More and more, ultra high net worth families are looking at the flexibility and economic benefits of establishing their own private trust companies (PTCs) to serve as trustee of one or more of their family trusts. To be established in the Cayman Islands, a PTC is required to be regulated or registered by the Cayman Islands Monetary Authority (CIMA).
PTCs are a good option for very wealthy families who wish to retain a high degree of confidentiality or who may want to retain some control over the trust's administration. Also, some settlors, particularly those who may be resident in civil law jurisdictions and not familiar with trusts and the role of trustees, may prefer to use a PTC in the trust structure, appointing family members on to the board of directors of the PTC.
A PTC may be tailored to reflect the settlor's wishes and the scope of its role as trustee may be bespoke. This may not be the case if an institutional trustee is appointed which may not have a detailed knowledge of the family's affairs or the ability to coordinate effectively the trust's administration with the family and its family office or advisers.
There are two categories of PTCs in the Cayman Islands: (1) Licensed PTCs and (2) Registered PTCs established under the Private Trust Company Regulations (2008). Registered PTCs are more lightly regulated and are not required to obtain a Restricted Trust Licence from CIMA. This is the most common form of PTC in the Cayman Islands, suitable for most clients' purposes. Occasionally, a client will wish to establish a PTC with the benefit of a full Restricted Licence; this type of PTC is subject to direct regulatory oversight by CIMA.
A Registered PTC must maintain its registered office at a company which holds a trust licence under the Banks and Trust Companies Law, that is at a licensed Cayman Islands trust company.
A Registered PTC may be incorporated as either an Ordinary or an Exempted Company depending on the client's requirements. An Exempted Company is most commonly used for private trust companies. The advantages of an Exempted Company are as follows:
- the Company may receive a renewable guarantee from the Government that it will not be taxed for 20 years after incorporation should the laws of the Cayman Islands be changed to impose tax (and there are no indications that this is likely);
- it is permitted shares of no par value;
- the name of the PTC need not include the word "Limited" or "Ltd.". The requirements for registration of a Registered PTC include the provision of the following to CIMA:
- an annual declaration, confirming:
- the of the PTC;
- the names of the directors of the PTC;
- the name of the holder of the trust licence providing the registered office of the PTC or the address of the PTC's place of business;
- the company is a PTC;
- the PTC complies with the requirements of the Regulations.
- the directors and senior officers of a Registered PTC are not required to be approved by CIMA. However, clients may be asked to provide the names and professional biographies of proposed directors. It is advisable that at least one of the directors have knowledge and experience in trust business. If not, clients may consider appointing an adviser to the board of directors who has trust administration experience.
- the name of the PTC must include the words "Private Trust Company" or the letters "PTC".
- there is no minimum net worth requirement.
- a Registered PTC is not required by CIMA to have audited accounts, although clients should maintain unaudited accounts of both the PTC and any underlying trusts for good corporate governance and in order to comply with the Trusts Law.
The shares of a PTC are commonly held by one or more individuals who may be the settlor or members of his family, or by a company limited by guarantee or in a trust. It is not unusual for a purpose trust, such as a Cayman Islands STAR Trust, to be used to hold the shares of a PTC. STAR trusts are indefinite in duration and so the ownership structure of the PTC need not change, which may be appealing to the settlor and his family for reasons of continuity.
A Registered PTC may only carry out trust business on behalf of "connected persons". A Registered PTC cannot administer trusts on behalf of third parties or the general public. The PTC may only administer trusts that fall within the scope of the definition of "connected persons" under the Regulations. CIMA should be notified of any significant change in the scope of business after registration.
There is an initial registration fee of CI$7,000 payable to CIMA and thereafter an annual fee of CI$7,000. It normally takes approximately 3-4 business days to complete all aspects of establishing a Registered PTC. In some cases, certain aspects of the process may be expedited.IN
Originally published in Cayman Finance Magazine, 2015-2016, Issue 2
About the Author
Robert Lindley is a senior associate with the Private Client & Trusts and Dispute Resolution practice groups at Appleby. He specialises in contentious and non-contentious trust and private client matters, advising on a wide range of Cayman Islands and BVI structures and issues of dispute.
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.