Bermuda's Society of Trust and Estate Practitioners' annual conference takes place this week themed "Bermuda: a Centre of Excellence for the Family Office".
With reputable international speakers attending, it is timely to consider the unique nature of trusts, their ongoing viability as succession planning vehicles and why Bermuda law trusts are being used more frequently internationally.
Trusts developed from the English common law and law of equity. A trust is a fiduciary relationship whereby a person (known as the "settlor" or "grantor") transfers to a trustee, or declares itself as trustee of, certain property thereafter held by the trustee for the benefit of certain persons (known as "beneficiaries") or purposes. The separation of legal and beneficial ownership of property allows flexibility for investment, and distribution of trust property over many years, including after the settlor's death or loss of mental capacity.
Civil law jurisdictions, generally, do not have a trust law or enable formation of entities with the same succession planning utility. Two-thirds of the world's jurisdictions apply civil law including, most of Europe, Russia, Latin America and China. Globalisation and the emergence of new economies have resulted in more people from civil law jurisdictions establishing trusts.
There has been a recent surge in trusts formed under Bermuda law, and changes of trusts' governing law to Bermuda law, in order to utilise specific provisions of Bermuda's trust law. Why?
The rule against perpetuities, and subsequent statutory incantations, limited the period that property could be held in trust. However, excluding trusts over Bermuda land, Bermuda law permits Bermuda law trusts established on or after August 1, 2009 to have an unlimited duration. Section 47 of Bermuda's Trustee Act has been utilised by trustees to request the Bermuda Court to approve transactions including variation of beneficial interests in trust property, or to extend the duration of trusts established prior to August 1, 2009.
Article first published in the Royal Gazette December 2016
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