Offshore: Trust in offshore
Private trust companies have become an increasingly popular tool within the wealth planning industry as the advantages of having a private trust company acting as trustee of a group of family trusts have become more recognised. In response to this rise in popularity, the leading offshore jurisdictions have over the past few years either introduced new or adapted existing regulatory regimes to ensure their attractiveness as host jurisdictions for private trust companies.
The benefits of private trust companies have been recently highlighted, and overseas jurisdictions are responding with adapted regulatory regimes. Edward Stone details how the rules involved in setting them up have changed
Private trust companies have become an increasingly popular tool within the wealth planning industry as the advantages of having a private trust company acting as trustee of a group of family trusts have become more recognised.
In response to this rise in popularity, the leading offshore jurisdictions have over the past few years either introduced new or adapted existing regulatory regimes to ensure their attractiveness as host jurisdictions for private trust companies.
In September 2008, the Cayman Islands brought into effect new regulations to deregulate private trust companies. Under the previous licensing and regulatory regime, Cayman Islands private trust companies were required to hold a restricted trust licence; substantial disclosure was required as well as vetting by the Cayman Islands Monetary Authority (CIMA). Companies were subject to ongoing regulation and were also obliged to have their annual accounts audited. These requirements and obligations have now been removed and replaced by a basic registration requirement.
It remains possible for a Cayman Island private trust company to apply for a restricted trust licence if desired. For certain families there may be advantages to having a licensed and regulated trustee, due to the location of family members or the nature of the underlying assets of the trusts, which outweigh the extra initial disclosure and costs.
New exemption regime
Under the Private Trust Companies (PTC) Regulations 2008, a Cayman Islands private trust company that only conducts “connected trust business” and is registered with CIMA will not require a trust licence and will not be subject to the regulatory requirements of the banks and trust companies law (2007 revision). A registered Cayman Islands private trust company is not, therefore, subject to any minimum capitalisation requirements, to CIMA vetting and approval of all directors and shareholders, or to having audited annual accounts. An important change was made simultaneously to the trust law (2007 revision) to allow a registered Cayman Islands private trust company to act as the sole trustee of a Special Trusts (Alternative Regime) (STAR) trust. Previously, at least, one of the trustees of a STAR trust had to be a licensed Cayman trust corporation.
Connected trust business
The test for determining whether a Cayman Islands private trust company carries on connected trust business for the purposes of the regulations looks solely at the relationship between the contributors of the underlying trust assets: each contributor must be a connected person to any others. There is no requirement for the beneficiaries to be connected persons to the other beneficiaries or to any contributor.
The scope of a ‘connected person’ is broadly defined, and it is expected that the majority of private trust companies, which typically are set up by and for individual families, should satisfy the connected persons test without difficulty.
Other requirements under the PTC
In addition to the connected persons test, the regulations set out a number of formalities for a Cayman Islands private trust company, including requirements that the company must be incorporated in the Cayman Islands; conduct no trust business other than connected trust business; maintain its registered office at the office of licensed trust company in the Cayman Islands; keep at its registered office, in relation to each relevant trust, up-to-date copies of the trust deed or other document containing or recording the trust, its powers and provisions and any deed or document varying the trust, its powers or provisions; and use the words ‘Private Trust Company’ or the letters ‘PTC’ in its name.
There are no requirements that the company have any minimum share capitalisation or for it to appoint any local directors or officers.
Although there is no longer any licensing requirement, a Cayman Islands private trust company must register with CIMA at the time of registration and on or before 31 January every year thereafter. During the continuation of the registration it must file an annual declaration with CIMA declaring: the name of the company; the names of the directors; the name of the holder of the trust licence providing the registered office of the company; that the company is only carrying on connected trust business; and that the company is in compliance with the requirements of the regulations.
The initial registration fee is approximately $4,270 (£2,989) and the annual registration fee thereafter is about $3,660.
No regulatory approval
There is no requirement for a Cayman Islands private trust company to obtain approval either prior to incorporation or at any subsequent stage from CIMA or from any other body. There is no requirement under the regulations to disclose to any person details of the contributor or of the beneficiaries of the trusts. Anti-money laundering and combating the financing of terrorism regulations continue to apply but will now be carried out by the licensed trustee providing the registered office.
The deregulated Cayman private trust company regime is already proving attractive to wealthy families and individuals, particularly to act as trustees of STAR trusts as this combination allows for flexibility that no other offshore jurisdiction can match.
Edward Stone is head of trust and private client in the London office of Conyers Dill & Pearman.
The PTC regulations state that a person is a ‘connected person’ in relation to another person if:
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