The Trusts (Special Provisions) Act 1989 -
- that is for the benefit of particular persons whether or not immediately ascertainable; or
- that is for the benefit of some aggregate of persons ascertained by reference to some personal relationship."
The Act provides that a person may create a valid trust for a purpose or purposes (whether charitable or not), for a term not exceeding one hundred years, if:
- the purpose or purposes are specific, reasonable and possible;
- the purpose or purposes are not under the law immoral, contrary to public policy or unlawful;
- the trust is created by deed or by will which is capable of being and is admitted to probate in Bermuda or in respect of which letters of administration in Bermuda are capable of being and are granted;
- the sole trustee, or at least one of the trustees, is a designated person (which includes a barrister and attorney or a chartered accountant practising in Bermuda or a Bermuda trust corporation);
- the instrument creating the trust appoints a person to enforce the trust ("the enforcer") and provides for the appointment of a successor to such person; and
- the instrument creating the trust specifies the event upon the happening of which the trust terminates and provides for the disposition of surplus assets of the trust upon its termination.
Note: VERY careful drafting is called for to ensure that genuine purposes, and not mere powers (e.g. to hold shares) are created. If there is no purpose or "goal" to be achieved the Trust may well be void and a resulting Trust in favour of the Settlor may arise, with disastrous consequences.
Enforcement of purpose trusts is at the, very heart of the concept. Private trusts (i.e. traditional trusts having beneficiaries) rely for their efficacy on the ability of those beneficiaries to enforce the trust, if necessary by taking the trustee to Court. Since a purpose trust lacks beneficiaries, the enforcement question has been solved in Bermuda by the institution of an "enforcer" who will have locus stands to enforce the trust.
There are no particular criteria (e.g. as to independence) applied by the Act to the appointment of an enforcer. Nor are the functions of the enforcer specified in the Act. There is bound to be a monitoring role, with a duty to act should the enforcer feel (on what must be a subjective basis) that the trustee is failing to carry out the purposes of the trust in the proper manner. For this reason it is likely that the enforcer should be empowered in the trust deed to replace the trustee. A protector may also serve as enforcer. The role(s) are likely to be regarded as fiduciary.
The Act also provides that where a trustee who is a designated person has reason to believe that a person appointed to enforce a trust is dead, is unwilling, refuses or is unfit to act or is incapable of acting then he must inform the Attorney-General of the fact and send him a copy of the instrument which created the trust. The Attorney-General may thereupon apply for the appointment of a person to enforce the trust. Where costs are incurred by the Attorney General in such an application, the Court may make such order as it considers just as to payment out of the assets of the trust.
We have seen that the trust instrument must specify the event which triggers the termination of the trust and must provide for the disposition of surplus assets of the trust on termination. The termination trigger seems to present no particular problem. This might be either an event or simply lapse of time (up to 100 years or earlier if the settlement so provides). But the disposition of surplus 'assets needs careful consideration and drafting.
ADMINISTRATIVE REQUIREMENTS
A designated person appointed as trustee of a trust for a purpose is required to keep at its or his office in Bermuda:
- a copy of the instrument which created or evidenced the trust and also copies of amending and supplemental instruments;
- a register of such trusts specifying in respect of each trust, the name of the person who created the trust, a summary of the purpose or purposes of the trust and the name and address of the person appointed to enforce the trust;
- such documents as are sufficient to show the true financial position of each trust at the end of the trust's financial year together with details of all applications of principal and income during the financial year.
The instrument, register and other documents are not available for public inspection. However, the designated person must permit the Attorney-General or a person authorised by him and the person appointed to enforce the trust to inspect them.
The obligation to maintain these records and documents and to permit inspection is supported by penal sanctions.
Nothing in the Act affects the creation, variation, termination or validity of any trust created under any other law but, subject to that, trusts for a purpose or purposes are invalid excepting trusts for charitable purposes. We have to ask whether this provision will invalidate existing or future "tombstone" trusts, unless they comply. It seems it may.
No interest in land in Bermuda may be held, directly. or indirectly, in a trust for a purpose or purposes, other than, a trust for a charitable purpose. This is for local policy reasons.
THE EMPLOYMENT OF OPTs
The twin results of the Act are:
- to provide for the settlement of enforceable purpose trusts to cater for philanthropic or benevolent objects which would otherwise fall foul of the strictness and uncertainty of the legal definition of charity, as discussed above, and
- to provide a basis on which pure purposes, having no public or other charitable elements, can form the objects of trusts in the context of private client planning and in commercial applications.
In the context of international corporate and commercial planning, the OPT is especially useful. Trusts have, through the ages, been used to separate legal and beneficial ownership. An OPT might be seen as taking this process a stage further a means of insulating - for a period - even the beneficial ownership of assets. The Bermuda OPT is used in the following situations, among others: -
- to supply specialised services, often through a holding or investment company or of a Private Trustee Company ("PTC") (q.v. supra at 6.3).
- in the context of corporate financing. For example a corporation seeking to purchase a ship or an aircraft might settle a purpose trust to own a Special Purpose Vehicle ("SPV") which owns the aircraft or vessel. The shares in the SPV are held in trust (and may be pledged to a lender) until the loan is satisfied. The effect is to isolate both lending and "disaster" risk, although it may be desirable to insulate the trustee company and its directors through the use of a special purpose "private" trustee company.
- to take assets off balance sheet.
- in Securitisation and Project Finance applications and to hold the shares of a Foreign Sales Corporation.
- in specific commercial situations, e.g. the establishment of an environmental restorative fund, including following mining operations.
- As a "negative inducement" e.g. the prevention of felling specific trees.
The planning opportunities offered by the purpose trust, like the trading business trust and the unit trust, are considerable. To date, the surface has only been scratched and further development will undoubtedly take place.
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.
