Trust law in Bermuda is based on English law and consequently the procedures for the formation of trusts are comparatively simple. Once the settler and his advisors have decided on what assets are to be settled and on what terms (and the law in Bermuda is extremely flexible as to what terms are permitted), they need to identify the trust company or individuals who are to act for them. The potential trustee will then arrange for the appropriate trust deed to be drafted, using or liasing with the client's attorneys where requested. Establishing a trust can be accomplished in a relatively short period of time.
The majority of trusts established in Bermuda are discretionary in nature. Such trusts are extremely flexible instruments that generally give the trustee wide powers of investment, administration and appointment. The trust deed may provide for the appointment of a protector with certain defined powers (e.g. replacement of trustees). There are no registration requirements or any other kind of regulation over the formation or activities of a trust Nor is any information concerning a trust available to the general public (although the Attorney General has certain limited rights to information with respect to purpose trusts). There are no taxes or stamp duties on Bermuda's international trusts.
Asset Protection Trusts
Bermuda has enacted a legislation that strikes a reasonable balance between the rights of settlers and creditors and preserves Bermuda's image as a responsible offshore business centre. The legislation provides than an individual may qualify as an eligible creditor within two years of the transfer of assets. In order to claim assets placed in trust, the creditor must then demonstrate that the dominant purpose of the transferor was to put the assets beyond the reach of his creditors.
In many countries, succession laws governing how and to whom assets must pass on death are strictly enforced. Assets in a Bermuda trust would be treated in accordance with the terms of the trust deed rather than the succession laws of the settler's country. Obviously, in these situations, care must be taken to ensure that the assets are located in a jurisdiction that protects them from potential claim.
The Trusts (Special Provisions) Act 19898 introduced the concept of the purpose trust. Purpose trusts are created for non-charitable purposes and do not have beneficiaries. The purpose(s) of such trusts must be specific, reasonable, possible and no contrary to public policy. Since purpose trusts have no beneficiaries, the legislation provides that certain persons may apply to the court to ensure that the trustees carry out their duties in an appropriate manner. A purpose trust has wide-ranging uses, from ownership of private trust companies to assisting in corporate financing.
Private Trust Companies
Private trust companies can be incorporated to act with trustee powers in private trust structures, which may be for commercial as well as family situations and such companies are free of regulation. A private trust company has the power to act as trustee over a particular trust or group of related trusts and is often owned by a Bermuda purpose trust. This structure allows the settler, his family and associates to be more involved in the management of the assets through directorships of the private trust company.
Bermuda As A Trust Fund Domicile Of Choice
To summarise, Bermuda has become a personal trust fund domicile of choice due to features such as:
- Bermuda trusts are protected the Rules of Equity and principles of law and precedent and are recognised by the courts, with right of appeal to the privy council in London;
- Bermuda law recognises the choice of governing law expressed in a trust and the ability to change the governing law to or from that of Bermuda;
- a Bermuda trust may be set up as revocable or irrevocable and may be created for any period of time not infringing upon the Rule Against Perpetuities, or for a period of 100 years;
- no Bermuda trust may be set aside for reasons of forced heirship or where the laws of a foreign jurisdiction do not recognise the concept of trust;
- Bermuda has developed the concept of the private trust company, enabling the creation of a company in Bermuda to act s trustee of family or group trusts;
- Bermuda has introduced purpose trusts, which enable trusts to be established for an express purpose without ascertained beneficiaries;
- the recently enacted Proceeds of Crime Act, modelled on the equivalent British legislation, provides a structure that guards against criminal and other undesirable business.
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.