A trust is a legal relationship created when a person (the
settlor) places assets under the control of another person (the
trustee) for the benefit of beneficiaries or a specific purpose.
The trustee is obliged to deal with those assets, not for his own
benefit, but for the benefit of the beneficiaries or to further the
specific purpose set out in the trust deed.
The British Virgin Islands is a well respected and sophisticated
jurisdiction for the establishment of trusts. The general
principles of BVI trust law are derived from those of English trust
law and they have been supplemented by statute to offer a variety
of flexible and user-friendly trust structuring options.
Common types of trust
BVI Trusts may be discretionary or fixed interest in nature.
This means that the trust assets can either be held for a class of
beneficiaries with distributions being made at the discretion of
the trustee (discretionary trusts) or alternatively the trust deed
can set out the specific beneficial interests of each beneficiary,
such as a right to the income earned by the trust assets (fixed
Additionally, BVI trusts can be established for charitable
purposes or noncharitable purposes (the latter known as purpose
Where the trust assets consist only of shares in a BVI company,
VISTA trusts are extremely popular (for more information see
separate guide on VISTA trusts).
Historically for a trust to be valid, with the exception of
charitable trusts, it must have identifiable beneficiaries.
However, a number of offshore jurisdictions, including the BVI,
have enacted legislation which enables trustees to hold property on
trust to carry out or further purposes which cannot be classed as
The conditions in the legislation for purpose trusts require
i. the purpose is specific, reasonable and possible;
ii. the purpose is not immoral, contrary to BVI public policy or
iii. at least one trustee is a "designated person"
(which usually results in the trustee being a licenced BVI trust
iv. the trust instrument must appoint an enforcer,. who cannot
be a trustee and who must be provided with information about the
trust, including trust accounts and copies of all trust deeds.
In general, BVI trusts cannot exist for more than a maximum of
100 years, unless they are charitable trusts or purpose trusts,
which may exist indefinitely.
For a number of reasons, the settlor may wish to retain a level
of control over specific elements of the running of a trust for
himself or another, commonly the protector (if one is appointed).
The BVI was one of the first offshore jurisdictions to bring in
legislation concerning reserved powers. As a result, certain powers
which are usually vested in the trustee, may instead be conferred
on the settlor or protector or may only be exercisable by the
trustee with the prior consent of the settlor or protector. Such
provisions would be included in the trust deed if required.
Without limitation, these might include powers to:
i. determine the law of which jurisdiction shall govern the
ii. change the forum of the administration of the trust;
iii. remove and appoint new trustees; and
iv. exclude and include beneficiaries.
Private Trust Companies
Since 2007, it has been possible in BVI to establish a Private
Trust Company ("PTC"), which may act as trustee of trusts
without the need to obtain a trust licence in BVI. In order to
qualify for this exemption, the trustee must carry on only
"related trust business" or "unremunerated trust
business" (for more information see separate guide on
PTCs have proved a very popular alternative, especially among
ultra-high-networth families, as an alternative to appointing a
third party trust corporation as trustee of family trusts.
Practical uses of BVI trusts
BVI trusts may be created for a number of reasons,
i. as an instrument for succession planning in the event of
death or incapacity.
ii. to mitigate against tax liabilities.iii) to protect assets
(e.g. from exchange controls or other government
iv. as a confidential way of holding assets.
v. to protect beneficiaries who have difficulty in managing
their own affairs.
vi. to circumvent forced heirship rules.
vii. to hold shares in a family company or in corporate
viii. as a vehicle for philanthropic giving.
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.
The proposed €1bn capital raising by Bank of Cyprus through a placing and open offer of 4,166,666,667 new ordinary shares in the capital of the bank has again raised the much debated topic of capital dilution and how shareholders can prevent share dilution.
The new Companies Ordinance, Chapter 622 of the Laws of Hong Kong, commenced operation on 3rd March 2014 and applies to every registered company
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”