Cayman Islands: Five Reasons For Placing One's Trust In – Well, Trusts

Last Updated: 29 September 2016
Article by David Cooney

This article first appeared in International Investment

Many people are baffled by trusts, the purpose of which they don't fully comprehend. Some even regard them with suspicion, as tools of of opaque tax evasion strategies of a type favoured by wealthy individuals.

Here, David Cooney, partner and head of Private Client & Trusts with Ogier's Cayman Islands office details five reasons they remain an essential tool in wealth managers' tool kits, none of which has to do with tax evasion.

For many the word "trust", when used to describe a type of asset-holding device, has recently become synonymous with "tax reduction", or even "avoidance." This perception, in fact, has driven changes to trust legislation around the world.

In some cases the changes have introduced taxes on trusts, their settlors and even their beneficiaries that can only be described as penal.

In 2011, for example, France introduced rules which treat a beneficiary of a discretionary trust – despite having no vested interest in the trust income or capital – as the "settlor" of that trust. And as a "deemed settlor", that beneficiary is liable to pay tax in France, calculated by reference to the value of the trust fund, even though that beneficiary may never receive anything from it.

Yet in spite of such changes, trusts continue to be used by many of the world's wealthiest families, because, in actual fact, trust planning is rarely all about tax planning.

Here, we look at five reasons why the trust is still alive and well, in spite of the usually well-intentioned but typically uninformed efforts of lawmakers to use it as a tool for going after wealthy tax evaders.

1. Probate avoidance

In most places, if someone dies while owning an asset, there is a formal process to follow. In the common law world, such as the UK and its overseas territories, this involves obtaining a Grant of Representation (called a Grant of Probate if the deceased left a valid will).

In some places this post-death process is very quick. In other places, it takes months to complete, and is an expensive and complicated process. Assets can be, and often are, frozen while the Grant of Representation is obtained; but this can be problematic where volatile investment assets are owned, as values can fall dramatically while those due to inherit are forced to wait for the Grant of Representation to be processed.

Trusts, though, allow these time-consuming post-death processes to be avoided.

If a person sets up a trust in their lifetime and puts their assets into that trust, when they die, the trustee of the trust is then seen to own those assets, and so a Grant of Representation is not required with respect to them. A Grant might still be required for any of the deceased's assets that weren't included in that, or any other, trust.

Interestingly, this strategy is much-used in the Cayman Islands, one of the world's most popular investment fund domiciles. Here, it's extremely common for investors to set up trusts to own their investments in funds, with the sole purpose of avoiding the need for a Grant of Representation upon their death.

2. Succession Planning

Family businesses often struggle, and sometimes fail, after the head of the family which owns them dies, and the business passes to the next generation.

Although there are many reasons why this might happen, one that lawyers see fairly often is when the succession planning is not considered during the life of the matriarch or patriarch. Typically, it's only after the death of the first generation that the second generation begins to take a role in the running of the family enterprise, and the management of the family wealth.
And all too often, this second generation lacks the skills and experience to do so properly.

Trusts can provide a solution to this common problem, by enabling the second generation to begin getting involved in the family business while the family's matriarch or patriarch is still alive.

The nature of the role played by the second generation will depend on the level of control that the first generation are happy to cede. One arrangement that seems to work well is when the second generation is made part of an "advisory council" to the business. In this role they can be given specific roles and responsibilities, the nature of which can change as they settle into their new roles.

3. Ownership and Control

Another use for trusts that also has to do with family businesses comes into play when the second generation wants an assurance that they, and not some outside party, will receive the family business when the first generation dies.

This matters because the second generation typically want to make sure that the time they devote to the business's development while the first generation is still on the scene – which can span decades, during which they might be building a career elsewhere – will not have been wasted.

At the same time, an elderly matriarch or patriarch may be reluctant to give up control of the business during their lifetime, as this comes with a (perceived or actual) loss of social and familial status.

Trusts, which allow for ownership and control to be separated, can be the perfect solution in such cases. The matriarch or patriarch can retain a significant degree of control over the family business, while allowing the second generation to benefit from the certainty of knowing that the business will be preserved for them.

4. Privacy

According to Privacy International, privacy is "a fundamental right...[to]...protect ourselves from unwarranted interference in our lives".

It is not, contrary to much commentary in the wake of the Panama Papers revelations earlier this year, about avoiding tax, nor is it about committing crimes.

There are a growing number of international initiatives in place, or in an advanced stage of development, which address concerns that trust structures are being used to mask criminal activity and to avoid or evade tax payments. These include the American FATCA regulations, those of the UK and other countries which are modeled on them, the OECD's Common Reporting Standard, and (non-public) registers of beneficial ownership.

As some of the debate surrounding the creation of beneficial ownership registers has shown, privacy is widely regarded as a fundamental right, even though there are those who would see it take a back seat to the public's "need" to know who owns what.

For now, at least, trusts continue to be used by some individuals keen to preserve the privacy of their holdings. The way it works is that the Trustee is the owner of the assets held within the Trust; the deed or document establishing the trust is a private arrangement between the parties to it.

Many high net worth families transfer their assets to trusts for the simple reason that they don't want others to know what assets they own, or where those assets are.

Critics of this right to privacy would argue that those asserting the right are only trying to avoid tax, and while I'm not going to pretend that this has never happened (as it has with structures throughout the onshore world, too), what we at Ogier see are ultra-high net worth families for whom kidnap and extortion are genuine and significant risks looking to reduce those risks. This is particularly true in certain parts of the world, such as Mexico and Latin America.

In other cases, UHNW families desire privacy because they, (commendably, many people would say), wish to shield their children from the reality of the family's true wealth until such time as the children are old enough to be able to understand and deal with the implications of that wealth.

While we live in an age in which people are accustomed to the idea that it's normal to share even the most minute details of their everyday lives on social media, it is important to remember that this is a fairly recent development, and not necessarily one that everyone wants applied to all aspects of their lives – as professional wrestler Hulk Hogan argued recently, and successfully, in court, against Gawker Media Group. (Hogan argued that his privacy had been invaded by the organisation's coverage of his private life.)

5. Organisation

Many of the world's biggest and most successful family businesses have operations in multiple jurisdictions, operate across multiple industries, and involve multiple generations of the founding family in key roles. They are very complicated operations.

Trusts are often used as the ultimate owning entities for these complicated structures. Under such arrangements, the Trustee has an oversight role, in respect of the activities of the underlying companies.

The Trustee can, for example, assist with the movement of capital around the structure, so that it reaches areas of the business where that capital is needed.

The Trustee can also ensure that family members are involved in the business or businesses in a way that best utilises their individual skills and helps them to develop new ones. He or she can also ensure that capital and income can be distributed from the structure, for the benefit of any family members who might need it.

Linked to this concept of organising family businesses through trusts is a growing trend towards families setting up "Family Funds". A Family Fund is the name given to an entity – usually a limited company – which is established to operate like a mutual/investment fund.

Multiple members of the same family come together to pool their assets within the fund structure; they appoint an investment manager; and then they seek to maximise their returns, reducing costs through the economies of scale that arise out of the pooling of their assets.

In many cases a trust holds the management (voting) shares in the Family Fund. This allows the Trustee to control the decision making within the Fund. The family members each own participating shares, which entitle them to share in any income distributions or capital gains.


In short, then, for as long as trusts can be established in a manner that does not attract penal taxation, trusts will continue to be widely used in the planning arrangements of high-net-worth families around the world.

The many benefits of using trusts have long been known to the people who use them to hold their family wealth; and in many cases, there is no viable alternative to the trust in achieving a client's goals. Hopefully, lawmakers around the world will realise this, in the months and years ahead, as they continue to try to find ways to end tax evasion that actually work.

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

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”

Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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