Wealthy individuals are frequently understandably reluctant to hand over total control of their assets to others. In these circumstances the creation of a private trustee company ("PTC") in Bermuda, to act as trustee of the family or (corporate) group trusts, provides an effective solution at a reasonable level of cost. A company having the power to act as trustee over a particular trust or group of related trusts is incorporated. The client, or his family, or appropriate group executives can influence policy and assist with investment decisions by serving on the board of directors of the PTC or on an advisory committee to the Board or under contract with the PTC. This also allows professional advisers to be involved as directors and/ or company administrators, rather than as personal trustees, where potential liability can be substantial (i.e. where high risk assets or trading operations are owned by the trust).

It is often, for tax or privacy reasons, undesirable for the individual or family or group for whom the trusts underneath the PTC are set up to be its direct owner. A structure whereby a Bermuda purpose trust, (see 6.4 infra) owns the shares in the PTC can be very effective. A purpose trust, formed for the purpose of providing trustee services through a PTC has no beneficiary, (other than on occasion a residual beneficiary to receive surplus assets on termination of the trust) and offers an excellent "holding" vehicle. The company name of the PTC may include the words "Trust" or "Trustee" provided they are qualified by the word "Private" or the abbreviation "Pvt". Such a structure will enable an individual or family to exercise a degree of control under confidential conditions without adversely affecting the legal integrity of the trust principle.

The PTC em also offer cost-savings in relation to percentage trustee fees, while confidentiality, flexibility and tax effectiveness are all enhanced.

PROCEDURE FOR INCORPORATING A PTC

The minimum authorised and subscribed capital is US$12,000 or the equivalent amount in another currency.

The following steps are required:

  • A notice of intention to form the company must be published in a Bermuda newspaper not more than three months prior to making application. The notice must state the name of the company, the names of the applicants (who may be trustees / nominees) and the proposed objects of the company. The latter may include a provision such as "to act as Trustee of the ABC Trust and such other trusts as the Minister of Finance may from time to time approve". The name of the Trust need not be referable to the actual family/group name - thus "The Cherry Trust" would suffice. Other formulae are also adopted.
  • An application for consent to register a company, accompanied by a copy of the notice referred to above, must be submitted to the Bermuda Monetary Authority.
  • The Memorandum of Association of the company is submitted with the application for consent.
  • Names, addresses, occupations, dates of birth and bank references in respect of the proposed beneficial owners of the PTC must be supplied to the Authority. Provision of a very brief resum6 of the beneficial owner can expedite the process. The name of group or family which will form the class of beneficiaries will be disclosed (in confidence) to the Monetary Authority. Individual names need not be disclosed.
  • Once the Authority has considered an application it is presented to the Minister with a recommendation as to whether or not a Consent to Register the PTC should be issued.
  • In order to obtain a Certificate of Incorporation, the Memorandum of Association and the Minister's consent must, with six months of the date of the grant of consent, be delivered to the Registrar of Companies.

Incorporation by registration normally takes approximately two-three weeks but in exceptional circumstances can be reduced. Trust planning is rarely carried out on a high-speed basis.

ADVANTAGES OF A PTC

A)INFLUENCE:- As mentioned above, the settlor/grantor and/or his advisers can take their place on the Board. Two Bermudian directors are required, and these must be able to constitute a quorum, but additional overseas directors or alternates may be appointed.

B)CONFIDENTIALITY:- Knowledge of transactions can be restricted to the Board and shareholders.

C)FLEXIBILITY:- A PTC enjoys a degree of flexibility, promptness and responsiveness arising out of the nature of its ownership / control. Large institutional trustees may be bound by corporate policy and procedures which to some extent limit such efficiencies.

D)DIVERSIFICATION:- Professional trustees may resist accepting responsibility for trust assets which might expose the trustee to an unacceptable level of risk. The PTC is able to assume ownership of assets, and make investments which might be beyond a professional trustee's limits of prudence. The professional trustee's role would be limited to the provision of management services in respect of the PTC and, if desired, to holding the shares of the PTC in either a purpose, private or charitable trust.

OWNERSHIP

The ownership of the PTC may be:

  • Direct, with the settlor/grantor appearing as a shareholder (one or more shareholders are permitted).
  • On a nominee or bare trust basis.
  • By a discretionary or fixed interest trust.
  • As mentioned above at 6.3.1 by a purpose trust settled for the purpose of providing trust services to specific trusts, implemented through acquiring and holding the shares and ensuring the efficient operation of the PTC. Cedar has, in conjunction with specialist legal Counsel, developed a form of purpose trust specifically for use in the PTC application.

The form of ownership will depend on a number of factors, e.g. confidentiality, the need for the structure to be "arms length", requirements of form and substance and taxation considerations.

ONSHORE ADVICE

It is essential that would-be settlors/grantors obtain the advice of their lawyer and accountant in their home jurisdiction. Frequently such professionals continue to be involved in the overall strategy and perhaps management of the structure and the assets held, Estate Planning should always involve overall continuing monitoring to ensure appropriate reaction to changing circumstances, as well as maintenance of high standards of administration.

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.