Cayman Islands: At A Glance: Trusts

The Cayman Islands is one of the leading international centres for the creation and administration of trust structures. The country's trust industry has kept pace over the years due to a number of important factors. The Cayman Islands has a solid Trust Law, it led the way with the creation of the Special Trusts Alternative Regime ('STAR'), it provides for the licensing of Private Trust Companies (PTCs), and has more recently introduced a registered but not licensed PTC regime. The jurisdiction is also home to some of the most talented and forward thinking trust professionals.

TRUSTS LAW

In the Cayman Islands, as in England, the law of trusts is not statute-based but primarily grounded in rules of common law and equity. These are supplemented by local statutes including the Trusts Law (2011 Revision), which incorporates the previously separate statutes The Trusts (Foreign Element) Law, STAR Law and the Trusts (Amendment) (Immediate Effect and Reserved Powers) Law.

Cayman Islands' trust law continues to evolve through judicial decisions relating to issues that are at the forefront of legal development in this field. The islands' robust trust legislation is supported by a strong and independent local judiciary. Private and public sectors are continuously reviewing and updating legislation so it remains current and viable.

TAX NEUTRALITY

The Cayman Islands is a tax neutral jurisdiction. There has never been any direct taxation in the Cayman Islands, the only fiscal impositions being stamp duty and import duty. A trust can be registered as an "Exempted Trust" and obtain an undertaking from the Governor in Cabinet which exempts the trust from risk to future taxation for 50 years.

CATEGORY OF TRUSTS

In addition to traditional wealth planning, Cayman Islands trusts are used extensively in capital markets transactions and structured finance deals. Cayman Islands trusts can be divided into the following conceptual categories (which are not necessarily mutually exclusive):

  • Unit Trusts
  • Pension Trusts
  • Security and Securitisation Trusts
  • Private Trusts
  • Charitable Trusts
  • STAR Trusts
  • Exempted Trusts
  • Reserved Powers Trusts
  • Forced Heirship Planning Trusts

STAR TRUSTS

A STAR trust can be established for any purpose, provided it is lawful and not against public policy. They create innovative trust planning opportunities and advocates of STAR trusts continue to find new uses for this regime in their planning. There are a number of features that distinguish the STAR provisions from the purpose trust legislation of other jurisdictions. These include:

  • the objects of a STAR trust may be persons or purposes, the persons may be of any number and the purposes may be of any number or kind, charitable or non-charitable, provided they are lawful and not contrary to public policy. This differentiates from the position in other jurisdictions where it must be decided whether a trust is a purpose trust or a person trust before deciding whether the purpose trust law applies.
  • the rule against perpetuities, which limits other types of trusts in the Cayman Islands to the statutory perpetuity period of 150 years, does not apply to a STAR trust and therefore a STAR trust can have perpetual existence.
  • the STAR provisions stipulate that a STAR trust is not rendered void by uncertainty as to its objects or mode of execution. It allows the trust deed to give the trustee or any other person power to resolve an uncertainty as to its objects or mode of execution.
  • the STAR provisions deal comprehensively with the issue of enforcers. They provide that the only persons who have standing to enforce a STAR trust are such persons, whether or not beneficiaries, as are appointed to be enforcers by the terms of the trust deed, or in certain circumstances by order of the court. Therefore beneficiaries who are not enforcers have no right to enforce the trust or to obtain information regarding the trust.

REGULATION

Trust Companies in the Cayman Islands are regulated by CIMA through the various licenses granted and registrations required. Generally, there are two types of licenses granted to trustees carrying on a trust business in Cayman:

  • A full trust license entitles the holder to provide trustee services to the public generally.
  • A restricted trust license is issued subject to the condition that the trust business is limited to certain named clients. A Restricted Licence Trust Company is restricted to acting as trustee to specific named trusts that are for related parties or a specific group. All directors and senior officers (including any changes after licensing) must be approved by CIMA.

FUTURE LEGISLATION

The Cayman Islands have a record of enacting innovative and forward-looking legislation. The Government continues to demonstrate responsiveness to the needs of the financial industry and there is a broad on-going commitment to enact further legislation in the trust and related areas.

The expert service providers in the Cayman Islands can assist stakeholders with an efficient and effective strategy to establish or move structures to the jurisdiction.

Produced with kind assistance from the Society of Trust & Estate Practicioners (STEP).

Licensees/Registrations under the Fiduciary Services Division

Statistics source: Cayman Islands Monetary Authority (CIMA)

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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