Bermuda presents a number of benefits for high net worth and ultra high net worth individuals looking to domicile their wealth, as a result the jurisdiction's Private Client & Trust sector has increased steadily over the years.
Recent data provided by the Bermuda Business Development Agency, in 2015, reported that US$187.2 billion are under trusteeship and administration on the Island, an increase of 50% over 2013.1
Conyers Dill & Pearman's Private Client & Trust ("PC&T") practice is a leading authority in this sector. The Firm's PC&T team is one of the largest and most experienced offshore practices, and continues to be ranked as Band/Tier 1 among leading global directories.
The Firm comments regularly on notable trust disputes that have taken place in the Bermuda Courts, are regular speakers at industry events and are called upon to offer insightful views on trends affecting the region. This publication will draw on that commentary, and is arranged to digest key cases, as well as provide clients and colleagues with legislative updates and editorial features.
Inside our inaugural issue we feature the first Hasting Bass Ruling, recently delivered by the Supreme Court of Bermuda, a case update that reaffirms the Bermuda Court's approach to confidentiality, key advantages of establishing a family office in Bermuda, and a look into a recent case relating to the power given to trustees to appoint whole or parts of the capital of a trust.
KEY ADVANTAGES OF ESTABLISHING A FAMILY OFFICE IN BERMUDA
Bermuda offers the ideal base for the contemporary family office and high net worth individual. As a respected international financial centre, Bermuda provides several advantages for those looking to establish on the Island, including: ease of acquiring residence and other permits, the various structures that can be used to hold assets and the accommodating legal and regulatory regime. These advantages are discussed in detail on pages 4-8.
Ease of Acquiring Residence
Persons wishing to reside in Bermuda have three options:
- The Residential
This certificate allows a person to reside in Bermuda indefinitely if the person is globally retired, over 50 years old and owns property in Bermuda (the Government recently reduced license fees for non-Bermudians' purchase of Bermuda property).
- Permission to Reside on an
A person wishing to reside in Bermuda can also apply to the Minister of Labour & Home Affairs for permission to reside.
They must complete an application form providing certain personal information. Permission to reside will normally be given for up to 12 months in the first instance and may be renewed.
- Work Permit
Work permits allow a person to live and work in Bermuda for a specific period of time. In an effort to encourage businesses to move to the Island, the Government has recently introduced reforms that have included the introduction of new work permit categories and a more streamlined application procedure for key positions in companies. Senior Executives of designated companies can apply for a Permanent Resident Certificate if they meet certain criteria.
Innovative Structures and Staffing the Family Office
One of the attractions of establishing a family office in Bermuda is that it offers a wide range of vehicles which can be used by an international family office to hold assets and employ staff. These include: private trust companies, exempted companies and partnerships.
Private Trust Companies ("PTC")
- A PTC is a special kind of exempted company. Bermuda was one of the first offshore jurisdictions to introduce modern legislation on PTCs, and has over 50 years of experience establishing and administering them;
- Unlike PTCs in other jurisdictions, Bermuda PTCs have never been required to be licensed, so the incorporation and conduct of their affairs have been (and remains) straightforward and efficient; and
- PTCs have several advantages for private clients and their families. An example of which includes, allowing greater involvement in trust administration through board representation. The board representation could be the settlor, his/her family or his/her professional advisors.
Where the owners are predominantly non-Bermudian, an "exempted" company will be used. Exempted companies can be limited by shares or by guarantee. Other features of exempted companies include:
- holding property and securities of any kind without restriction, except certain Bermudian real estate;
- needing a registered office in Bermuda, a local corporate services provider or law firm can provide this if necessary;
- not requiring a resident director if there is a Bermuda resident secretary or resident representative, sole and corporate directorships are permitted;
- incorporating sophisticated entities such as mutual fund companies, segregated accounts companies, limited duration companies and private act companies;
- not having to pay corporation, income or capital gains tax or (except in relation to local property) stamp duty;
- not being subject to Bermuda exchange controls; and
- ease of set-up; while there are no shelf companies in Bermuda, companies can, generally, be set-up within a day or two with fairly low establishment and ongoing regulatory fees.
- Partnerships predominantly owned by non-Bermudians will be "exempted partnerships". They may be formed as general or limited partnerships.
- The partners in a general partnership have unlimited, joint and several liability for all debts and obligations of the partnership (including the torts and frauds of the other partners).
- Liability can effectively be limited by ensuring that all partners are limited liability companies.
- A limited partnership must have at least one general partner and one limited partner. The liability of the general partners will be unlimited, as in the case of general partnerships. However, generally, the liability of the limited partners may be limited to the capital that each limited partner has contributed or committed to contribute.
- Partnerships in Bermuda can elect to have separate legal personality.
- They can generally be set-up in two to five business days.
- No income or capital gains tax is payable by exempted partnerships, and they will generally be exempted from stamp duty (except in relation to local property). Exchange controls do not apply to them.
Staffing of the Family Office
Bermuda offers attractive options in regards to staffing. There is no income tax, and payroll tax is fairly low (no more than 14%, generally split between employer and employee). This makes it easier to attract international staff. In fact, recent changes to immigration laws have made it easier than ever to transfer staff from overseas.
In addition, Bermuda has a deep pool of talent. Employment agencies can assist in finding secretaries and support staff to manage family offices.
Further, for family offices wishing to outsource functions, there are a range of respected local businesses that offer company and trust management services.
Respected Regulatory and Disclosure
Bermuda's modern regulatory and legal framework, location, political and economic stability and taxation system have supported the Island's leading reputation globally. These advantages are discussed below, as they relate to the family office set-up.
Bermuda offers well-established and respected regulation, overseen by the Bermuda Monetary Authority (the "BMA"). Bermuda has signed 35 Tax Information Exchange Agreements, including with the US (1988) and the UK (2007). It has entered into a "Model 2" intergovernmental agreement under FATCA (involving direct reporting to the IRS) and similar agreements with other jurisdictions are expected to come into force over the next few years. Additionally, Bermuda has a robust anti-money laundering regime overseen by the BMA.
The Investment Business Act, 2003 governs investment businesses in Bermuda. It has two exemptions which are relevant to family offices, being applicable to:
- entities that advise fewer than 20 clients; and
- entities that only accept "sophisticated investors" or "qualified purchasers" – essentially high net worth persons and enterprises.
Provided it falls into one or both of the above categories, a family office will not be subject to any investment business regulation in Bermuda and could essentially operate with little restriction, provided it does not publicise its services to the broader market.
Disclosure & Reporting Requirements
Bermuda's disclosure and reporting requirements are highly efficient. There is no requirement to file the accounts of a private exempted company with any public authority, and while subscribers must be included in the Memorandum of Association (a public document), nominee subscribers can be used. This means, essentially, shareholdings can remain confidential.
For partnerships, the names of the general partners will be a matter of public record, but there is, generally, no requirement to disclose the names of the limited partners (except to the other limited partners).
Finally, execution and administration of a trust is a private and confidential matter. Therefore, there is no register of trusts in Bermuda.
Other Benefits of Moving to Bermuda
Bermuda is easily accessible from the US with multiple flights to major cities on the Eastern seaboard. There are direct flights to London six days a week, and plentiful connecting flights available via New York and London. For international families transacting business in multiple jurisdictions, Bermuda's convenient location makes it possible to work easily with the UK, Europe and the US.
Artwork, Shipping and Aircraft Registration
While Bermuda does impose import duties on items such as artwork, these are far lower than in other offshore jurisdictions.
Further, Bermuda is a world-renowned centre for ship and aircraft registration. In relation to shipping, the Bermuda Ship Registry is part of the British Register and a category 1 Member of the Red Ensign Group. Additionally, for aircraft, Bermuda offers an efficiently regulated regime and there are in excess of 700 aircraft on the, Bermuda Department of Civil Aviation, which has been in existence since 1931.
Stable Economic and Political Environment
Bermuda has among one of the highest incomes, per capita, in the world. A British overseas territory just a few hours from the major cities of the Eastern United States, it is socially and politically stable and English speaking.
Bermuda levies no income, corporate or capital gains tax, making it a desirable location for tax planning.
Modern Legal System
Bermuda's legal system is based on English common law. It also offers well-developed and flexible trust law based on the English model, but with various modern innovations. Bermuda also has an efficient judicial system in relation to which the final Court of Appeal is the UK Privy Council.
First Hasting Bass Ruling in the Bermuda Court
In 2014, the Bermuda Government approved an amendment to Bermuda's trust legislation giving the Court a new statutory jurisdiction to remedy the negative effects or consequences of acts or omissions made by settlors, trustees and other fiduciaries, otherwise known as The Rule on Hastings Bass. The new Section 47A of the Trustee Act, 1975 expressly recognises the availability of The Rule on Hastings Bass as it was understood and applied in England (and other common law jurisdictions) prior to 2011 and the provision makes it clear that it is not necessary for the fiduciaries or their advisors to be shown to have been in breach of trust or in breach of duty in order for the Court to exercise its jurisdiction. In order for the Court's jurisdiction to be engaged, the Court must be persuaded that the power holder had taken into account an irrelevant consideration or failed to take into consideration a relevant consideration and, for that failure, the power would not have been exercised or would have been exercised in a different manner.
The Supreme Court of Bermuda recently delivered its first decision on Section 47A In the matter of the F Trust and in the matter of the A Supplement  SC (BDA) 77 CIV (13 November 2015). In this case, there were two Bermuda trusts, each with a UK resident Trustee: one Trustee was appointed by the then Trustees; for the other trust, the Trustee was appointed by the Settlor. No UK tax advice had been obtained prior to the exercise of the power to appoint the UK resident Trustee and the Chief Justice of Bermuda accepted that in each case the conditions had been met to engage the Court's jurisdiction, as the power to appoint trustees was a fiduciary power within the meaning of Section 47A. The Chief Justice also accepted that in each case there had been a failure to take into account a relevant consideration, in other words, the UK tax consequences had not been taken into account which the Chief Justice acknowledged were "financially significant factual and legal considerations".
The Chief Justice's Ruling further highlighted that, in order to invoke the Court's jurisdiction, it was not necessary to set out any particular test in order to justify the Court's intervention as Section 47A provided the Court with an unfettered statutory discretion; any particular test should be applied on the facts of each particular case. The powers of appointment were set aside as flawed exercises by the power-holders.
The Bermuda Court's Approach to Confidentiality: Reaffirming the Importance of Privacy in the Trust Arena - In The Matter Of BCD Trust 
In this, ex tempore, ruling Chief Justice Kawaley considered the Court's approach to confidentiality orders for Chambers' hearings on trust matters. Given that applications for confidentiality orders are becoming increasingly common, indeed standard, in most applications to the Bermuda Court concerning private family trust matters, the Chief Justice's Ruling is of particular current interest. In his brief Ruling, the Chief Justice considered the balance between "open justice", via public hearings, as per Section 6(9) of the Bermuda Constitution, and maintaining privacy for those involved in such hearings, which are of a personal nature to a particular family and could involve, for example, minor beneficiaries. The Ruling also footnoted Section 6(10) of the Bermuda Constitution, which sets out circumstances where the Court can depart from the principle of public hearings.
In the matter of the BCD Trust, the application for a confidentiality order to seal the file and anonymise the proceedings was described by the Chief Justice as "well-grounded"; he approved the order as being "inherently consistent with the public interest and the administration of justice generally".
While this was an ex tempore ruling, it provides helpful authority on the Bermuda Court's approach to confidentiality orders and confirms that the jurisdiction is conscious of the importance of privacy in the trust arena. Of course, there is no automatic approval of applications for a confidentiality order in trust related proceedings and such applications are not generally opposed, but the Ruling can provide comfort to settlors, trustees and beneficiaries, who are considering applying to the Bermuda Court, that their privacy will be upheld "where there is no obvious public interest in knowing about an internal trust administration matter".
In The Matter Of The New Huerto Trust, Ex P. Royal Fiduciary Group Limited, Eastern Caribbean Supreme Court, Court Of Appeal, Bvihcmap2013/002, 26 October, 2015.
At first instance in Blausten -v- IRC  Ch. 256, (Reginald), Goff J had to consider (amongst other things) the ambit of a very common kind of power given to trustees to appoint that the whole or any part or parts of the capital of a trust be held "upon such trusts...for the benefit of any one or more of the specified class...and subject to such powers and discretions exercisable by any person or persons...and generally in such manner as the trustees shall think fit ". The power was exercised in that case by the Trustees so as to appoint that the fund be held upon exactly the same (discretionary) trusts as existed immediately prior to the exercise of the power save that (amongst other things not of relevance) the definition of the specified class was altered so as to delete a reference to the Settlor's wife and widow. Goff J ruled the appointment was "not effective at all". He appears to have been led to that conclusion by focusing on the net effect (and clear intention) of the appointment – which was, for fiscal reasons, to delete members of the specified class – but this, he held, "there was no power to do".
It will be observed immediately that the asserted lack of power assumes rather than proves what was in issue, namely, whether a wide power of appointment to appoint capital on trusts (including discretionary trusts) among one or more of a specified class contains within it the power to delete members of the specified class: the fact that there is not separate, express power to remove objects from the specified class does not conclude that question. For this reason alone, Goff J's decision on this point might, with respect to him, be thought deficient. It might also (had it stood) have been thought decided, per incuriam, in that Muir -v- IRC  1 WLR 1269 (C.A.) was not cited to the Court despite being in point and to contrary effect. In that case it was held that a re-settlement of a trust fund upon trusts identical with the existing trusts, but excluding a particular power in the trustees, was within the ambit of a power to appoint "the whole or any part or parts of the capital of the trust fund to or for the benefit of all or such one or other of the beneficiaries...and in such manner generally as the trustees shall...think proper" it being made clear that the trustees might in so appointing "settle the property appointed in such manner...with such discretionary trusts or powers of appointment...as the trustees may think fit". Even, bearing in mind, that decisions on points of construction do not generally create precedents, the relevant clauses and material facts in both cases were so similar as to have required citation of the earlier case before Goff J and for Goff J to have either followed or distinguished it.
When Blausten reached the Court of Appeal, Buckley LJ (with whom Orr and Salmon LJ agreed) differed from Goff J on the question of the construction of the power preferring the approach of the Court of Appeal in Muir. He said, "... what was done by the deed of appointment was something which was clearly within the terms of the power of appointment. It was an appointment under which the capital was directed to be held upon trusts for the benefit of members of the specified class, and although the objective of the trustees in making the appointment may not have been the kind of objective which the settlor had in mind when he conferred the power of appointment upon the trustees, the appointment nevertheless in my judgment falls within the power".
Goff J had instinctively approached the question of construction in a purposive way, whereas the Court of Appeal, both in Muir and Blausten, approached it more literally and, in each case, easily found what was done to be within the four corners of the power. Since the powers in question are to be found in countless discretionary trusts, the decisions in Muir and Blausten are of assistance to the profession as to the likely construction of similar powers and have over the last 50 years given many trustees and their advisers comfort, if not the complete indemnity afforded by a court direction, that the common form special power of appointment to appoint capital on new trusts, including discretionary trusts, may be used (assuming the other conditions for a proper exercise of power are satisfied) to appoint on substantially identical discretionary trusts which differ only in a minor respect from the existing trusts. That aspect of the decision is not, however, what has interested the leading textbook writers on trusts (even though it features prominently in the headnotes of both cases and was part of their ratio decidendi). Both Underhill & Hayton and Lewin concentrate, rather, on those aspects of the decision which address the question of certainty of powers since the comments of Buckley LJ on that issue did not find favour with later judges at first instance (Templeman J in Re Manisty's Settlement  Ch. 17 and Megarry V-C in Re Hay's Settlement Trusts  1 WLR 202). It is, therefore, in relation to the subsequent development of the law relating to powers that Blausten is generally discussed and, generally, denigrated. This has had the unfortunate consequence that the wholly uncontroversial and perfectly orthodox decision on construction has been somewhat buried. That is not to say that it has not been acted on: on the contrary, trust practitioners in the offshore world in particular (including those Leading Counsel in Lincoln's Inn who are consulted by them) are entirely familiar with the use of powers to appoint on new trusts as mechanisms for effecting small amendments to either or both of the dispositive (or distributive) and administrative and management provisions of a trust. It is so familiar and well established a practice that most would be hard pressed to cite authority for it. But, if it is possible (or necessary) to do so, it is to be found in the decisions of the English Court of Appeal in Muir and Blausten which, until very recently, had never been disapproved judicially on the point.
That position changed, albeit briefly, in late 2013 when the Royal Fiduciary Group Limited as trustee of the New Huerto Trust, a British Virgin Islands ("BVI") discretionary trust, sought the complete indemnity of a court order from the BVI Commercial Judge confirming that it could use a power of appointment to execute a deed of appointment, the principal and net effect of which would be to remove the Settlor from one of the two classes of beneficiaries, there being no separate, express power to do so. Bannister J held that it could not. He did so, principally, because he thought the reasoning on the construction point in Blausten "obviously wrong" and he declined to follow it. He was unmoved by the assertion that it had been acted on in England by practitioners for 40 years, since he had not been told that it had ever been acted on in the BVI and his decision would have no effect in England. He also relied, to some extent, on the fact that Blausten was not cited by leading practitioners' works as authority on the construction point (which is true).
For good measure, however, Bannister J distinguished the power in question, as a matter of construction, from those under consideration in Muir and Blausten. The relevant clause provided: "The Trustees stand possessed of the Trust Fund and the income thereof upon discretionary trusts for the benefit of the Beneficiaries or any one or more of them exclusive of the others in such shares and proportions and subject to such terms and limitations and with and subject to such provisions for maintenance, education or advancement or for accumulation of income during minority or for forfeiture in the event of bankruptcy or otherwise and such other conditions as the Trustees may from time to time appoint by Deed revocable or irrevocable executed before the Vesting Day".
Bannister J held that this did not empower the Trustees to appoint on new discretionary trusts (which the power in Muir and Blausten expressly did) but gave only "the power to confer beneficial interests...in such shares and proportions...as the Trustees may from time to time appoint" and the appointment made, did not create any beneficial interests in that sense.
The Trustee's application was ex parte and made in the context of a divorce initiated by the Settlor's wife (who was not a beneficiary). The Trustee was no doubt looking for the indemnity of a court order declaring that it had power to execute the deed of appointment because of a perceived risk of attack by the wife on the validity of the deed (or criticism from the English Family Division). Conversely, Bannister J (quite apart from his view of Blausten) seemed reluctant to afford the Trustee such indemnity in the absence of argument from the party most inclined to argue invalidity (i.e. the wife) and he expressly left the Trustee to decide whether to execute the deed and defend any decision to do so if attacked.
The Trustee did not find this a satisfactory outcome and, unusually, appealed. The Court of Appeal of the Eastern Caribbean Supreme Court allowed the appeal and declared that the Trustee did have power to execute the deed. The principal reason for doing so was that Muir and Blausten were directly in point as regards to the construction issue, had not been criticised on that issue in the standard textbooks and, though not strictly binding on Bannister J, should have been treated as persuasive by him on, and decisive of, the construction issue.
However, the Court of Appeal also regarded the matter as one of principle, as much as authority, in that it saw no reason why, if a trustee can validly appoint property among two or more objects while excluding one or more others, it cannot, in advance of appointing any property to the objects of the trust, use the power of appointment to exclude one of them from benefiting under the trust. Such appointment (excluding one or more objects) would result in an increase in the property interests available for distribution to the remaining objects.
It is greatly to be welcomed that the Court of Appeal has confirmed the highly persuasive authority of Muir and Blausten in the BVI – such confirmation will itself be of highly persuasive effect in other offshore jurisdictions (albeit strictly unnecessary in England).
It is not clear, however, that the Court of Appeal dealt with Bannister J's distinction between the power in this case and those in Muir and Blausten. Bannister J did not have the benefit of adversarial argument (and neither did the Court of Appeal), but he instinctively discerned that the power under the New Huerto Trust was read most naturally as, in effect, a power merely to select objects and determine shares of entitlement. He clearly thought that if a purported appointment simply repeated the discretionary beneficial provisions which already obtained and effected no selection of objects and determination of shares (albeit de-selecting one of the objects), there was simply no appointment within the ambit of the clause. The remaining objects would not get anything which they did not have before (i.e. the right to be considered for an appointment from time to time) and certainly they would not get any share. Trust lawyers would articulate this instinct in terms of the distinction between narrow and wide powers of appointment, the former not allowing the creation of discretionary trusts, the latter doing so (also known as the Re Joicey problem – see  2 Ch. 115). It can be seen from the full quotations of the relevant powers in Muir and Blausten that the powers in those cases were of the wide sort, allowing for the creation of discretionary trusts. It is, with great respect to the Court of Appeal, strongly arguable that the power in this case is a narrow power and that Bannister J was correct both to distinguish it from the powers in Muir and Blausten and to refuse a declaration that the Trustee had power to execute the draft deed put in evidence. With the benefit of adversarial argument, the Court of Appeal may have come to the same conclusion. Since the only party capable of being adversely affected by the Court of Appeal's decision was not party to the proceedings she will not, of course, be bound by it and will remain free to argue the point afresh should she wish to do so. The effect of the Court of Appeal's order is merely to afford a complete indemnity to the trustee vis-ŕ-vis the beneficiaries and, possibly, to forestall any criticism from the English Family Division.
1. 2013 represents the last year the sector was surveyed by the Bermuda Business Development.
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.