British Virgin Islands

3. Trusts

a. Introduction

Trust law in the BVI is based on principles drawn from English trust law. General principles of equity apply in the BVI, as supplemented by local legislation. The Trustee Act (TA) was originally drawn from the English Trustee Act 1925 but since has been updated and advanced by the Trustee (Amendment) Acts1993 and 2003.

b. Most frequently used trusts

Trusts are used for estate planning, confidential or flexible holding of assets, circumvention of forced heirship provisions, preservation of assets, and mitigation of tax liabilities.

The most frequently used types of trusts are:

  • discretionary
  • fixed
  • charitable, and
  • non-charitable purpose trusts established for a specific, reasonable and possible purpose (whether or not charitable), which is neither immoral, contrary to public policy, nor unlawful (the BVI purpose trust regime has recently been overhauled by the Trustee Amendment Act (2003)).

All these trusts may be set up as VISTA trusts (see below).

c. Proper law of a trust

A trust is governed by BVI law, either because of express provisions in the trust instrument, reasonable inference that the law of the BVI is intended to be its governing law, or BVI law is the law with which the trust is most closely connected. Most of the provisions of the UK Recognition of Trusts Act 1987 have been extended to the BVI; therefore, the majority of the provisions of the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985 apply in the BVI. The provisions of this Convention are supplemented by comprehensive rules dealing with validity of trusts, together with provisions defending BVI trusts against ‘forced heirship’ claims.

d. Creation of a trust

i. Validly constituted trusts

The relevant provisions of English law apply to a trust’s construction. A trust is defined in the TA as the legal relationship created, either inter vivos or on death, by a settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a special purpose. The settlor may be any individual of sound mind over the age of 18, or any body corporate with the requisite powers to so act under its constitution or by law.

ii. Duration and termination of a trust

BVI trusts (excluding charitable trusts and purpose trusts) remain subject to the rules against perpetuity such that all trust assets must vest in interest by the end of the perpetuity period, a fixed term not exceeding 100 years.

iii. Beneficiaries

In a fixed trust, the trustee must be able to determine identities of all beneficiaries under the trust. In a discretionary trust, the trustee must be able to determine whether any particular person is or is not a member of the discretionary class. All individuals can be beneficiaries under a BVI trust, including unborn persons, minors and persons of unsound mind, settlors and trustees. Beneficiaries may also be bodies corporate, charitable organisations and purposes including (if the relevant provisions of the TA are satisfied) non-charitable purposes.

iv. Trustees

Generally, any individual of sound mind or any body corporate with requisite powers so to act under its constitution or by-laws may act as trustee, but the trustee of a VISTA trust must be a company holding a licence under the Banks and Trust Companies Act 1990, and the trustee of a non-charitable purpose trust must be a designated person (as defined in the TA).

Powers, duties, right of appointment, and discharge of a trustee are often set out in the trust instrument. The TA provides for appointment and discharge of trustees where the trust instrument is silent, and provides for certain administrative powers of the trustee to be incorporated by reference into any trust instrument. Where a trustee is to be remunerated for services, the power to receive such remuneration from the assets of the trust should be expressly included in the trust instrument. The Trustees’ Relief Act enables trustees to apply to the court for guidance.

v. Protectors

Trust instruments often provide for appointment of protectors who, pursuant to the trust instrument, oversee actions of the trustee. The BVI has statutorily recognised the office of protector, and has expressly provided that protectors will not, by exercising certain powers provided in the trust instrument, be deemed to be trustees unless the trust instrument so provides.

The courts, where they have jurisdiction, can provide assistance to interested parties in connection with trusts, not only by settling disputes, but also by enabling them to obtain guidance from the courts.

e. Confidentiality and disclosure

Under the TA, deeds creating trusts or other deeds executed by trustees, settlors and beneficiaries pursuant to powers and discretions contained in the trust instrument do not have to be registered or filed publicly. In fact, civil law imposes sanctions against those guilty of breaches of confidentiality.

f. Rights of creditors

i. Transfers into trust funds

Care must be taken to ensure that trust property is divested from the settlor and properly constituted as the trust fund. While no particular statutory provision in the BVI expressly sets aside fraudulent transfers of trust property, general legislation and common law principles, which provide that transfers made with the intent to defraud creditors may be voidable in certain circumstances, may apply.

ii. Limitation period

There is no limitation period for an action by a beneficiary in respect of fraud or a fraudulent breach of trust by the trustee or an action by the beneficiary to recover trust property or proceeds received by the trustee and converted to the trustee’s use. Subject to the above, generally the limitation period for a beneficiary to bring an action to recover trust property or in respect of any breach of trust is six years from the date on which the right of action accrued, provided that the right of action is not deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest falls into possession.

iii. Rights of trustees and beneficiaries

The rights of trustees and beneficiaries of a BVI trust are the same as they are under English law. BVI law was recently amended by the Trustee (Amendment) Act 2003 to adopt or modify many of the proposals of the English Trust Law Committee in its report relating to dealings between trustees and third parties.

g. VISTA Trusts

The Virgin Islands Special Trusts Act 2003 permits the establishment and formation of trusts that leave significant control of the underlying assets with the settlor or his/her nominees and relieve the trustee of several common law duties that in any event are more properly performed by experts. The trusts are designed to be the trusts of shares of a BVI company and the trustee must be a trustee licensed in the BVI.

h. Provision for private trust companies

i. Requirements

BVI companies and other companies that carry on trust business from within the jurisdiction (whether or not such business is carried on within or outside the BVI) are required to hold a licence under the Banks and Trust Companies Act 1990, as amended.

ii. Private trust companies (PTCs)

The Financial Services (Exemptions) Regulations 2007 exempt certain PTCs from the licensing requirements of the Banks and Trust Companies Act. Essentially, an unremunerated BVI PTC that does not offer services to the general public will be exempted provided that it:

  • either (a) does not receive any direct or indirect remuneration for its trustee (or protector) services (although remuneration of professional, otherwise unconnected, directors and payments made to meet the company’s costs and expenses will not constitute remuneration for these purposes); or (b) only carries on ‘related trust business’, the business of acting as the trustee (or protector) of one or more trusts, of which the only beneficiaries have a specified family relationship to a single settlor or to related settlors (or are charities)
  • does not carry on business except for trust business as in the paragraph above
  • does not solicit trust business from members of the public
  • must be a BC (but IBCs which have re-registered under that act will also qualify if certain amendments to their memoranda and articles and/or elections are made)
  • includes the letters ‘PTC’ in its name and includes a statement to the effect that it is a private trust company in its memorandum, and
  • has a registered agent in the BVI that is a company, which holds a class one trust licence.

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© 2011 Society of Trust & Estate Practitioners