts (or to establish a PTC to be sole trustee).

Transfer of assets to VISTA trusts from other trusts

The restrictions in VISTA that, inter alia, prevented assets from being appointed out of other trusts (transferor trusts) to existing (or new) VISTA trusts in the exercise of powers of appointment (and other powers) and that prevented trusts from being converted into VISTA trusts have been relaxed. Such powers may now be exercised with the result that the assets of transferor trusts become subject to the VISTA regime, provided two conditions are satisfied:

This reform provides significant opportunities for assets of existing trusts to be VISTAised and for advantage thereby to be taken of the BVI's special alternative trust regime, which has been designed for situations (a) in which the trust assets comprise shares in companies, (b) in which unusual investments are to be held in trust, and (c) in which the settlor or those nominated by the settlor are to retain investment and other administrative powers (in the capacity of director(s) of an underlying company).

Anti-abuse provisions and other amendments to VISTA

Various other amendments to the statute have been made to ensure that the trustees of VISTA trusts are entitled to information about underlying companies and their subsidiaries (i.e. so that they can protect themselves against unforeseeable reputational risks) and to provide flexibility. The latter amendments make it clear that a trust that is not initially subject to the VISTA regime can become so subject at a later date or upon the occurrence of a specific event (and vice versa).

Amendments to the Trustee Act

The Trustee (Amendment) Act, 2013 includes the following changes to the Trustee Act (which applies to both VISTA and non-VISTA trusts):

Extension of the perpetuity period

The BVI has refrained from following other jurisdictions in abolishing the rule against perpetuities on the basis that there are sound reasons of policy for providing for a maximum perpetuity period (the purpose of the rule is essentially to prevent property from being tied up indefinitely). However, the maximum permitted perpetuity period (which is inapplicable to charitable and non-charitable trusts) has been extended from 100 years to 360 years. This should provide a significant incentive for settlors who wish to set up dynastic trusts that last many generations to select BVI law as the governing law of their trusts.

Trusteeship of purpose trusts

A condition for the establishment of a BVI non-charitable purpose trust is that one of its trustees must be a 'designated person'. Prior to the enactment of the recent reforms, this would invariably have required one of its trustees to have been a licensed trustee. The condition has however now been relaxed so that the qualifying trustee may instead be an exempt BVI PTC.

Trust duty

BVI trust duty has been increased to USD200. The duty is payable on settlements and declarations of trust, but not on supplementary trust instruments, and instruments recording bare trusts and charitable trusts are exempt. The duty is payable by affixing revenue stamps for the requisite amount to the relevant trust instrument. An 'authorised person' (such as the settlor, the trustee or a lawyer acting for either) must 'cancel' these in the manner prescribed by s92 of the Trustee Act. Confidentiality is maintained since the document is not – and indeed the statute prescribes that it cannot be – submitted to the authorities to enable the duty to be paid. Penalties are payable if the trust duty is not paid within the prescribed period and the consequence of omitting to pay the duty is that the relevant trust instrument is inadmissible in civil proceedings unless the duty and penalty are paid and unless the judge exercises their discretion.

Trustees and loans

Section 101 of the Trustee Act (which applies only if the terms of the trust expressly so provide) permits a trustee, for the protection of a third party that has lent money to it, to restrict the exercise of its other powers (such as investment and distribution powers and powers to retire) provided certain conditions are satisfied. To add flexibility, and to reflect the reality of the modern world of commerce, the provisions of s101 have now been extended to cover loans of trust assets other than money.

Amendments to the BVI's PTC regulations

Extension of the 'related trust business' head of the exemption

The BVI's regulations relating to PTCs enable BVI companies to be established to act as trustees and protectors provided certain conditions are satisfied. The conditions are that the name of the company must include the initials '(PTC)' before the permitted ending (such as 'Ltd'), that the company's registered agent must hold a Class 1 trust licence, that the company must not offer its services as trustee/protector to the general public, that the company must only carry on trust business and that all its trust business must be 'unremunerated trust business' (so that neither the company nor anyone associated with it – other than a professional director – charges for its services as trustee/ protector) and/or 'related trust business'. A company will be regarded as carrying on related trust business where all the beneficiaries of the trust (or trusts) of which it is trustee are related (in the prescribed manner) to the settlor (and, in the case of multiple trusts, the settlors are related to each other) and/or are charities.

The regulations have proved to be extremely popular and numerous BVI PTCs have been set up. However, until the amendments came into effect most BVI companies will have relied on the 'unremunerated trust business' head of the exemption. This was because the 'related trust business' head of the exemption was inapplicable where the beneficiaries of the trust(s) included the settlor(s). The regulations have now been amended so that the related-trust business head of the exemption is no longer inapplicable where settlors are beneficiaries. This amendment is likely to result in increased use of the BVI's PTC regulations since (provided the other relevant conditions are met) it permits an exempt PTC to be established where the unremunerated trust- business head of the exemption cannot be relied on (for instance, because the company is charging a fee for the provision of its services as trustee/protector).

Fees for establishing and maintaining PTCs

The government's fees for establishing and maintaining a PTC, which have always been regarded as modest, have been increased only slightly so that, in the case of most PTCs, these now amount to GBP1,250 on establishment and annually thereafter; the registered agent's fees (which will usually also be modest) will be additional. The BVI therefore continues to be one of the most competitive and attractive jurisdictions in which to set up a PTC.

Corporate executors

The Trust Corporation (Probate and Administration) Act has been amended to provide that probate can now be granted to a corporate executor if it has a Class 1 trust licence (provided it satisfies the other criteria set out in the Act). This will be the case even if the company does not meet the authorised capital requirements specified in the statute. This change in the law is to be commended since it removes unnecessary impediments on the ability of properly regulated companies to act as executors and brings the provision of executorship services within the framework of the modern fiduciary licensing regime provided for in the BVI's Banks and Trust Companies Act. It will also open up new lines of business for BVI service providers and will provide an additional incentive for shareholders of BVI companies to prepare wills disposing of their shares (which is generally considered prudent if these are not to be held in an effective succession trust).

Originally published in the STEP Journal, November 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.