Introduction.
In 2007 the BVI Financial Services (Exemptions) Amendment Regulations (the “Regulations”) established the British Virgin Islands as a modern and sophisticated jurisdiction in which to incorporate private trust companies (“PTC”).
As most countries in Asia practice civil law, the idea of transferring your wealth to a third party is considered unfavourable. However there has been a significant increase in the past couple of years. According to the BVI Financial Services Commission Statistical Bulletin (Q1 2014, Vol. 34, March 2014), the BVI had 1,032 active PTCs. This was an increase of more than 83 per cent from the figures one year earlier, which showed 565 (Q1 2013, Vol. 30, March 2013). This clearly indicates that there has been an increase in not only the popularity of BVI PTCs, but that there is more awareness of the benefits PTCs can give when used with proper structuring.
General Characteristics, Requirements and Restrictions of a PTC
The characteristics of a PTC in the BVI are similar to those of a standard BVI Business Company which, in some cases makes it a more popular choice as opposed to those found in other jurisdictions. Some of the characteristics of a PTC in the BVI are as follows:
- no minimum authorised or issued share capital requirement;
- there are no approval requirements by the BVI Regulator prior to the incorporation of a PTC; and
- no requirement for an auditor to be appointed;
- it must have at least one director but there is no requirement that any of the directors reside in the BVI;
- the PTC’s Memorandum & Articles of Association (“MAA”) are the only records of the company available for inspection by the public.
General requirements of a PTC are:
- it must be a BVI company limited by shares or guarantee;
- it must contain an express statement in its MAA that it is a PTC;
- it must end with the designation "(PTC)" placed before the corporate suffix (i.e. Ltd, Corp, Inc, etc). Additionally, the name cannot include "trust", "trustee", "trust company" or “fiduciary"; and
- the registered agent must be a licensed BVI Trust company holding a Class I Trust License.
In addition, a PTC is not permitted to do any of the following:
- solicit Trust business from members of the public;
- conduct any business which is not “Trust business”;
- carry on Trust business without a licence if it is not
a. “Unremunerated Trust Business”, this is satisfied when
i. payments made to the PTC are only in respect of costs and expenses incurred in acting as Trustee, protector or administrator of the relevant trust or settlement, the PTC is not permitted to make a profit;
ii. only professional directors are remunerated for providing director services and must not be connected to the PTC, may it be by share-ownership or otherwise;
iii. no person assisted with the PTC is remunerated.
b. “related trust business”, this is satisfied when
i. the relevant trust or settlement is exclusively charitable;
ii. all the beneficiaries of the trust or settlement are connected to the settlor, or are otherwise charities; and
iii. the settlor of the trust or settlement is not a beneficiary.
Registered Agent Requirements
A PTC must have a licensed Registered Agent who holds a Class I Trust License.
The Registered Agent is required to satisfy itself that the PTC is meeting the requirements of the Regulations both on its formation and on an on-going basis. If the Registered Agent forms the opinion that the PTC is not in compliance with the statutory requirements governing PTCs, it is then required to report such non-compliance to the BVI Financial Services Commission.
The Registered Agent is required to ensure that up to-date copies of the following records are kept at its offices in the BVI in relation to each PTC for which it acts as Registered Agent:
- the trust deed or any document creating or evidencing the trust as well as any deed or document varying its terms; and
- the documentation on which it has relied to satisfy itself that the PTC has not solicited trust business from the public, is only carrying on “Unremunerated Trust Business” or “related trust business”.
Succession Planning for the PTC
Setting up a PTC structure would provide high net-worth families with a bespoke succession structure for generations to come. The PTC may act as a Trustee for multiple trusts holding different classes of assets, and each trust could cater for a different class of beneficiaries.
Important planning should be given to the shares of the PTC if is not limited by guarantee. If the shares are owned by an individual outright, then on the death of the individual shareholder, a grant of probate must be obtained in the BVI in order to realise the shares.
A popular structure mechanism is for the PTC shares themselves to be held in a BVI Purpose Trust, in some cases with the VISTA provisions. This avoids the need to obtain a grant of probate in the BVI which is a costly and time consuming exercise, especially if the deceased did not leave a BVI will. Secondly, if the purpose trust is established within the VISTA regime the settlor can control the appointment, removal and remuneration of the PTC’s directors through what are known as “Office of Director Rules”.
Advantages and Disadvantages of a PTC
A few advantages and reasons why PTCs have been popular in Asia and in the rest of the world are the following:
- it follows the same framework and shares the same key features as a standard BVI Business Company, making it relatively easy to understand and maintain.
- a PTC provides confidentiality. There are entirely legitimate reasons for confidentiality when establishing BVI Trust structures. BVI offers well regulated and sophisticated company and trust legislation, making it a preferred choice for a PTC jurisdiction;
- it often happens that both independent and banking Trustees do not wish to act as Trustee for a Trust holding certain assets, due to the risk linked to the assets or perhaps due to the lack of knowledge with regards to an operating business. PTCs have become a solution more often proposed by the independent Trustees. This will most probably increase as independent Trustees become more risk–averse.
- for some high net-worth families it is more practical to set up more than one Trust, maybe to hold different assets for different beneficiaries and their lineal descendants or for the purpose of keeping certain classes of assets separate from one another, allowing for additional asset protection. Using an independent Trustee could push the costs and fees to maintain these large bespoke structures beyond the point where the structure is actually profitable. Trustee fees are a constant concern with families looking to set up Trust structures. A PTC reduces trustee fees dramatically.
- setting up a PTC allows Settlors or their trusted advisors or family members to exercise a degree of control of the decisions made by the PTC. By sitting on the board of directors of the PTC the family can make decisions as and when required and these decisions can be made expeditiously without having to wait on an independent Trustee to deliberate on a decision. In Asia, using a Trustee in a different time zone could cause practical and administrative issues as well as untimely delays especially when swift decision making is crucial for the successful day to day operation of the business.
- BVI Business Companies have always been popular in Asia and therefore using PTCs gives familiarity and comfort to individuals. As most individuals are familiar with the operation of a company, operating a PTC is consequently not difficult. If families or individuals are not comfortable in running a PTC then it is always possible to engage the services of a professional service provider to assist with the maintenance of the PTC and in some cases assist with the various administrative tasks.
A few disadvantages or concerns that need to be considered before setting up a PTC are the following:
- it is important that a PTC is not simply viewed as a "family friendly" trustee. The position of Trustee remains a fiduciary office and consequently the Trustee is required to discharge its duties to the necessary standard of care irrespective of whether it is a PTC or a corporate Trustee. It is therefore crucial that PTCs conduct their business in a proper fashion and administer the trust to the standard of care required of them. Failure to do so may open the door to breach of trust claims by beneficiaries of the trust;
- the cost of setting up a PTC structure is expensive in the first year but thereafter they become nominal. PTCs are generally set up by high net-worth families and individuals and therefore careful consideration must be made when choosing to use a PTC as in some cases the administrative costs of the PTC may outweigh the advantages of the structure.
Conclusion
When used effectively, PTCs are an extremely effective element of a BVI Trust structure. Looking towards the future as well as at current trends, it is quite apparent that their popularity will continue to grow in the years to come. Asian families have come to realise the importance of proper succession and the role Trusts play, as well as protecting the legacy they leave behind and the protection and securing of family wealth into the future. With most high net-worth families owning assets globally, finding a succession structure that will protect all assets is very important and BVI PTC structures certainly provide a safe and reliable structure to do this.
