The private trust industry is changing and will undoubtedly continue to evolve as the industry moves forward. The robustness of private trusts is being tested through challenges such as the right to privacy, versus the desire on the part of governments for greater transparency and reporting initiatives, including the US Foreign Account Tax Compliance Act (FATCA), UK FATCA and the Organisation for Economic Co-operation and Development (OECD) Common Reporting Standard (CRS). As a result of high profile tax evasion cases in recent years and the need for governments across the world to grow tax revenue, the industry is under increased scrutiny from international legislators, regulators and tax authorities. These initiatives and pressures increase the cost of carrying on trust business and the risks associated with that business, leading some to question the future of the industry. However, there is and will continue to be a place for private trusts in the wealth planning for international families and businesses.
In order to appreciate how the local industry will evolve it is important to understand how the landscape of trusts in the Cayman Islands has changed in the past two decades.
Twenty years ago a typical portfolio of trust business was comprised of relatively straightforward trusts of varying types, with underlying holding companies mainly holding asset classes of financial investments or real estate for the first generation of stakeholders. Today, trust structures are generally much more sophisticated. They hold a full range of asset classes including operating businesses, they involve private trust companies (PTCs), and family office functions and they are often for the benefit of two or three generations of family members living in multiple jurisdictions. Trust companies servicing those structures provide a full range of services, including provision of independent directors to PTCs and other family companies, and they are required to liaise with international advisers on an ongoing basis to assist family members to remain tax compliant in the relevant jurisdictions.
Cayman is one of the leading international centres for the creation of complex trust structures. The trust industry in Cayman has kept pace with client requirements over the years due to a number of important factors. Cayman has a solid Trusts Law, it led the way with the creation of the Special Trusts Alternative Regime (STAR), it provides for the licensing of PTCs as restricted licensed trust companies, and has more recently introduced a registered PTC regime. Trust legislation is supported by a strong and highly regarded local judiciary. In addition, the industry has been assisted by the jurisdiction's ability to respond and deal appropriately with various international initiatives including US and UK FATCA and other challenges that have been ongoing for over a decade. The demonstrated ability of local service providers to support the more sophisticated trust structures has been crucial in enabling the jurisdiction to stay ahead of its competitors. Cayman's service providers are amongst the most highly regarded trust practitioners internationally.
The before mentioned factors form a solid foundation for the future. The question now is how does the industry continue to evolve to meet the changing needs of families as their wealth continues to grow, as that wealth transitions to second, third and even fourth generations, and as the more charitableminded consider how they can change the world for the better through their philanthropic giving. The industry will also need to consider how it can assist families to balance their growing international reporting obligations while maintaining the privacy that they require regarding their personal affairs. A glimpse into the future would suggest that some of the developments around the world that will provide opportunities for the Cayman trust industry include those outlined below.
Tax Planning and Beyond
While historically the creation of trusts offshore has often been driven by tax planning for the current generation, this is changing. While overall tax considerations will always be taken into consideration, the focus is changing to planning for the protection of assets and wealth succession for future generations of the family. Cayman provides a tax neutral, stable, sophisticated environment for such planning. The jurisdiction seeks to balance the need for privacy against the demands for greater transparency in a sensible and mature manner.
The New Rich
There has been significant wealth generation in both new and developed markets across the globe. A significant portion of that wealth has been generated by entrepreneurs, and as those entrepreneurs reflect on their recent riches they need to consider how to protect and sustain that wealth going forward. They require sophisticated structuring advice which often includes trusts. This creates new opportunities for Cayman service providers as they can not only assist with the creation and administration of such structures, but also with the education of the family members to ensure the ongoing integrity of such structures, the sale or listing of private companies within those structures and the future investment of funds raised from such sales or listings.
Relocation of Families
The world has changed. The ability to stay in touch with family members across the world is easier than ever. People can work from anywhere there is an internet connection. This allows families to be even more mobile than they have been previously, and to move to jurisdictions that provide them with a high quality of life and which welcome them and provide an environment conducive to the management of their wealth. Cayman provides that type of environment and service providers need to communicate that message to their wealthy clients. Relocation to Cayman provides a different set of opportunities for local service providers as those families will seek to invest in the jurisdiction over time.
Family Office Functions
As trust structures become more sophisticated it may be important that they include a family office to support the administration of such structures. Looking forward it is likely that the location of a family office in the jurisdiction in which the structure is created will become more important. This means the movement of staff and their family members to that jurisdiction and the creation of additional jobs for local residents. The Cayman Islands boasts world class living accommodations, restaurants, schools, political stability and a legal framework that is attractive to wealthy families considering family office possibilities. Service providers have an opportunity to assist stakeholders with the establishment of family offices and/or to provide family office functions.
Wealthy families are increasingly looking for opportunities to use their wealth for positive social change around the world. While many do this through existing charitable organisations, others create their own foundations to focus on their own particular areas of interest. There is an increasing opportunity for Cayman service providers to assist with such foundations, which can be created within Cayman trust structures. These structures often use Cayman PTCs to allow the family some active involvement in the day-to-day decisions of the foundation. STAR trusts provide opportunities to create structures that are not for strictly charitable purposes but which are still philanthropic in nature.
Wealth management is not as prevalent in Cayman as it is in other jurisdictions. There is certainly an opportunity to attract such business to Cayman for many of the reasons already noted. As the industry continues to grow, families and family offices will require an increasing range of services from wealth managers located in Cayman. As those services are demanded locally there will be international managers who will seek to take advantage of the opportunities as they arise.
In summary, while the trust industry has faced, and continues to face, international pressure and challenges there remain many opportunities for it to grow and thrive in Cayman. The complex structures that families now require to hold established business ventures, intellectual property rights, alternative financial investments, real estate and other assets provide many opportunities for Cayman. Private trust companies, family office services and philanthropic foundations require a jurisdiction that meets all their needs and Cayman practitioners are strategically placed to seize the opportunities and provide the services to trust structures that global private clients require and demand.
About the Author
Tamara Corbin is a Partner with Rawlinson & Hunter Cayman Islands. She specialises in private client services including international trust structures, private trust companies and purpose trusts, estate planning and wealth management. Tamara is a qualified CPA, a member of STEP and CISPA. She is an Executive Committee Member of the Cayman Islands branch of STEP.
About the Author
William Walmsley is a Partner with Rawlinson & Hunter Cayman Islands. He specialises in private client services and advises on the establishment and ongoing administration of Cayman Islands trusts and companies, including acting as a director of a number of private trust companies and other regulated entities.
William is an FCA (Ireland), a member of STEP, former Vice Chairman and Treasurer of the Cayman Islands branch of STEP, is a board member of Cayman Finance and a member of CISPA.
Originally published in Cayman Finance Magazine, 2015-2016, Issue 2
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