Charitable trusts are well recognised in many jurisdictions but
they do come with some drawbacks. The Cayman Islands, like
Jersey and Guernsey amongst a limited number of jurisdictions
around the world, has introduced a special form of trust which can
be used to provide a flexible alternative to a philanthropic
While there are often onshore tax advantages to the person
setting a charitable trust, to qualify as “charitable”
both the purposes for which it is established and the activities
which it undertakes will need to satisfy an often very specific and
narrow definition. Beyond that, once it is established, the
regulatory and reporting requirements which charitable trusts have
to meet are often burdensome.
Trusts which are established for non-charitable purposes are not
generally recognised and are typically invalid due to issues over
how they would be enforced. Therefore, if the trust’s
purposes are philanthropic but do not meet the strict definition of
charitable under the relevant onshore law then problems can
The Cayman Islands was the first jurisdiction to introduce
non-charitable purpose trusts, known as STAR trusts, by specific
legislation partly as a result of a client-driven demand for
flexible philanthropic structures. Arguably the most
significant innovation of the STAR trust is the creation of the
role of an "enforcer" who has a statutory duty to enforce
the terms of the trust. The introduction of the role of
enforcer provides a neat solution to the question of who, in the
absence of beneficiaries, will hold the trustee of a non-charitable
purpose trust to account and therefore allowing it to be a valid
Linked to the growth of philanthropic giving is operating a
social enterprise; that is a business whose primary purpose is
social impact, not profit generation. No matter what the
social entrepreneur’s motivations are, a properly drafted
STAR trust is the ideal vehicle to implement this idea and this is
an increasingly popular use for the vehicle.
One of the reasons for this is that STAR trusts often include a
business plan hardwired into the trust’s
“purposes”. In the context of a social enterprise
this business plan can include rules on where, geographically, the
organisation operates, the nature of the materials it uses (e.g.
organic or locally sourced) and it can even include a high level
philanthropic strategy to help guide the distribution of
profits. A key attraction of adopting this approach is that
the STAR trust’s reason for existing will be the furtherance
of the purposes. If the purposes include the business plan,
and the business plan captures the philanthropic aims of the social
enterprise, then those philanthropic aims are integral to the
existence of the trust itself. There are no profit-seeking
shareholders and no beneficiary interests to detract from the
philanthropic aims of the structure.
STAR trusts are now well established as a tool for dynastic and
business succession planning as well as in a wide variety of
commercial and funds contexts. The flexibility which makes
them attractive in these contexts also makes them ideally suited to
use by philanthropists who are constrained by more traditional,
particularly charitable, solutions.
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.
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