1 Legislative framework

1.1 Which legislative provisions govern private client matters in your jurisdiction?

The main legislative regimes which apply to private clients are:

  • the Trusts Act;
  • the Companies Act;
  • the Foundation Companies Act;
  • the Succession Act; and
  • the Wills Act.

Increasingly, private client work also requires an understanding of the various regulatory regimes which impact on private clients, such as automatic exchange of information, beneficial ownership laws and economic substance.

1.2 Do any special regimes apply to specific individuals (eg, foreign nationals; temporary residents)?

Various legislative regimes distinguish between persons and companies resident or domiciled in the Cayman Islands and those which are not. For example, trusts that have no beneficiaries resident or domiciled in the Cayman Islands are eligible for tax undertaking certificates from the government exempting the trust from any possible future Cayman Islands taxes for a period not exceeding 50 years. Such an undertaking is not available for any trust with beneficiaries who are resident or domiciled in the Cayman Islands.

1.3 Which bilateral, multilateral and supranational instruments in effect in your jurisdiction are of relevance in the private client sphere?

On 29 November 2013, the Cayman Islands government signed a Model 1(b) (ie, non-reciprocal) intergovernmental agreement with the United States (US-IGA) for the implementation of the US Foreign Account Tax Compliance Act. In addition, on 5 November 2013, the Cayman Islands government signed a Model 1(b) intergovernmental agreement with the United Kingdom (UK-IGA) for the implementation of the United Kingdom's Crown dependencies and overseas territories reporting regime. The UK-IGA is based on the broad principles set out in the US-IGA.

The Organisation for Economic Co-operation and Development's Standard for Automatic Exchange of Financial Account Information (commonly known as the Common Reporting Standard (CRS)) is a global information exchange regime developed to facilitate and standardise the automatic exchange of information (AEOI) on residents' assets and income between participating jurisdictions on an annual basis. The Multilateral Convention on Mutual Administrative Assistance in Tax Matters was extended to the Cayman Islands by the UK with effect from 1 January 2014 and permits participating countries to enter into agreements that provide for AEOI with respect to certain tax matters. Through the operation of the convention, the Cayman Islands, along with more than 90 other countries, have signed or committed to sign a multilateral competent authority agreement providing the legal basis through which countries can agree to the CRS.

2 Taxation

2.1 On what basis are individuals subject to tax in your jurisdiction (eg, residence/domicile/nationality)? How is this determined?

There is no direct taxation of individuals in the Cayman Islands, whether by reference to their residence status or otherwise.

2.2 When does the personal tax year start and end in your jurisdiction?

As there is no direct taxation, there is no relevant ‘tax year'.

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?

There are no personal or corporate income taxes in the Cayman Islands.

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?

There are no corporate taxes in the Cayman Islands

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?

There is no form of inheritance tax, estate tax, death duties or gift tax in the Cayman Islands.

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?

There are no taxes on investment income in the Cayman Islands.

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?

Stamp duty is charged on transfers of Cayman Islands real estate. Ad valorem duty is charged at a rate of 7.5% of the market value.

(b) How is the taxable base determined?

The market value of the real estate or the consideration paid for the transfer (whichever is the higher).

(c) What are the relevant tax return requirements?

The minister of finance is the commissioner of stamp duty and has delegated responsibility to the Lands & Survey Department for the assessment and collection of stamp duty on all documents relating to real estate. Stamp duty is payable on execution of the relevant contract, which should be presented to the Lands & Survey Department as soon as possible after execution. Outstanding stamp duty can attract interest if the relevant documents are not submitted and stamped within 45 days of execution.

(d) What exemptions, deductions and other forms of relief are available?

First-time Caymanian purchasers of land are eligible for reduced rates of duty of 0% to 2%, depending on the value of the property being purchased and whether it is undeveloped land or developed property. The minister of finance of the Cayman Islands can waive or abate the whole or part of the duty payable; and an application can be made for a waiver of stamp duty with respect to transfers that do not result in any change of beneficial ownership. There are also waivers of stamp duty when property passes because of ‘natural love and affection' between certain family members.

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?

There are no direct taxes in the Cayman Islands

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?

The importation of most goods will incur a customs duty at differing rates depending on the product (the most commonly applicable rate being 22%).

3 Succession

3.1 What laws govern succession in your jurisdiction? Can succession be governed by the laws of another jurisdiction?

Under the law of the Cayman Islands:

  • succession to immoveable property is governed by the lex situs (ie, the place where the property is situated); and
  • succession to moveable property is governed by the law of the deceased's domicile at the date of death.

Thus, the applicable succession rules will often be governed by the laws of another jurisdiction, depending on the type and location of property and the jurisdiction of the deceased's domicile.

Cayman Islands law confers complete freedom of testamentary disposition on individuals. The Succession Act (2006 Revision) and the Probate and Administration Rules (2008 Revision) prescribe the procedures for obtaining grants of representation in the Cayman Islands: no person, other than a person acting as agent of necessity, may take possession of, administer, distribute or otherwise deal with any part of the estate unless a grant has been obtained from the Grand Court. This applies to all forms of property situated in the Cayman Islands at the date of death.

3.2 How is any conflict of laws resolved?

As outlined in question 3.1:

  • succession to immoveable property is governed by the lex situs (ie, the place where the property is situated); and
  • succession to moveable property is governed by the law of the deceased's domicile at the date of death.

As such, a conflict of laws will not ordinarily arise; however, if it did it, any such conflict would be determined in accordance with English common law principles.

3.3 Do rules of forced heirship apply in your jurisdiction?

There is no forced heirship under Cayman law; however, as the applicable succession law will depend on the type and location of the property and the jurisdiction of the deceased's domicile, the forced heirship rules of another jurisdiction could have application in the Cayman Islands.

3.4 Do the rules of succession rules apply if the deceased is intestate?

The Succession Act prescribes rules governing the devolution of estates on intestacy, which do not, however, apply to the Cayman-situated estate of persons who die while domiciled outside the Cayman Islands, unless the intestacy rules are made applicable under the doctrine of renvoi (a process by which the court adopts the rules of a foreign jurisdiction with respect to any conflict of laws).

If the intestate dies leaving a surviving spouse and issue, the surviving spouse takes all personal chattels and the residuary estate stands charged with the payment to the surviving spouse of the sum of KYD 20,000 or 50% of the net value of the residuary estate (whichever is the greater), plus interest at 5% per annum from date of death until payment. The remainder of the residuary estate is held on ‘statutory trusts' for the issue of the intestate and, subject to that, for the surviving spouse for life.

If the intestate dies leaving a surviving spouse but no issue, the surviving spouse takes all personal chattels and the residuary estate is held absolutely as to 25% for the parents of the intestate and 75% for the surviving spouse. If there are no surviving parents of the intestate, the surviving spouse takes the whole of the residuary estate.

If the intestate dies leaving issue, but no surviving spouse, the residuary estate is held in statutory trusts for that issue.

Subject to the above, the intestacy rules go on to determine a ‘waterfall' of persons entitled to the intestate's residuary estate, either outright or on the statutory trusts (mutatis mutandis), being:

  • the intestate's parents or parent;
  • siblings (full, then half);
  • grandparents;
  • uncles and aunts (full, then half); and
  • ultimately, the Crown as bona vacantia.

3.5 Can the rules of succession be challenged? If so, how?

As there is complete testamentary freedom under Cayman law, the rules of succession cannot ordinarily be challenged; so any challenge to a deceased estate is more likely to be framed around the testator's capacity, the validity of a will or the applicability of a particular jurisdiction's succession rules.

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 law of wills is governed principally by the Wills Act (2004 Revision). The Formal Validity of Wills (Persons Dying Abroad) Act, 2018 came into force in early 2019. The act replaced the common law rule, which required that a will disposing of moveable property such as shares be executed according to the law of the country in which the testator was domiciled at death. In contrast, the act now provides that a will is valid where it conforms with any of the following:

  • Cayman Islands law;
  • the law in the territory where it was executed;
  • the law in the territory where, at the time of its execution or at the time of the testator's death, the testator was domiciled or had his or her habitual residence; or
  • the law in the territory where the deceased was a national at the time of execution or at the time of death.

4.2 How is any conflict of laws resolved?

Conflicts of laws are resolved in accordance with English common law principles.

4.3 Are foreign wills recognised in your jurisdiction? If so, what process is followed in this regard?

A will is valid where it conforms with any of the following:

  • Cayman Islands law;
  • the law in the territory where it was executed;
  • the law in the territory where, at the time of its execution or at the time of the testator's death, the testator was domiciled or had his/her habitual residence; or
  • the law in the territory where the deceased was a national at the time of execution or at the time of death.

In order to prove a will, the appointed executor must apply for a grant of representation. Where a will's validity is governed by the laws of another jurisdiction, this will need to be proven to the court (ordinarily by way of affidavit evidence from a qualified attorney in that jurisdiction).

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 ordinarily be paid in preference and at the expense of certain legatees.

4.5 What formal requirements must be observed when drafting a will?

For a will to be formally valid under the law of the Cayman Islands, it must be in writing and signed by the testator (or by another person at his or her direction) in the presence of two or more witnesses who each sign in each other's presence and that of the testator. The testator must have requisite mental capacity and must know and approve of the contents of the will.

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. In addition to these requirements and as a matter of best practice, we would ordinarily expect the testator and each of the witnesses to sign or initial the footer of each page of the will.

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?

A will cannot be amended after the testator's death. However, in the event of a dispute between beneficiaries of the estate (or in the event that the will does not properly reflect the testator's intentions), there are various options, such as a deed of family arrangement, which may modify how the estate is ultimately distributed.

4.8 How are wills challenged in your jurisdiction?

A will can be challenged on the basis that it is not valid – for example, because the testator lacked capacity. However, as there is testamentary freedom under Cayman law, there is otherwise limited scope to challenge a will (other than on the grounds of its validity).

4.9 What intestacy rules apply in your jurisdiction? Can these rules be challenged?

The intestacy rules are described in question 3.4. There is limited scope to challenge the rules themselves; however, it is possible to challenge the application of the rules or to argue that the rules are not applicable based on the deceased's place of domicile (if such place is arguably outside the Cayman Islands).

5 Trusts

5.1 What laws govern trusts or equivalent instruments in your jurisdiction? Can trusts be governed by the laws of another jurisdiction?

Being a British overseas territory, the Cayman Islands acquired English law, including principles of equity and the law of trusts. In this branch of the law, as in many others, Cayman legislation is modelled on English law. The principal legislation is the Trusts Act (2021 Revision). As in England, the legislation does not set out to codify the law and is concerned primarily with:

  • the appointment and retirement of trustees;
  • their powers and protections; and
  • the powers of the court.

However, it does have some non-English features, such as the concept of exempted trusts and trusts established under the Special Trusts Alternative Regime (STAR).

Trusts (even where administered by a Cayman Islands trustee) can be governed by the laws of another jurisdiction.

5.2 How is any conflict of laws resolved?

English common law principles apply, subject to local legislation – for example, Part VII of the Trusts Act, which sets out the ‘firewall provisions' excluding forced heirship claims against assets held in Cayman trusts.

5.3 What different types of structures are available and what are the advantages and disadvantages of each, from the private client perspective?

In addition to discretionary and fixed trusts (which are familiar to many common law jurisdictions), the Cayman Islands has enacted ‘reserved powers' legislation which explicitly provides for the powers that may be reserved to the settlor of a trust without invalidating the trust.

Furthermore, the Cayman Islands has also enacted the STAR Law (now consolidated into Part VIII of the Trusts Act), which provides for a different form of trust commonly referred to as a ‘STAR trust'. The objects of a STAR trust may be persons or purposes or both. The persons may be of any number; and the purposes may be of any kind, whether charitable or non-charitable, provided that they are lawful and not contrary to public policy. The only persons with standing to enforce a STAR trust are those who are appointed ‘enforcers' under the trust deed or by order of the court. Enforcers are deemed to have a fiduciary duty to act responsibly with a view to the proper execution of the trust, subject to evidence of contrary intention. This form of trust can offer many structuring advantages, as it separates the right to benefit from the right to enforce a trust.

5.4 Are foreign trusts recognised in your jurisdiction? If so, what process is followed in this regard?

Yes, as a general rule, the Cayman Islands legal system will recognise the existence of foreign trusts. There is no requirement for trusts to register in the Cayman Islands. 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).

5.5 How are trusts created and administered in your jurisdiction?

An express trust inter vivos may be constituted either:

  • by declaration (the owner declaring a trust of his or her own property); or
  • by settlement (the owner transferring the property to trustees and agreeing the trusts on which the property is to be held).

There are no technical requirements as regards the language used, provided that:

  • it shows with reasonable certainty an intention to create a trust; and
  • it identifies with reasonable certainty:
    • the beneficiaries;
    • the trust property; and
    • the way in which the property is to be applied.

Though not strictly essential in all cases, it is desirable that the terms of the trust be set out in a document signed by the settlor and the trustee. The transfer of property to the trustee requires appropriate formalities depending on the nature and location of the property.

5.6 What are the legal duties of trustees in your jurisdiction?

Trustees are subject to stringent fiduciary duties (as is typical of trustees throughout the common law world). While such duties can be modified by the terms of the trust itself, 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 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?

There are no direct income or capital taxes applicable to trusts or trustees in the Cayman Islands. The Trusts Act (2021 Revision) provides for a system whereby trustees may register a trust as an ‘exempted trust'. Once a trust has been so registered, the trustees may apply for an undertaking guaranteeing that, were the Cayman Islands to introduce taxes referable to trusts or trustees, such taxes would not apply to the exempted trust. The undertaking is normally valid for a period not exceeding 50 years from the date of the trust.

5.8 What reporting requirements apply to trusts in your jurisdiction?

Trusts may be subject to the US Foreign Account Tax Compliance Act and Common Reporting Standard reporting. Unless trusts are registered as an exempted trust, there is no requirement to register or file trust documents with any regulatory authority.

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 trustees;
  • the extent of the powers of the trustees; and
  • whether the trust is revocable or irrevocable.

It is also recommended that the settlor sign 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.

Persons and companies involved in the creation and administration of Cayman trusts must also have in place appropriate practices to counter anti-money laundering and counter-terrorism financing risks. The Cayman Islands has established its regulatory framework based on relevant international standards of supervision and cooperation with both local and overseas regulatory authorities. The Anti-Money Laundering Regulations require all persons engaged in relevant financial businesses, as defined in the Proceeds of Crime Act, to have in place systems, policies and procedures to implement a strong anti-money laundering framework, including procedures for:

  • customer due diligence;
  • record keeping;
  • implementation of a risk-based approach;
  • ongoing monitoring;
  • compliance with lists of targeted financial sanctions;
  • internal reporting of suspicious activities;
  • staff screening;
  • staff training; and
  • internal controls.

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?

The Cayman Islands remains one of the leading international financial centres for trusts and related private wealth structures. The Cayman Islands fared very well during the COVID-19 pandemic; and its stability during this time highlighted the jurisdiction's many strengths and led to increased interest from high-net-worth individuals looking to relocate to, or establish a second home in, the Cayman Islands.

There is also an increased interest in structures designed to hold digital assets. Cayman is well positioned to offer a range of attractive structures for digital assets and recently introduced a regulatory regime for virtual asset service providers – the Virtual Asset (Service Providers) Act (VASP). Under VASP, it is mandatory for providers of a virtual asset service to be licensed or registered. ‘Virtual asset service' is given a very broad definition, which covers the issuance, exchange, transfer, custodial services and "participation in, and provision of, financial services related to a virtual asset".

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?

When engaging with Cayman Islands trusts, it is important to ensure that you engage with a qualified Cayman Islands attorney at an early stage. While Cayman law is similar to English law in many respects, there are many nuances, which can be missed (often with significant adverse consequence) without advice from a practising Cayman attorney at the appropriate stage.

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.