The renewed interest in Cayman Islands trusts is driven by a number of key reasons, including the rigor of the law, the quality of the judicial system, and the strength of the financial intermediaries that support the island trust industry. Judith Chatu
According to official statistics released by the Cayman Islands General Registry in January 2021, the number of new trusts registered in the jurisdiction skyrocketed in 2020. Indeed, last year the number of new trusts hit their highest level. since 2014, an increase of almost 30% over 2019. Since trusts are generally not required to register with the Registrar General, this figure is likely to underestimate the volume of activity in terms of real, but clearly provides a good indication of the continued growth of the industry in the Cayman Islands.
Security and rule of law
The Cayman Islands Monetary Authority (CIMA) oversees and regulates providers of a wide range of financial services, including trust, banking, insurance and investment management, and OECD full compliance makes the Cayman Islands a very safe place – especially for those individuals and organizations from countries or regions subject to socio-political turmoil and uncertainties. Therefore, it is no surprise that the Cayman Islands have become a very popular jurisdiction for the Far Eastern, Middle Eastern and Latin American markets.
The creation of a trust is based on the desire for the long-term security and stability of wealth and assets. Location is the key to success.
The financial services industry accounts for about a third of the Cayman Islands’ GDP and is well known as the world’s most popular hedge fund destination and the registered headquarters of 11,000 mutual funds. This popularity and the corresponding maturity of the market have helped to create a comprehensive and favorable regulatory environment for other segments of the financial sector, such as the fiduciary sector.
The creation of a trust is based on the desire for the long-term security and stability of wealth and assets. Location is key to this effort, and as Saffery Champness discovered in his 2020 Future of Offshore report, the Cayman Islands remains a preferred destination with a reputation for high quality among consultants and clients.
Its “firewall legislation” is seen as one of its main strengths, which helps isolate Cayman Islands trusts from external factors such as foreign objections or court rulings based on forced inheritance.
At the same time, the courts and the judiciary are pragmatic and have extensive experience in approving trustee decisions or resolving disputes. This has been tested in a variety of complex scenarios involving trusts and inheritances, including those with international and cultural complexities (eg, managing a trust in the application of sharia principles.
Traditional discretionary trusts continue to be popular as a means of estate planning and intergenerational wealth transfer. Such a trust can also be set up for charitable purposes, for the protection of assets or for the general management of liability in the family.
The Cayman Islands also benefits from a flexible set of fiduciary options for the settlor (the person who forms the trust) and their advisers.
Perhaps above all the STAR Trust, a structure unique to the Cayman Islands. Originally introduced into law in 1997 as a form of non-charitable trust (which, unlike traditional trusts, has no beneficiaries, but is created and exists for a specific purpose), STAR Trust legislation was consolidated and is now contained in Part VIII of the Trust Act (2020 edition).
STAR Trust objects can be targets or individuals of any type or number. These can be charitable or non-charitable causes. This type of trust can be established to restrict the rights of beneficiaries when reason demands it, or it can be established without any beneficiary. Instead of these beneficiary rights, an executor is appointed to ensure that the trustee acts in accordance with the terms of the trust agreement.
This flexibility has made STAR Trust a popular option, often when a hybrid solution is required when it is necessary to restrict beneficiary information rights, or as a special purpose vehicle (SPV) for structured financial transactions. international. They are often used to own shares in a running business, to allow directors to run the business for a set period of time, or to restrict the trustee’s involvement in the business, thus enabling the founder’s long-term plans to come true even after their death. . While other Cayman Islands legal trusts have a limited term of 150 years, the STAR trust can be established indefinitely.
Wider opportunities: trusts, companies and foundations
While STAR Trust offers unique flexibility, the Cayman Islands also has other potential structuring mechanisms that could be deployed in addition to STAR Trust in some cases.
Reserved power trusts remain very popular with clients who wish to retain an appropriate level of “control” over the assets they transfer to the trust or over the trustee himself. For a client who is taking their first steps in trust management, this can be an encouraging sign.
Another very useful family management planning tool is Private Trust Companies (PTCs) where family members can assume functions and voting rights and / or shares can be awarded in accordance with the family constitution.
The Cayman Islands is also a favorable jurisdiction for a simpler and more recognizable business structure.
Cayman Islands corporate law is globally recognized as a modern and reliable business framework which, again, offers considerable flexibility. Only one shareholder is required and there is no minimum capital requirement to create a company. Although the incorporation documents of a corporation must be registered with the Registrar General, they are not accessible to the public.
The Cayman Islands Companies Act was improved in 2017 with the introduction of the Corporate Foundations Act, which allows for the establishment of parent companies for business, charitable / philanthropic or private purposes, or any combination of those. -this. This law allows foundations to be founded on company law while functioning as a civil law foundation, thus opening up important opportunities for civil law jurisdictions looking for estate and estate planning solutions.
The Cayman Islands is committed to complying with the Beneficial Ownership (Businesses) Regulations (2019 Revision), which require most businesses in the Cayman Islands to establish and maintain beneficial ownership records. These registers are not accessible to the general public, but can be consulted by the competent authorities. Substance requirements are an important factor to consider when starting a business in the Cayman Islands and when a business has certain activities, it must have a significant presence in the Cayman Islands.
Looking to the future, given the great respect for the Cayman Islands around the world, and the range and flexibility of options offered by their legal and regulatory system, we expect families and their advisers to continue to s ” be interested in Cayman Islands law, whether it is being a trust, business or foundation of choice for stable and efficient management of wealth and assets, as well as secure estate planning.
Judith Chatoo is client director at Saffery Champness Registered Fiduciaries (Geneva) and member of the firm’s Cayman Islands committee