The year 2011 was undoubtedly an eventful one, and for trusts and estates practitioners the uncertain economic conditions came at a time of numerous legislative developments offshore. Bermuda, Cayman, Guernsey, the Isle of Man and Jersey saw several rule changes that will affect trust and company structures and potentially create more business opportunities.

A considerable number of tax information exchange agreements (TIEAs) were signed last year, illustrating a continued commitment to international standards, and more are likely to follow this year. Another trend is the emergence of foundations. This year is expected to be another busy 12 months for the regulators.


There were several legislative changes in Bermuda in 2011 that will affect trust and company structures. First was the Exempted Undertakings Tax Protection Amendment Act 2011, which extends the assurance of tax neutrality to April 2035. An exempted company, permit company, exempted partnership or exempted unit trust scheme can apply to the Minister of Finance for a guarantee that, if any taxes on profits, income, dividends, withholding, capital transfers or capital gains tax are introduced in Bermuda, these taxes will not apply to that exempted undertaking until April 2035.

This was followed by the Specified Business Legislation Amendment Act 2011, which amended company, partnership and trust legislation to include a requirement to keep records of account for five years, in line with Bermuda's obligation to implement many of the recommendations of the Organisation for Economic Cooperation and Development's internationally agreed tax standard.

On the trust side, an exempted company should now retain information on trusts for which it acts as trustee, and retain, for five years from the date records were prepared, trust records of account. Any other exempted trustee needs to ensure there is information retained in Bermuda on the trusts for which it acts as trustee, including information on settlors and beneficiaries, and that the trust records are retained for five years.

Bermuda now has 30 TIEAs, several of which were signed in 2011. Of particular interest is the TIEA between Bermuda and Canada, which is expected to act as a catalyst for new business. The Canadian TIEA makes Bermuda subsidiaries of Canadian corporations eligible for tax benefits that were otherwise available only to foreign affiliates resident in countries with which Canada had a tax treaty, and means that Canadian companies now have another offshore option in the same time-zone.

'This year is expected to be another busy 12 months for the regulators'

The benefits of the TIEA that Bermuda signed with Mexico in 2009 were enhanced in 2011 with the introduction in Mexico of new regulations relating to Mexican income tax. These changes provide immediate and retrospective financial benefit to Mexican businesses already doing business in or through Bermuda, and give an attractive opportunity for those seeking to do so.

Looking to 2012, several measures that will have a significant impact on Bermuda's international business sector were proposed last year. The Companies Amendment (No 2) Bill 2011, which outlines a number of changes to the Companies Act 1981, was tabled in the House of Assembly, proposing giving sole and corporate directors of Bermuda companies, including private trust companies, the option to waive annual general meetings; the removal of prohibitions on providing financial assistance; and a new process for mergers as an alternative to the existing amalgamations procedure.

Cayman Islands

The primary trusts legislation in the Cayman Islands was recently consolidated to include the new s27A regarding trust accounts, which can now be found in the Trusts Law (2011 Revision). The Cayman Islands has more than 25 TIEAs, including six new agreements in 2011, with Argentina, Guernsey, India, Japan, New Zealand and South Africa. Indications are that Cayman will continue to expand its network of TIEAs for the foreseeable future.

This year, the Cayman Islands government, with support from STEP Cayman Islands, will be considering the introduction of foundations legislation to meet the increasing demand for foundations globally.

Cayman saw a couple of interesting decisions in 2011. The most groundbreaking is likely to be the TMSF v Merrill Lynch Bank and Trust Company (Cayman) Ltd case, which went all the way to the Privy Council on appeal. The case explored the concepts of the delegation and nature of reserved powers in relation to two Cayman Islands trusts.

The facts in brief were that the settlor was declared bankrupt as a result of a foreign judgment debt arising from certain fraudulent activities while the settlor was a director of various companies connected to an insolvent Turkish bank. The Cayman court of first instance and the Cayman Islands Court of Appeal rejected the argument asserted by the settlor's trustee in bankruptcy that a power of revocation was akin to a property right, such that it could be delegated to the trustee in bankruptcy to exercise the power to revoke the trusts, thus bringing them within the settlor's estate. The conclusion was that powers are not akin to property as a matter of common law, and unless and until legislation addressed the point directly, it would remain so in the Cayman Islands.

The Privy Council, however, formed quite a different and unexpected view when it determined that, in the interests of justice, the incremental expansion of the concept of equitable execution was warranted in this case, and there was no absolute distinction between powers and property. The trustee in bankruptcy thus ultimately prevailed. While on strict legal principles the Privy Council's decision may seem unorthodox, the facts of the case were so extreme that they probably swayed the judges to stretch these relatively settled legal concepts in the quest for justice.

It appears that the main lesson to be learned here for settlors (and their advisors) is to avoid reserving unqualified powers of revocation (and amendment/appointment, for that matter) where it is possible that a settlor's creditors may seek to bankrupt a settlor.

The next decision holds lessons for fiduciaries generally and needs to be borne in mind by trustees and executors alike. In Weavering Macro Fixed Income Ltd (In Liquidation) v Peterson and Ekstrom, the directors of a corporate investment fund had failed to apply their minds to the activities of the company and were essentially puppets of the investment manager. They took orders from the investment manager and rubber-stamped any documents put before them for over six years while offering no form of effective supervisory role. The fund collapsed and the directors were found personally liable for neglect. The lesson? That the duties of a fiduciary are onerous and require independent thought and careful consideration.

PCA winner

Appleby collected the International Legal Team of the Year award at the STEP Private Client Awards 2011/12. The judges said the firm stood out for being 'highly client-driven with an emphasis on providing holistic advice encapsulated by a focus on achieving "trusted advisor" status'.

The practice has multi-jurisdictional capabilities providing private client and trust advice in all three Crown Dependencies as well as Bermuda, the British Virgin Islands (BVI), the Cayman Islands and Mauritius. Its lawyers work in cross-jurisdictional teams with a focus on rapid response and regular contact with clients.

The PCA judges also underscored the firm's 'innovative and insightful approach to the international requirements of its clients'. In 2010/11, Appleby set up an in-house ideas group for its trust lawyers to encourage team members to share thoughts for new solution-led products and services. And it launched a major precedents review project to further improve client service.

The firm has seen strong growth and recent key achievements include being retained by HSBC Bank of Bermuda to advise on the transfer of its Cayman trust business to Bermuda, and advising Cayman National Trust about establishing an Isle of Man, BVI and Cayman trust structure to implement an IHT tax mitigation scheme.

Appleby's Private Client and Trusts Practice Group Head Carlos de Serpa Pimentel said: 'We are delighted to have been recognised for our work in the private client area, which is further testament to the hard work and dedication of our global team.'

Enter the STEP Private Client Awards 2012/13. Nominations open on 1 March.


Last year was a comparatively quiet one for legislative change in the Guernsey trust profession, but a few developments are worth noting. First, the Guernsey Financial Services Commission's Retirement Annuity Trust Scheme Rules took effect in January 2011. They apply to trustees and insurance intermediaries who provide services to retirement annuity trust schemes. The rules cover advice provided to scheme members, scheme investments, and the gearing of scheme assets, among other administrative matters.

The Guernsey Association of Pension Providers launched its code of conduct for trustees of qualifying recognised overseas pension schemes (QROPS). The voluntary code is aimed at QROPS established as local retirement annuity trust schemes, but some principles may also be applied to those established as occupational pension schemes. The code covers transfers in and additional contributions, investments and tax advice, benefits, transfers out and member relations. The sector's high standards, as illustrated by this voluntary code, were reflected in HMRC statistics that showed 32 per cent of all pension transfers out of the UK during the first six months of 2011 were into QROPS based in Guernsey, more than any other jurisdiction.

While Guernsey's tax regime has not directly been the subject of review by the EU Code of Conduct Group on Business Taxation, the island's government has been monitoring the work of the group with a view to evaluating options during 2012. In 2011, Guernsey signed TIEAs with Argentina, Bahamas, Canada, the Cayman Islands, Czech Republic, Indonesia, Mexico, Romania, Slovenia and South Africa, bringing its total to 29.

The Guernsey Financial Services Commission has expanded the list of appendix C countries, whose authorised financial services businesses may be treated as if they were local, to include Bulgaria, Estonia, Latvia, Lithuania and Liechtenstein.

The Commission's new Code of Corporate Governance took effect from January. It is not prescriptive and recognises that different firms will achieve its principles in different ways depending upon the nature, scale and size of each business.

Turning to the future, the proposed Foundations (Guernsey) Law was the subject of a public consultation in April, and is now at an advanced stage. The structure of the proposed law is akin to foundation legislation in civil law jurisdictions, such as Liechtenstein, namely a short primary law with separate schedules dealing with administrative matters.

Isle of Man

One of the most significant developments in the Isle of Man last year was the abolition of the attribution regime for individuals (ARI). ARI was introduced in the Isle of Man for companies with accounting periods commencing after 6 April 2008. It applies to resident Isle of Man individuals who have a shareholding in an Isle of Man resident company, who are then charged income tax on their share of the attributed profits from that company.

Since 0 per cent corporate tax was introduced on the Isle of Man as part of the zero-ten regime, it was felt that there was a need to discourage Isle of Man-based taxpayers from protecting their personal income in 0 per cent taxed companies. ARI did this by requiring Manx resident shareholders to pay income tax on their share of a Manx company's income.

ARI will now be abolished with effect for accounting periods commencing after 6 April 2012. This decision comes after the ARI regime was deemed to be harmful by the European Union's Code of Conduct Group for business taxation.

Concerns have been expressed that, without specific anti-avoidance rules, wealthy individuals may channel their investments through Isle of Man companies, resulting in a significant loss of tax. Whether the assessor can, or even should, enforce anti-avoidance legislation remains to be seen.

In November 2011, the Foundations Act received Royal Assent, enabling the establishment of Isle of Man-based foundations. These will have many uses, ranging from estate planning to philanthropy, and will provide an alternative to trusts as vehicles for holding assets. Like a company, the Manx foundation will have a separate legal personality with the ability to manage and own assets, as well as being able to arrange for its own funding. It is hoped this new vehicle will appeal to clients and practitioners in civil-law jurisdictions who may have been uncomfortable with common-law trusts, and will add to the variety and number of products available, thereby opening up new business opportunities.

Another double-taxation agreement was signed, with Bahrain, in light of the continuing pressure to have attractive business taxation regimes for companies. This is in addition to the full double-taxation treaties with the UK, Belgium, Malta and Estonia and a number of treaties concerning the taxation of individuals.

Private trust business remains limited and there is a greater focus on bespoke planning for higher-value clients. But pensions business continues to be strong, especially the establishment and operation of QROPS for clients transferring pension funds from the UK. This has been enhanced by the new 's50C scheme'.


Jersey saw a number of developments in 2011, in both draft legislation and seminal judgments being handed down.

The draft Trusts (Jersey) (Number 5 Amendment) Law was approved and will soon come into force. Trustees can look forward to clarification of the meaning of 'purpose' in the context of non-charitable purpose trusts, provision for professional trustees to be paid where the trust deed is silent, confirmation that a trustee can contract with itself, albeit in different capacities, and a new provision that allows retired trustees to enforce covenants in their favour even if they were not parties to the deed. Amendments have also been made to the applicable limitation periods in respect of breach of trusts, and article 9, which limits the application of foreign law to Jersey law trusts, has been tightened up.

Another key piece of legislation is the draft Charitable Purposes (Jersey) Law 201-. The introduction of a modern definition of charity is considered well overdue in Jersey and, if the law is adopted, 'charitable purposes' will be defined more broadly. The draft law is based on the Charities and Trustee Investment (Scotland) Act 2005 and contains a long list of purposes that are to be regarded as charitable, including 'the advancement of citizenship or community development'. For a purpose to be charitable it must be for public benefit, but there is no definition of public benefit. An organisation cannot count as charitable if it exists for the advancement of a political party or if its constitution allows it to pursue both charitable and non-charitable purposes.

Turning to case law, the Royal Court heard In the matter of the Representation of R [2011] JRC 117. This was the first case following the decision in Pitt v Holt [2011] EWCA Civ 197 where it was presented with the opportunity to revisit the Jersey approach to the law of mistake in light of judicial developments in England. The case of Pitt v Holt considered the equitable principles under English law for avoiding a voluntary disposition entered into under a mistake.

The Court of Appeal held that to be voidable under English law a mistake must relate to the legal 'effect' of a transaction; it is not sufficient for a transaction to be set aside because of a mistake about its 'consequences'. It stated that the case of Re A [2009], in which the Royal Court had ruled that a transaction could be set aside under Jersey law on the basis of a mistake as to the tax consequences of the transaction, was 'a great deal too relaxed'.

The Royal Court declined to follow the English position, so it remains the position under Jersey law that a voluntary disposition, including a transfer of assets into trust, can be set aside by a donor on the basis that the transaction was entered into under a mistake as to the consequences of the transaction.

Legislative changes and key judgments offshore in 2011


  • The Exempted Undertakings Tax Protection Amendment Act 2011
  • The Specified Business Legislation Amendment Act 2011


  • TMSF v Merrill Lynch Bank and Trust Company (Cayman) Ltd
  • Weavering Macro Fixed Income Limited (In Liquidation) v Peterson and Ekstrom


  • The Guernsey Financial Services Commission's retirement annuity trust scheme rules
  • Guernsey Association of Pension Providers code of conduct for trustees of qualifying recognised overseas pension schemes
  • Guernsey Financial Services Commission new Code of Corporate Governance


  • Abolition of the attribution regime for individuals
  • Foundations Act


  • The draft Trusts (Jersey) (Number 5 Amendment) Law
  • The draft Charitable Purposes (Jersey) Law 201-
  • In the matter of the Representation of R [2011] JRC 117

Originally published in Step Journal.

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