Cayman trust laws are derived from English trust law and have been supplemented by statute to offer a wide range of flexible and user-friendly trust structuring options.
In general, Cayman trusts cannot exist for more than a maximum of 150 years, unless they are charitable trusts or STAR trusts, which may exist indefinitely. The most common Cayman trusts include:
A Cayman trust may become an exempted trust if desired. The advantage in doing so is that the trust will receive a tax free guarantee from the Cayman government for up to 50 years. After the exempted trust is registered with the Registrar of Trusts and entered in the registry, it is not open to public inspection. A registration fee and annual fees are payable for a trust to be an exempted trust.
Private Trust Companies
It is now possible to establish a Private Trust Company (PTC) without having to obtain a trust license in Cayman. This exemption is contingent upon the following conditions:
- The PTC only carries out “connected trust business”
- It is registered with the Cayman Islands Monetary Authority
- Its registered office must be provided by the holder of a Cayman trust license
Unlike other offshore jurisdictions, there is no requirement that the trust beneficiaries are connected. Instead, “connected trust business” simply requires that all the settlors and contributors to the trusts must be connected (which is a statutory definition which covers relationships by blood and marriage between individuals and various relationships between companies).
A PTC can be trustee of any type of Cayman trust, including STAR trusts, and may appeal to high-net worth clients who do not wish to engage the services of a corporate trustee and instead prefer to incorporate a PTC to be trustee. An initial registration fee and annual fees are payable for this exemption.
Other Benefits of Cayman Trusts
Cayman trusts may be discretionary or fixed interest in nature. Discretionary trusts allow the assets to either be held for a class of beneficiaries with distributions being made at the discretion of the trustee, while fixed interest trusts are designed to allow the trust deed to set out the specific beneficial interests of each beneficiary, such as a right to the income earned by the trust assets. Cayman trusts can also be established for charitable purposes or non-charitable purposes (the latter most commonly in the form of STAR trusts).
Cayman trusts may be created for a number of reasons, including:
- As an instrument for succession planning in the event of death or incapacity.
- To mitigate against tax liabilities
- To protect assets (eg from exchange controls or other government interference)
- As a confidential way of holding assets
- To protect beneficiaries who have difficulty in managing their own affairs
- To circumvent forced heirship rules
- To hold shares in a family company or in corporate transactions
- As a vehicle for philanthropic giving
For a number of reasons, the settlor may wish to retain a level of control over specific elements of the running of the trust for himself or another, commonly the protector (if one is appointed). As a result, certain powers which are usually vested in the trustee may instead be conferred on the settlor or protector or may only be exercisable by the trustee with the prior consent of the settlor or protector. Such provisions would be included in the trust deed if required.
Harneys’ private wealth and trusts team advises both private and commercial clients in establishing and restructuring Cayman trusts to maximize the benefits available in this unique jurisdiction.