The trust is a creature which evolved centuries ago in England in order to hold title to land and personal possessions. Typically, nowadays, a trust will be set up when a person (known as the settlor) transfers property, such as shares in a holding company, to a professional service provider (the trustee) to hold on specified (and usually very flexible) terms for the benefit of identified persons (the beneficiaries). These terms are set out in a document which is known as the trust instrument.
Trusts are used for a variety of purposes: these include a confidential way of holding assets, the avoidance of disruption on death, assisting with succession planning in family businesses, tax mitigation, the provision for spouses after death whilst protecting the interests of children, and the protection of vulnerable relatives such as those who are minors or disabled. Trusts are also commonly established for the preservation of family wealth against dissipation and to serve various charitable and commercial objectives.
Typically BVI trusts take the form of discretionary trusts, so that which of the beneficiaries receives what and when will be a matter for the trustee and the trustee would invariably be guided by a letter of wishes from the settlor.
BVI trust law has its basis in English trust law but its laws have been updated and enhanced to add flexibility and to reflect the legitimate needs of the many clients who use the jurisdiction financial services; those who have concerns about privacy are reassured as a result of the fact that English common law duties of confidentiality apply in the BVI and are enforced by the BVI courts.
As a consequence of the reforms which were implemented by the Trustee (Amendment) Act, 2013, the perpetuity period applicable to BVI trusts (which essentially stipulates the maximum period which a BVI trust can last) is now 360 years. This enables settlors to set up ynastic trusts which last quite a number of generations.
VISTA Trusts
The BVI flagship trusts statute is the Virgin Islands Special Trusts Act, which allows special BVI trusts (which are known as VISTA trusts) to be set up to own shares in companies. Up until 2003, because of a feature of English law (known as the prudent man of business rule) which had also been imported into both BVI law and the laws of its competitor jurisdictions, trusts had, despite their well-recognised advantages in terms of succession planning, always been regarded as unattractive vehicles to hold shares in companies which settlors intended the trustees to retain. This prudent man of business rule could have required trustees to sell the shares, regardless of the wishes of the settlor, and to have involved themselves in the detailed running of the company day-to-day affairs (which would otherwise have been the responsibility of the company directors). VISTA provides a well thought out solution which circumvents these difficulties.
A substantial number (many thousands) of VISTA trusts have been set up since the legislation came into force in 2004, to hold assets worth in the many billions of dollars. It is particularly popular amongst high net worth individuals in the Asia Pacific region.
VISTA is ideal for situation in which the settlor wants to remain in the driving seat. The trust and the company will often be structured so that the settlor can have more or less complete control at the director (or company) level. And other powers (such as a power to revoke the trust, and thus take back the assets, to change the trustee and power of veto over the trustee most important dispositive powers) can be reserved to the settlor in the trust instrument. This ingredient of the legislation has made VISTA trusts especially attractive to settlors from the Asia Pacific, Latin America and the Middle East who tend to be very uneasy about giving up control.
Similarly VISTA trusts are frequently used to hold speculative investments (through a BVI company, the shares of which are held by the VISTA trustee). Typically these investments would be shares in non-BVI companies, (both holding and trading companies), commercial assets, ships, aeroplanes or assets which involve a degree of risk which would otherwise be regarded as unacceptable to a professional trustee.
VISTA charitable or non- charitable purpose trusts are also commonly set up to hold shares in private trust companies (PTCs) and the BVI recently amended PTC Regulations are considered in greater detail below.
Recent Amendments to VISTA.
The restrictions in the original VISTA statute which effectively prevented assets from being transferred from existing trusts to VISTA trusts were modified in May 2013 so that assets of other trusts can now be transferred to VISTA trusts provided certain conditions are satisfied.
It was originally a requirement of VISTA that the sole trustee of a VISTA trust must be a licensed BVI service provider and that co-trusteeship was not permitted. However after the VISTA (Amendment) Act came into force on 15 May, 2013, co-trusteeship of VISTA trusts is now permitted (so that the co-trustee might be an individual or a foreign service provider) and, instead of having a licensed trustee of a VISTA trust, its sole trustee might now be a BVI PTC
These amendments to VISTA add significantly to the advantages of settling new family controlled VISTA trusts. They also create an incentive for the terms of existing trusts to be examined to establish whether (and if so what) steps might be taken to take advantage of onverting those trusts into VISTA trusts.
Trusteeship of BVI Trusts.
Settlors have a great deal of choice when selecting the trustee of their VISTA (or non-VISTA) BVI trust. They can either use the services of a professional trustee or set up a bespoke PTC to be its trustee; less commonly one or more individuals are able to serve as trustees.
Professional Trustees.
There are presently over 300 licensed trust companies in the BVI, nearly 100 of which currently hold unrestricted trust licences allowing them to provide comprehensive trustee services. Trust companies operating form within the Islands must conform to strict government regulations and maintain a minimum required capital; they are supervised by the Financial Services Commission in accordance with internationally accepted supervision standards.
PTCs as Trustees.
A PTC is, on the other hand, essentially, a company which is set up specifically to be the trustee of a single trust or a number of related trusts (whether VISTA or non-VISTA trusts).
PTCs enjoy the benefit of limited liability and perpetual existence which are the usual features of corporate vehicles and the corporate structure is readily understood by non- professionals, especially those from non-trust jurisdictions.
A further significant advantage of a PTC is that, like the BVI VISTA legislation, the establishment of a PTC generally enables settlors or settlor family members (or those selected by settlors) to exercise a substantial degree of control over trustees decisions by being directors of PTCs. This enables them to respond quickly to issues which arise and to make decision on the basis of their own personal knowledge and changing circumstances. Importantly, moreover, confidentiality is also preserved.
The BVI Regulations relating to PTCs enable BVI companies to act as trustees of trusts, without needing to be licensed if they fulfil a number of conditions. These include the need for the name of the company to include the designation PTC) and requirements to the effect that the PTC must not solicit trust business from the general public; furthermore it must carry on no business other than what it defined in the Regulations nremunerated trust business or elated trust business With effect from 15 May, 2013, the elated trust business head of the exemption can now be relied on where the settlor of the trust is one of its beneficiaries (provided the other conditions set out in the Regulations are met).
When deciding on which jurisdiction to use to set up a PTC, prospective settlors (and their advisers) tends to look at a number of critical factors.
First they consider whether a trust licence is needed and how long it will take to obtain the licence (and to set up the PTC). Under the BVI PTC Regulations a licence is not needed so that, assuming that all the due diligence requirements have been met, the incorporation procedure is usually very speedy, especially following the introduction of the IRRGIN electronic filing system for incorporations.
Settlors also look at whether a local director (or authorised representative) is needed, whether a qualified director is needed, whether the PTC has to establish a physical presence in the jurisdiction in which it is incorporated and any capitalisation requirements: none of these requirements exist for companies which qualify for the exemption under the PTC Regulations.
Additionally, when selecting a jurisdiction to use, settlors understandably look at cost of setting up and running the PTC: the BVI is a very cost effective jurisdiction to use, perhaps the most competitive jurisdiction, since the Government fee will (in most cases) only be $1,250 on incorporation and annually thereafter.
Critically settlors also look at what information must be provided (and to whom). In the BVI the relevant information merely needs to be provided to the registered agent and not to the authorities; it is not publicly available. Only the company memorandum and articles (which are likely to be boilerplate documents which reveal no confidential information) are a matter of public record, so that a settlor legitimate concerns about privacy are addressed in a satisfactory manner.
The BVI trust legislation has been developed and periodically refined by the legislature and the Financial Services Commission in close partnership with the private sector. Its legislation is regarded as being state of the art and highly flexible and should certainly be recommended to those who wish to take advantage of the considerable benefits which it offers.
Christopher McKenzie
Partner
O eal Webster
31 Southampton Row
London WC1B 5HJ
United Kingdom
Tel: +44(0) 203 0787 297
Fax: +44(0) 203 008 6015
www.onealwebsters.com
