1 Legislative framework
1.1 Which legislative provisions govern private client matters in your jurisdiction?
Bermuda has a comprehensive suite of legislation that governs private client and trust matters. The key statutes (as amended, where applicable) include:
- the Immigration and Protection Act 1956;
- the Land Tax Act 1967;
- the Administration of Estates Act 1974;
- the Succession Act 1974;
- the Trustee Act 1975;
- the Stamp Duties Act 1976;
- the Conveyancing Act 1983;
- the Wills Act 1988;
- the Trusts (Special Provisions) Act 1989;
- the Payroll Tax Act 1995;
- the Trusts (Regulation of Trust Business) Act 2001;
- the Perpetuities and Accumulations Act 2009; and
- the Charites Act 2014.
There are also various regulatory regimes to take into account where relevant for private clients.
1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?
There are several forms of immigration status under Bermuda's Immigration and Protection Act 1956, with different rights attaching to the various statuses.
Subject to meeting the applicable criteria and conditions, foreign nationals who are not married to a Bermudian may:
- work in Bermuda under a work permit issued by the Department of Immigration;
- apply for a permanent resident certificate that does not require the holder to obtain a work permit to work in Bermuda and gives the holder additional rights (compared to a work permit holder);
- seek permission to reside on an annual basis – enabling the holder to live in Bermuda on an annual basis, but not be actively employed in Bermuda; or
- acquire a work from Bermuda one-year residential certificate – enabling the holder to live in Bermuda, while not actively employed in Bermuda.
In March 2021, Bermuda introduced a new economic investment certificate (EIC) which is valid for five years. Subject to meeting certain criteria, the EIC enables non-Bermudians to make a ‘qualifying investment' of BMD 2.5 million in the island and receive the right to live and work in Bermuda, together with a pathway to long-term residency after five years (the residential certificate).
1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?
Over the years, Bermuda has entered into a number of information exchange relationships, including through a limited number of double taxation agreements and many tax information exchange agreements.
Bermuda joined as a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters which was extended to Bermuda by the United Kingdom with effect from 1 January 2014, and which aims to enhance and facilitate international cooperation and transparency on tax matters. The convention permits participating countries to enter into agreements that provide for the international automatic exchange of information with respect to certain tax matters.
In April 2016, Bermuda signed the Multilateral Competent Authority Agreement for the Exchange of Country-by-Country Reports and put in place the automatic exchange framework for exchanging country-by-country reports (as contemplated by the Organisation for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting Action 13).
In addition to the convention with the United States relating to the taxation of insurance companies and to mutual assistance in tax matters, which came into force in December 1988, Bermuda signed a Model 2 Intergovernmental Agreement with the United States in December 2013 to implement the US Foreign Account Tax Compliance Act. The relevant legislation in Bermuda requires certain financial institutions in Bermuda to report prescribed financial information on accounts of US taxpayers to the US Inland Revenue Service.
Bermuda was one of the Early Adopter Group countries which agreed to implement the automatic exchange of information under the OECD's Common Reporting Standard (CRS). Bermuda implemented the CRS into local legislation which requires certain Bermuda reporting financial institutions to:
- identify the tax residency of their account holders; and
- report certain information on reportable accounts maintained for such account holders held by individuals and entities (including trusts and foundations).
2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?
To the extent that Bermuda imposes taxes on individuals, the applicable regimes generally apply to residents of Bermuda regardless of their nationality.
2.2 When does the personal tax year start and end in your jurisdiction?
The due date for payment of taxes depends on the tax in question.
2.3 With regard to income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
Bermuda does not impose income tax; but see question 2.8 in relation to payroll taxes in Bermuda.
2.4 With regard to capital gains: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
Bermuda does not impose capital gains tax.
2.5 With regard to inheritances: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
Bermuda does not impose inheritance tax as such, but assesses stamp duty on the net dutiable value of Bermuda property held in a deceased's estate (eg, Bermuda real estate, Bermuda currency bank accounts, shares in local companies and all other personal property).
(a) What taxes are levied and what are the applicable rates?
Under the Stamp Duties Act 1976, stamp duty is applied on the net dutiable value of an estate at the following rates:
- Up to BMD 100,000: 0%
- On the next BMD 100,000: 5%
- From BMD 200,000 to BMD 1 million: 10%
- From BMD 1 million to BMD 2 million: 15%
- Over BMD 2 million: 20%
(b) How is the taxable base determined?
Stamp duty is assessable on the net dutiable estate value as expressed in the affidavit of value which is submitted with the application to the Bermuda court for a grant of probate or letters of administration following death.
(c) What are the relevant tax return requirements?
As noted in question 2.5(b), an affidavit of value is submitted with the application for a grant of probate or letters of administration and effectively serves as the estate tax return.
(d) What exemptions, deductions and other forms of relief are available?
As noted in question 2.5(a), the first BMD 100,000 in estate value is exempt from stamp duty. Deductions from the dutiable estate value are allowed in respect of:
- reasonable funeral expenses;
- the value of any real estate which is designated as the primary family homestead; and
- the value of any legacy or other benefit to a surviving spouse.
Deductions are also allowed in respect of all debts and encumbrances incurred or created by the deceased, and gifts to charities recognised as such by the minister of finance.
2.6 With regard to investment income: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
This is not applicable in Bermuda.
2.7 With regard to real estate: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
(a) What taxes are levied and what are the applicable rates?
Land tax: The owners of private Bermuda property must pay land tax biannually and the tax rate is based on the annual rental value (ARV) of the relevant property.
The current bands for land tax are as follows:
- BMD 0 to BMD 11,000: 0.8%
- BMD 11,001 to BMD 22,000: 1.8%
- BMD 22,001 to BMD 33,000: 3.5%
- BMD 33,001 to BMD 44,000: 6.5%
- BMD 44,001 to BMD 90,000: 12%
- BMD 90,001 to BMD 120,000: 25%
- BMD 120,001 and over: 47%
Stamp duty: Stamp duty is payable on the deed of transfer of Bermuda real property and is calculated on the purchase price or its value at the following rates:
- On the first BMD 100,000: 2%
- On the next BMD 400,000 up to BMD 500,000: 3%
- On the next BMD 500,000 up to BMD 1 million: 4%
- On the next BMD 500,000 up to BMD 1.5 million: 6%
- Thereafter (over BMD 1.5 million): 7%
(b) How is the taxable base determined?
Land tax: The ARV of the relevant property determines the rate of land tax due. Pursuant to the Land Valuation and Tax Act 1967, ARVs are set by a valuation list, which is revised every five years.
A new valuation list was due to come into effect for land tax purposes on 1 January 2021. However, due to the economic impact of the COVID-19 pandemic, the government of Bermuda felt it prudent to extend the validity period of the current 2015 valuation list. Under the Land Valuation and Tax (Special Provisions and Postponement of Preparation of Draft Valuation List) Act 2020, the 2015 valuation list (ie, which sets the rates specified in question 2.7(a)) will continue to determine ARVs until 31 December 2025.
Stamp duty: This is determined according to the purchase price or value of the property at the rates set out in question 2.7(a).
(c) What are the relevant tax return requirements?
Land tax: Land tax must be paid biannually by those who are:
- the sole proprietor of a property;
- a life tenant in a property;
- a leaseholder of a property for three or more years; or
- a periodic (yearly or monthly) tenant of property owned by the government of Bermuda.
Land tax can be paid:
- online using the Office of the Tax Commissioner's E-Tax payment tool; or
- in person with cash, certified cheques or debit or credit card.
Stamp duty: Stamp duty is payable on the deed of transfer of Bermuda real property and is usually shared equally between buyer and seller, although the division may be negotiated.
(d) What exemptions, deductions and other forms of relief are available?
Land tax: Those who meet the following criteria may qualify for special concessions in relation to land tax:
- possess Bermudian status;
- are 65 years old or over; and
- own and occupy a unit in a residential property; or
- rent a residential unit with a lease with a minimum term of three years or more.
The ARV threshold for this exemption is BMD 45,500 and tax will be payable on the value above the sum.
Generally, vacant lots, derelict properties, and uninhabitable properties under construction which are not capable of ‘beneficial occupation' are exempt from land tax. There are also land tax exemptions for schools, charities and churches.
Stamp duty: The Stamp Duties Act 1976, as amended, allows for the following stamp duty exemptions in respect of Bermuda property:
- Head 14 (a): Exempts a conveyance of property to a registered charity from stamp duty. However, this relates only to land conveyed as open space which is not for profit.
- Head 14 (b): Exempts stamp duty payable on a conveyance of Bermuda property to a first-time home owner where the purchase price of the property does not exceed BMD 750,000. This exemption is subject to certain requirements detailed in the Stamp Duties Act 1976.
- Head 38A: Provides stamp duty relief in respect of transfers of Bermuda property between spouses in connection with divorce.
- Head 47A: Permits Bermudian property owners to designate their residence as the primary family homestead, which will exempt the property from the stamp duty that would otherwise be due on their death. If you own more than one dwelling, you can choose only one to receive the exemption.
2.8 With regard to any other direct taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
(a) What are they and what are the applicable rates?
Payroll tax: Pursuant to the Payroll Tax Act 1995 and the Payroll Tax Rates Act 1995 (as amended), Bermuda applies a salary-related tax in respect of persons employed in Bermuda. Employers and self-employed persons are subject to payroll tax which is calculated as a percentage of the remuneration paid (including salaries and benefits in cash and in kind).
The payroll tax is generally split into two portions – the employer portion and the employee portion. The current maximum rate for the employer portion of payroll tax is 10.25% of the remuneration paid (for employers with an annual payroll greater than BMD 1 million). The rates reduce according to the size of the employer's annual payroll.
The employee portion of payroll tax is a marginal tax that is based on annual remuneration bands. The current standard rates are as follows:
- Employees earning up to BMD 48,000: 2%
- Employees earning between BMD 48,001 and BMD 96,000: 8.5%
- Employees earning between BMD 96,001 and BMD 235,000: 9%
- Employees earning BMD 235,001 and over: 9.5%
Social insurance: Employers must register qualifying employees for a social insurance number with the Department of Social Insurance. Every employer must pay social insurance contributions on behalf of each employee, half of which may be deducted from the employee's salary. Payment is required for employees who are gainfully employed in Bermuda for more than four hours per week.
The current total contribution per employee per week is BMD 71.84.
Customs duties: Bermuda imposes customs duties on the majority of goods arriving on the island at varying rates according to the type of goods. The common rate is 25% on the value of the imported goods.
Stamp duty: Subject to certain exemptions, stamp duty is payable on lifetime transfers of Bermuda property, whether outright or into trust. The applicable instrument is stamped and the Schedule to the Stamp Duties Act 1976 sets out the rate of stamp duty and manner it is applied according to the instrument.
(b) How is the taxable base determined?
Payroll tax: The level of payroll tax is determined according to the size of the employer's annual payroll and the amount of the employee's remuneration.
‘Remuneration' means the actual remuneration paid, given or assessed by the employer or self-employed individual, and includes benefits in kind and in cash.
Social insurance: This is currently fixed at BMD 71.84 per employee per week, with half generally paid by the employer and the other half by the employee by way of deduction from his or her remuneration.
Customs duties: The level of duty is generally based on the value of the imported goods and the category determines the applicable rate of tax.
Stamp duty: The amount of stamp duty is calculated according to the value of the Bermuda property transferred at varying rates depending on the type of transfer.
(c) What are the relevant tax return requirements?
Payroll tax: Payroll tax is due quarterly and payment is accompanied by a return which is filed with the tax commissioner.
Payment of payroll tax (in its entirety) is the obligation of the employer, but an employer may deduct the cost of the employee portion from remuneration paid to the employee in each tax period.
Social insurance: The employer is responsible for paying the total social insurance tax due per employee on a monthly basis (in arrears).
Customs duty: Generally, customs duties are paid at the time the goods arrive in Bermuda.
Stamp duty: Stamp duty must be paid to the accountant general by cheque or cash. Most relevant documents must be stamped within a set number of days after execution (usually 30 days).
(d) What exemptions, deductions and other forms of relief are available?
Payroll tax: There are certain groups who are exempt from paying payroll tax in Bermuda, including:
- individuals under 16 who are not considered an employee;
- individuals working 16 hours or less per month (this does not apply to self-employed individuals); and
- employees who care for a person with a physical or mental disability at that person's home.
Some of the exemptions are subject to approval after making the appropriate application to the Office of the Tax Commissioner for the exemption.
Customs duty: Certain categories of imported goods are exempt from customs duty or have a reduced rate in accordance with the Customs Tariff Act 1970, as amended.
Stamp duty: There are several exemptions from stamp duty in the trust context. By way of example, there are exemptions for:
- registered pension trust funds;
- instruments to which an international business is a party; and
- certain instruments executed by a local trustee that does not dispose of Bermuda property.
2.9 With regard to any indirect taxes levied in your jurisdiction: (a) What taxes are levied and what are the applicable rates? (b) How is the taxable base determined? (c) What are the relevant tax return requirements? and (d) What exemptions, deductions and other forms of relief are available?
See references to customs duties in question 2.8, which generally apply to goods imported by businesses as well those imported by individuals.
3.1 What laws govern succession in your jurisdiction? Can succession be governed by the laws of another jurisdiction?
The concept of freedom of testation exists in Bermuda with regard to Bermuda property and extends to allowing the choice of law which will govern testamentary trusts. Intestate succession is governed by the Succession Act 1974. With regard to foreign immoveable property, the lex situs will govern succession.
3.2 How is any conflict of laws resolved?
The rules of private international law are applied by the Bermuda courts to resolve any conflict of laws that may arise. Sections 5 and 6 of the Trusts (Special Provisions) Act 1989 prescribe rules for the choice of applicable law for trusts (including testamentary trusts).
3.3 Do rules of forced heirship apply in your jurisdiction?
There are no forced heirship rules under Bermuda law; but see question 3.5.
If an individual dies without a valid will, the Succession Act contains the rules of intestacy which govern how the deceased's estate passes (see question 3.4).
3.4 Do the rules of succession rules apply if the deceased is intestate?
The Succession Act governs how a deceased's estate passes if he or she has died intestate or partially intestate. The surviving family members benefit, depending on the closeness of their relationship to the deceased. The following is a summary of the rules of intestacy set out in the Succession Act:
- The intestate's spouse takes the entire residuary estate if the intestate has no other family or issue.
- If the intestate leaves a spouse and issue, the spouse takes the intestate's personal chattels and 50% of the value of the residuary estate or BMD 100,000, whichever sum is greater; and subject thereto, the residuary estate will be held for the issue in equal shares per stirpes.
- If the intestate leaves a spouse and one family member (but no issue), the spouse will take the intestate's personal chattels absolutely, and 66.5% of the value of the residuary estate or BMD 150,000, whichever sum is greater; and subject thereto, if the intestate leaves one parent, the residuary estate is held for that parent absolutely. If there are two parents surviving, the residuary estate will be held for them in equal shares. If the intestate leaves no parents, the residuary estate is held for the brothers and sisters (of the whole blood) of the intestate in equal shares. If the brothers or sisters pre-decease the intestate, their children take the share that their parent would otherwise have taken in equal shares.
- If the intestate leaves issue but no spouse, the residuary estate is held on trust for the issue in equal shares per stirpes.
- If the intestate leaves no spouse, no issue and no parents, the residuary estate is held in trust in the following order of priority:
- siblings of the whole blood (or their issue in equal shares in their place if the brothers/sisters pre-decease the intestate);
- siblings of the half-blood (or their issue in equal shares in their place if the brothers/sisters pre-decease the intestate);
- uncles and aunts of the whole blood (or their issue in equal shares in their place);
- uncles and aunts of the half-blood (or their issue in equal shares in their place); and
- the Crown.
3.5 Can the rules of succession be challenged? If so, how?
Under the Succession Act, the following individuals can make an application to the Supreme Court of Bermuda for financial provision from a deceased's estate:
- the surviving spouse;
- a former spouse who has not remarried;
- children; and
- grandchildren, if they were being maintained by the deceased immediately before death (either wholly or partly).
The individual must challenge the will or law relating to intestacy on the grounds that reasonable financial provision has not been made for him or her; ‘reasonable financial provision' is defined in the Succession Act.
Such an application must be commenced in the Bermuda court within six months of when a grant of representation is first taken out, although the challenging individual can seek the permission of the court to commence the application out of time.
4 Wills and probate
4.1 What laws govern wills in your jurisdiction? Can a will be governed by the laws of another jurisdiction?
The relevant legislation is the Wills Act 1988 and the Administration of Estates Act 1974. As mentioned in question 3.1, testamentary freedom can extend to specifying the applicable law for certain will provisions. However, for the purpose of establishing that the Bermuda court has jurisdiction over probating a will:
- the deceased testator, at the time of his or her death, must have been ordinarily resident in Bermuda; or
- some property of the deceased must have then been in Bermuda (Section 2 of the Administration of Estates Act 1974).
A foreign will must be admitted to probate, or resealed, in Bermuda in order for access to be granted to the deceased's property in Bermuda (see question 4.3).
4.2 How is any conflict of laws resolved?
See question 3.2.
4.3 Are foreign wills recognised in your jurisdiction? If so, what process is followed in this regard?
Properly executed foreign wills are recognised in Bermuda.
Sections 37 and 38 of the Wills Act 1988 lay out the rules for formal validity to assist in determining whether a foreign will was properly executed. To be legally recognised in Bermuda, a foreign will must be probated. As mentioned in question 4.1, the Bermuda court will have jurisdiction to probate a will only if the deceased testator was, at the time of his or her death, ordinarily resident in Bermuda or some property of the deceased was then in Bermuda.
A foreign grant issued in certain foreign probate courts can be resealed in the Bermuda court. The relevant countries include:
- the United Kingdom;
- any British possession, colony or dependency;
- Commonwealth member nations; and
- any state of the United States (including the District of Columbia).
4.4 Beyond issues of succession discussed in question 3, are there any other limitations to testamentary freedom?
Testamentary freedom may be constrained or limited after the fact when a testator dies owing money to third parties. If estate assets are insufficient to pay all debts as well as legacies, creditors will be paid in preference and at the expense of certain legatees (Part V of the Administration of Estates Act 1974).
Equitable obligations can arise under the scenario of mutual wills, where two parties make wills agreeing to leave their estates in an agreed fashion and agree further not to change the beneficiaries under their wills after the first of them dies. Any breach of such agreement is actionable in the Bermuda Courts at the behest of a dispossessed beneficiary under the original will.
4.5 What formal requirements must be observed when drafting a will?
The formalities for making a Bermudian will are as follows:
- The testator must be at least 18 years old;
- The testator must have testamentary capacity, also known as being of sound and disposing mind, which is the ability to:
- identify the natural beneficiaries of his or her estate;
- understand the nature of his or her act (when executing the will); and
- understand the extent and value of his or her estate;
- The will must be in writing;
- The testator must sign his or her will (or make his or her mark on the will, if he or she is illiterate) in the presence of two independent witnesses;
- The independent witnesses must be at least 18 years old and of sound mind; and
- The independent witnesses must see the testator sign and then sign the will themselves in the testator's presence.
A person who is named as a beneficiary within the will or who is the spouse of the testator should not witness a will. While this will not itself invalidate the will, the gift to the witnessing beneficiary or spouse will be void.
Bermuda recognises holographic wills – that is, wills that have been handwritten and signed by the testator (to be proved on oath by at least two persons acquainted with the testator's handwriting). Holographic wills are valid if there is compliance with the relevant Wills Act provisions. Given the complexity of drafting and executing a comprehensive and effective will, holographic wills are not recommended.
4.6 What best practices should be observed when drafting a will to ensure its validity?
A will should be as clear and simple as possible, and care should be taken to meet the formalities outlined in question 4.5.
The testator and his or her attorney should discuss how to deal with prior wills and testamentary dispositions to ensure that they are revoked properly. Notably, the drafter should take care not to accidentally revoke an existing will (eg, dealing with the testator's real property in a foreign jurisdiction) that the testator intends to remain in force.
It is preferable for the preparation and execution of the will to be supervised by an attorney to avoid any challenges to the will's validity in the future.
4.7 Can a will be amended after the death of the testator?
Following an application, the Bermuda court may order that a will be rectified if:
- it fails to carry out the testator's intentions because of a clerical error; or
- there was a failure to understand the testator's instructions.
4.8 How are wills challenged in your jurisdiction?
Beneficiaries may challenge the interpretation of the will or certain clauses if:
- there is ambiguity;
- the will was not duly executed;
- the testator lacked a sound disposing mind; or
- the testator had no knowledge and approval of the will.
If a will contains a valid forfeiture clause, the beneficiary may forfeit his or her gift under the will if he or she pursues a challenge to the will.
Pursuant to the Succession Act, certain individuals can also challenge provisions of the will (or the laws of intestacy) where ‘reasonable financial provision' has not been made for the challenging beneficiary (see question 3.).
4.9 What intestacy rules apply in your jurisdiction? Can these rules be challenged?
Please see questions 3.4 and 3.5.
5.1 What laws govern trusts or equivalent instruments in your jurisdiction? Can trusts be governed by the laws of another jurisdiction?
Bermuda trust law is largely based on English common law, but has been enhanced and codified in the following key statutes:
- the Trustee Act 1975, as amended;
- the Trusts (Special Provisions) Act 1989, as amended;
- the Perpetuities and Accumulations Act 2009, as amended;
- the Trusts (Regulation of Trust Business) Act 2001, as amended; and
- the Conveyancing Act 1983, as amended.
Bermuda recognises trusts that are governed by the laws of another jurisdiction. When setting up a trust, a settlor can choose the law which governs the trust; if no applicable law is chosen, the trust will be governed by the law with which it is most closely connected (as more particularly set out in the Trusts (Special Provisions) Act 1989). A trust can provide for a change of governing law to another jurisdiction (provided that the new governing law recognises the validity of the trust and the respective interests of the beneficiaries). The trust instrument can also provide that a severable part of the trust is governed by a different law.
5.2 How is any conflict of laws resolved?
Bermuda has had strong firewall provisions in place for many years, as set out in the Trusts (Special Provisions) Act 1989. The recent Trusts (Special Provisions) Amendment Act 2020:
- clarified the jurisdiction of the Bermuda court in respect of Bermuda trusts and foreign trusts with a connection to Bermuda; and
- modernised the provisions of the Trusts (Special Provisions) Act 1989 with regard to the application of foreign laws and foreign orders to Bermuda trusts.
5.3 What different types of structures are available and what are the advantages and disadvantages of each, from the private client perspective?
A Bermuda law discretionary trust is a flexible option for many private clients. The trustee generally has wide discretionary powers over the trust fund, and decides when and which beneficiary to benefit (from within a class) and whether to make payments out of capital or income from the trust funds. Discretionary beneficiaries have a right to be considered only if and when the trustee exercises its discretion as opposed to having a specific interest in the trust.
Fixed interest trusts can be used for estate planning purposes or to ensure that certain trust assets are distributed to one or more beneficiaries in a prescribed way. In such trusts, primary beneficiaries are often granted a right to receive the income of the trust fund and the capital in certain circumstances. The trustee has little flexibility or discretion over the nature and extent of distributions. Many modern pension trusts are fixed interest trusts where the trustee holds a fixed share for the member (ie, beneficiary) of the pension scheme.
Bermuda's ‘reserved powers' legislation, found in Section 2A of the Trusts (Special Provisions) Act 1989, as amended, expressly provides for powers which can be reserved to a settlor without invalidating the trust.
Charitable trusts are commonly established in Bermuda and must be set up for charitable purposes, as described in the Charites Act 2014 as amended, and be for the public benefit.
Pursuant to the Trusts (Special Provisions) Act 1989, as amended, Bermuda was the first offshore jurisdiction to enact legislation for the establishment of non-charitable purpose trusts. Such a trust can be created for the benefit of non-charitable purposes, as opposed to specific individuals, if such purposes are sufficiently certain, lawful and not contrary to public policy. Purpose trusts are popular for the promotion of Bermuda companies to participate in transactions or to perform specific actions – for example, owning shares of a private trust company which acts as trustee of a particular trust or group of family trusts.
Trusts provide a number of benefits for private clients and it will depend on an individual's requirements and objectives as to which type is most appropriate for him or her.
5.4 Are foreign trusts recognised in your jurisdiction? If so, what process is followed in this regard?
See question 5.1.
5.5 How are trusts created and administered in your jurisdiction?
Bermuda trusts can be created by:
- a deed of settlement entered into between the settlor and the original trustees; or
- a declaration of trust by the original trustees.
The settlor of the trust adds real or personal property to constitute the trust.
Trustees of Bermuda trusts can be individuals or companies. Commonly, licensed trust companies or private trust companies act as trustees of Bermuda trusts. Licensed trust companies are regulated by the Bermuda Monetary Authority and hold a license pursuant to the Trusts (Regulation of Trust Business) Act 2001. A private trust company is one which is incorporated with the limited objective of acting as trustee of a particular trust or group of trusts and does not require a trust licence.
Trustees must keep proper records and accounts of all trust assets and business. Trustees should ensure that they are properly informed as to the value of the trust assets and the nature of the business activities of any corporate entities held by them.
5.6 What are the legal duties of trustees in your jurisdiction?
Under Bermuda law, trustees are fiduciaries and examples of their key duties include the following:
- to act honestly and in good faith in the best interests of the beneficiaries in accordance with the terms of the trust;
- to bring and keep under their control trust property which must be kept separate from their private property and from any other property of which they are trustees;
- to obey the terms of the trust deed, unless all the beneficiaries are adult and consent to trustee actions contrary to the terms of the trust or the court sanctions a variation of the trust's terms;
- to act impartially between the beneficiaries. This duty amounts to a fair balancing of the interests of beneficiaries, particularly where certain beneficiaries are entitled to current income and others to future interests in capital;
- to exercise reasonable care, skill and caution when choosing a delegate or agent (although there are certain trust functions which are not delegable);
- to exercise reasonable care, skill and caution in the administration of the trust and the investment of the trust assets. A higher standard of diligence and knowledge is generally expected from professional trustees who receive remuneration for their services;
- to act unanimously unless otherwise expressly authorised under the trust deed;
- not to profit from the trust's property or to purchase trust property for personal enjoyment; and
- to keep accounts and, at all reasonable times and on request, to furnish any beneficiary with accounts.
5.7 What tax regime applies to trusts in your jurisdiction? What implications does this have for settlors, trustees and beneficiaries?
No Bermuda income, capital gains, gift, inheritance, estate or other taxes are imposed on Bermuda trusts. Certain minor stamp duties may apply to various documents.
As mentioned in question 2.8(d), there are exceptions to the application of stamp duty in relation to trusts. Notably, where non-Bermuda property is added to the trust fund, there is no stamp duty payable.
5.8 What reporting requirements apply to trusts in your jurisdiction?
Bermuda does not maintain a register of trusts, and the trust deed and other trust documents are private and confidential. There are no filing requirements in Bermuda in relation to trusts.
5.9 What best practices should be observed in relation to the creation and administration of trusts?
The settlor will need to consider various factors when deciding to set up a trust, including:
- the assets that he or she intends to transfer into the trust;
- who will benefit from the trust;
- who will act as trustee;
- the extent of the powers of the trustees; and
- whether the trust is revocable or irrevocable.
It is also recommended that a settlor signs a letter of wishes which gives non-binding guidance to the trustees about the settlor's wishes in relation to the trust.
As a matter of good governance, trustees should hold at least one or two formal meetings annually to review and consider relevant trust issues and beneficiary needs. All substantive trustee decisions should be approved and recorded in trustee resolutions which are kept in the trust's records. Proper records of account should also be kept.
Trustees should consider taking professional investment, tax or other advice, as appropriate to the trust structure.
6 Trends and predictions
6.1 How would you describe the current private client landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Bermuda is a robust and stable choice of jurisdiction for private clients considering their estate planning affairs. The Bermuda trust industry continues to see private clients wishing to establish new trust structures.
The jurisdiction also has the benefit of the flexibility of Section 47 of the Trustee Act 1975, which gives the Bermuda court jurisdiction to approve reorganisations of Bermuda law trusts. Under Section 47, the Bermuda court has the power to vary beneficial interests and administrative powers under a trust where it is ‘expedient' to do so and without requiring beneficiaries' consent. Section 47 applications are typically heard in camera and with the benefit of confidentiality orders, which is appealing for those who wish to keep their family affairs private. The Bermuda court also sees applications to extend the perpetuity period of trusts, as Bermuda abolished the rule against perpetuities some years ago.
Bermuda has a progressive trust law reform programme which actively considers modernisation and improvements to trust law on a regular basis. Recent changes include those to Bermuda's firewall legislation, enhancing the existing provisions in the Trusts (Special Provisions) Act 1989.
7 Tips and traps
7.1 What are your top tips for effective private client wealth management in your jurisdiction and what potential sticking points would you highlight?
Private clients should take professional advice when considering their estate planning and wealth management arrangements. There is a wide range of expertise on the island, including:
- large international and local law firms;
- the ‘Big Four' accountancy firms; and
- a variety of trust and corporate service providers.
Given Bermuda's advantageous geographic location, private clients can visit the island before they consider setting up private wealth structures in Bermuda and afterwards. Another tip for private clients is to seek the assistance of Bermuda's Business Development Agency (a company whose supporters and stakeholders include the Bermuda government and industry leaders), which can provide a business concierge service for private clients considering establishing a family office or business base on the island.
While Bermuda is a robust, stable and well-regulated place to do business and establish trust structures, there may be aspects of the island (as with any jurisdiction) which do not suit an individual, for various reasons. Private clients should therefore thoroughly research the jurisdiction in which they intend to establish and manage their wealth structures.
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.