Cayman Islands: Trusts

Last Updated: 15 November 2005

Definition
Legally - A Trust arises when a person (called "the Settlor") places a binding obligation, duty or aggregate accumulation of binding obligations and duties upon another person (called "the Trustee") to deal with property of whatever nature, type and description which the Trustee has in his or its possession and over which he or it has control (called "the Trust Property") for the benefit of an identifiable person or class of person, charitable or otherwise (called "the Beneficiaries") of whom the Settlor may be one, and by which any obligation or duty so placed may be enforced by the Beneficiaries; and

Simply - Placing property under the management and control of another for the benefit of an identifiable person or class of persons, which may include the person transferring the property.

Forms of Instrument
The instrument may take the form of a strict Settlement (made between the Settlor and the Trustee) or may be in the form of a Declaration of Trust by the Trustee, and may provide for the usual limited interests in succession, i.e. life tenants, annuitants, interests during the lifetime of another (interests pur autre vie) and remaindermen.However, tax planning requirements of high tax countries often require that a trust be discretionary in nature and that it contain powers of accumulating income. The Trustee can be given power to invest the trust funds with complete flexibility and all income and gains can be accumulated tax free in the Cayman Islands until such time as it is expedient to make a distribution to the beneficiaries. Often, persons setting up trusts will also set up a company to hold the cash or other property that it is intended to settle so that the sole asset of the trust is the issued capital of, and possibly loans by the Trustee to, the company.

Uses
(A) To protect assets from being attacked by possible law suits.This type of use has led to the establishment of what is called an Asset Protection Trust which has proved to be very effective when properly created.
(B) As a means of avoiding or mitigating the effect of burdensome laws and regulations, particularly those of countries imposing heavy taxes and death duties and exchange control regulations;
(C) To enable real or personal property to be held for persons who, for one reason or another, cannot or do not wish to hold and/or manage such property themselves;
(D)To make provision for dependents, friends and families privately; persons living in jurisdictions whose laws require a certain portion of their assets to be left to members of the family, e.g. Latin American countries, may establish trusts in the Cayman Islands which are not subject to forced heirship provisions of their country of residence or domicile. Since 1987 the Trusts Law allows a trust to expressly select its governing law and jurisdiction. Persons changing their country of residence or domicile or changing their citizenship may establish a trust prior to changing residence, domicile or citizenship and enjoy considerable advantages, particularly in relation to death duties.
(E) To preserve property so that it can benefit a person or class of persons in succession;
(F) To protect family property from spendthrifts;
(G) To provide for the education of family and friends;
(H) To make a gift in the future and to provide for family members in the circumstances which have or have not yet arisen;
(I) To own trading or investment companies;
(J) To enable two or more persons to hold land;
(K) To provide pension schemes for employees and their dependents;
(L) To make investment through skilled persons, thus freeing time for other business;
(M) To minimise the incidence of income tax, capital gains tax, transfer tax, estate duty and other forms of taxation imposed in high tax countries.

Classification of Trusts
Trusts can be broadly classified in the following categories:-

(a) those created by statute;
(b) those created intentionally by the act of parties;
(c) those impliedly arising from the presumed intention of parties; and
(d) those arising by operation of law, e.g. constructive trusts.

Trusts are either inter vivos (i.e. created during the Settlor's lifetime) or testamentary (created by will).

Usual Method of Creation
In the Cayman Islands, trusts are usually created by a deed made by the Settlor and the Trustee or by a declaration made by the Trustee only.

These trusts may be discretionary in nature, that is:-
(1)giving the Trustee a discretion as to which beneficiaries and the amounts by which such beneficiaries or any of them will benefit under the Trust;
or fixed in nature, that is:-
(2)allowing the Trustee no discretion as to which beneficiaries may so benefit or the amount of the benefit each is to receive;

A Declaration of Trust provides complete anonymity as to the source providing the Trust with its assets.

Tax Planning
Tax legislation in the metropolitan countries is often aimed at reducing or eliminating the tax advantages of foreign trusts. The United Kingdom, Canada and the United States all have anti-avoidance legislation that is directed at trusts created in tax-free jurisdictions. Competent tax advice should always be an integral part of the creation of a trust.

Regulation of Trusts in the Cayman Islands
The creation and operation of settlements and trusts is governed by the Trusts Law and by English Common Law principles. The Law is based on the English Trustee Act 1925 and contains also provisions based on the English Variation of Trusts Act 1958.

Keeping Anonymous While Remaining in Control of a Trust
An attorney can advise on methods by which a Settlor may remain completely anonymous but still be able to maintain some degree of influence or control over trusts which have been created.

Protectors
It is possible for trusts to provide for the appointment of persons who are called Protectors and who will give investment and other advice to Trustees.

These persons may or may not be considered to be Co-Trustees, depending on the particular circumstances. It is possible to provide that certain powers set out in a trust document cannot be exercised by the Trustee without the consent of the Protector.

The Rule against Perpetuities
The common law rule against perpetuities was abolished with effect from 1st August, 1995, in respect of instruments coming into effect after that date, but not dispositions made in exercising special powers of appointment created before that date.

Perpetuity Period
There is a statutory limit of 150 years on the perpetuity period applicable to a disposition of property and on the power to accumulate income.The maximum period that a trust may last is therefore 150 years.

Wait and See Rule
Generally, there is now a "wait and see" rule; a disposition is not void merely because it can take effect outside of the perpetuity period. Until the end of that period, a disposition is treated as if it is not subject to the rule against perpetuities. If it becomes void for perpetuity, nothing done previously in relation to it by way of advancement, application of intermediate income or otherwise is invalid.

Foreign Element
Under the Trusts Law:-

(a) a term in a trust expressly selecting Cayman Islands law to govern the trust, or a particular aspect of the trust, or selecting the courts of the Islands to be the forum for administering the trust is valid, effective and conclusive.

b) if a trust so provides, its governing law may be changed to or from the laws of the Islands.

(c) subject to certain provisos, all questions arising in regard to a trust governed by Cayman Islands law or in regard to dispositions of property under that trust, including:-
i. the settlor's capacity; and
ii. any aspect of its validity, interpretation or effect; and
iii. questions as to rights, liabilities, powers and obligations of trustees and their appointment and removal are to be determined by Cayman Islands law.

(d) Subject to the same provisos as in (c), no trust governed by Cayman Islands law is void, voidable or liable to be set aside, nor is the capacity of the settlor to be questioned, nor is any person to be subjected to any liability or deprived of any right because
i. the laws of a foreign jurisdiction prohibit or do not recognize the concept of a trust;
ii. the trust avoids or defeats foreign heirship rights.

A foreign judgment is not recognized and will not be enforced or give rise to any estoppel in so far as it is inconsistent with the provisions of the law dealing with exclusion of foreign law and heirship rights.

(e) The Law does not validate a testamentary trust of property which is invalid under the law of the testator's domicile.

The Cayman courts will apply the statute to property over which it has jurisdiction, but if property which is the subject of a dispute is situate outside of the Islands, the courts of the country in which they are located may apply its own conflict of laws rules and disregard Cayman law. Before putting property into a trust, it would be best to move it where possible (e.g. money, jewellery, art work) to the Cayman Islands or transfer it (e.g. shares, land) to a Cayman company and settle the shares of that company on trust. Even then, a foreign court may disregard the existence of the company, and Cayman law.

Exempted Trusts
The Trusts Law of the Cayman Islands provides for the creation of a type of trust known as an "Exempted Trust". Such a trust may obtain from the Governor of the Cayman Islands an undertaking that, should tax of an income or capital nature ever be introduced in these Islands, the Exempted Trust will not be subject to such tax for fifty years from the date of its creation.

Requirements for the establishment of an Exempted Trust are:-

(a) the Trust must be discretionary in nature;
(b) beneficiaries must not include Cayman residents, except charities; and
(c) the form of the trust deed must first be approved by the Registrar of Trusts.

It is possible to create an Exempted Trust by first having a draft of the deed approved, or by applying to register an already existing trust.

The Fraudulent Dispositions Law
This Law applies in place of the law in effect previously, i.e. Section 107 of the Bankruptcy Law and the English Statute of Elizabeth. A creditor who is prejudiced may set aside a disposition made

(a) at an undervalue, and
(b) with an intent to defraud.

Both characteristics are essential. The property disposed of may be Caymanian or foreign property. The creditor must bring his action within six years of the date of the disposition. "Intent to defraud" means an intention of a transferor wilfully to defeat an obligation owed to a creditor, and "obligation" means an obligation or liability (including a contingent liability) which existed on or before the date of a relevant disposition and of which the transferor had notice. The Law does not require notice to be "actual", so presumably constructive notice suffices. A creditor must therefore exist at the time of the disposition and the transferor must have notice of his claim. The burden of proving intent to defraud is on the creditor seeking to set the disposition aside.

Because contingent liabilities are included, a transferor is not protected if at the time he disposes of property he is subject to

(a) a claim by a third party (e.g. for negligence as the result of a motor car accident); or
(b) liability under a guarantee, even if no demand has been made or could be made (because there has been no default by the principal obligor).

The transferor's solvency is not stated to be a relevant factor. It is probably reasonable to draw the inference that where an insolvent transferor disposes of property at an undervalue he does so with intent to defraud, but the Law contains no presumption to that effect.

If a disposition is set aside,

(a) a transferee (e.g. trustee) who has acted in good faith has a first charge over the property for his entire costs properly incurred in defending the action (not limited to costs which might otherwise have been allowed by the Court);
(b) a beneficiary who has acted in good faith may retain any distribution properly made to him before the disposition is set aside.

Services Available
There are a number of trust companies in the Cayman Islands which provide trustee services. A schedule of fees can usually be obtained from each trust company.

Fees
The stamp duty on trusts and the registration and annual fees payable on Exempted Trusts are fixed and are not based on the asset value of the trusts.

We recommend that every individual/ entity should seek expert advice from an attorney-at-law or other professional in their country of domicile or residence prior to conducting any form of business in the Cayman Islands.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions