CAYMAN ISLANDS

3. Trusts

A. Introduction

The Trusts Law is a consolidation of trust legislation commencing with the Trusts Law 1967. It contains elements similar to two British statutes, namely the Trustee Act 1925 and the Variation of Trusts Act 1958.

B. Most Frequently Used Trusts

All the types of trust commonly seen in most other common law jurisdictions are available under Cayman law. In addition, the Islands have introduced legislation providing for settlor reserved powers, STAR trusts and exempted trusts.

The Islands enacted reserved powers legislation in May 1998; this legislation has since been consolidated into the Trusts Law. This amendment to the Trusts Law addressed the question of which powers may be reserved by the settlor of a trust without the court's finding that such reservation created an agency or sham trust.

The amendment created a presumption that, in construing any trust instrument that is not expressed to be a will, testament or codicil, such instrument shall have immediate effect upon the trust property being identified and vested in the trustee save as otherwise expressly, or by necessity implied, in the instrument. The specific list of reservations of powers or grants by the settlor that will not be deemed to invalidate the trust or affect the presumption described above include:

  • power to revoke, vary or amend the trust instrument or any trust powers arising thereunder in whole or in part
  • general or special power to appoint either income or capital of the trust property
  • limited beneficial interest in the trust property
  • power to act as director or officer of any company wholly or partly owned by the trust
  • power to give binding directions to the trustee in connection with the purchase, holding or sale of the trust property
  • power to appoint, add or remove any trustee, protector or beneficiary
  • power to change the governing law and the forum for administration of the trust, and
  • power to restrict the exercise of any powers or discretions of the trustee by requiring that they shall only be exercisable with the consent of the settlor or any other person specified in the trust instrument.

The Trusts Law further provides that any trustee who is acting in compliance with or as a result of an otherwise valid exercise of any of the powers referred to above, shall not be acting in breach of trust. The reserved powers legislation applies to all trusts created after 11 May 1998. If a trust was created before 11 May 1998, the trustees may extend the application of the amendment to the trust by deed.

In 1997, the Islands enacted the Special Trust Alternative Regime, commonly referred to as the 'STAR law' (now consolidated into the Trusts Law), which introduced purpose trust legislation in the Islands. The object of a STAR trust or power may be persons or purposes or both. STAR law expressly provides that the law relating to a special trust and powers are the same as the law relating to non-STAR trusts and powers save as specifically provided. One of the key features of a STAR trust is the ability to appoint an enforcer. This permits the settlor to state who will have standing to enforce the trust and, if so desired, to stipulate that beneficiaries have no such right.

While a trust is not required to be registered in the Islands for it to be considered valid, the Trusts Law enables the registration of a trust if desired. Registration of an exempted trust gives the trustees the right to apply to the government to receive an undertaking as to the tax-free status of such trust for up to 50 years.

It is normal practice for the government to grant a tax-free exemption for the full 50 years.

C. Proper Law Of A Trust

Legislation to overcome the problems of foreign forced heirship laws was first introduced in the Islands in 1987, and is now contained in the Trusts Law.

The Trusts Law provides that all questions arising in regard to a trust that is governed by the laws of the Islands, or to any disposition of property upon the trusts thereof, are to be decided only as a matter of the Islands' domestic law, without any reference to the laws of any other jurisdiction with which the trust or disposition may be connected. Issues to be determined in this manner may include:

  • capacity of the settlor
  • any aspect of the validity of the trust or disposition or the interpretation or effect thereof
  • administration of the trust, whether the administration can be conducted in the Islands or elsewhere, including questions as to the powers, obligations, liabilities, and rights of trustees and their appointment and removal, and
  • existence and extent of powers confirmed or retained, including powers of variation or revocation of the trust and powers of appointment and the validity of any exercise thereof.

The Islands are not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985.

D. Creation Of A Trust

I. Validly Constituted Trusts

The validity of a trust created under the Islands' law is based on English common law principles, which require certainty of intention to create a trust, certainty of beneficiaries, and certainty of subject matter or property to be placed in trust.

Ii. Duration And Termination Of A Trust

Cayman Islands' law permits a 150-year perpetuity period for trusts other than charitable and STAR trusts, which may both exist in perpetuity. There is no law restricting the period of the accumulation of income.

Iii. Beneficiaries

Other than in the case of STAR trusts, the rights of beneficiaries are generally determined in accordance with English common-law principles.

Iv. Trustees

The Trusts Law provides for the appointment and discharge of trustees, although the trust deed itself will usually make specific provision in this respect.

The Trusts Law gives a trustee certain general powers (powers of maintenance and advancement) and provides for the investment of the trust fund and the protection and indemnity of trustees. Again, these powers are usually expressly expanded or restricted in the trust provisions.

V. Protectors

The Islands have no specific legislation in relation to protectors and their powers, duties and rights, but these may be expressly provided for under the terms of a trust instrument.

Vi. Role Of Courts

The Trusts Law provides a procedure for applying to the court for advice and directions on any question regarding the management or administration of a trust. Trustees acting upon the opinion, advice, or direction given by the court shall be deemed, so far as regards their own responsibility, to have discharged their duties as trustees on the subject matter of the application. This discharge is conditional on the trustee's being innocent of fraud, wilful concealment, or misrepresentation in obtaining such opinion, advice or direction.

E. Trust Administration

I. Investment

The Trusts Law deals with investments made by the trustees. It specifies certain authorised investments, which include any securities in which trustees in England are authorised to invest. Powers of investment are usually specifically expressed under the trust deed.

Ii. Maintenance And Advancement

The Trusts Law grants powers to apply income for maintenance, accumulate surplus income during a minority, and make advancements. Provisions for maintenance and advancement are usually expressly included and the statutory provisions are usually excluded under the terms of a trust instrument.

Iii. Variation Of A Trust

A trust may be varied in accordance with any express powers to amend or vary the trust. Where there is no such power, it is possible to apply to the court for the variation of a trust.

F. Confidentiality And Disclosure

Both common law and the Confidential Relationships (Preservation) Law (2009 Revision) (CRPL) govern confidentiality of business transactions.

The original enactment of the CRPL in 1976 was intended to protect bona fide business dealings. The CRPL codifies the English common law duty of confidentiality owed by a bank to its customer, extends the duty to other professional relationships, and criminalises a breach of that duty unless disclosure occurs in accordance with the provisions of the CRPL. The CRPL recognises the duty of lawyers, bankers, accountants, government officials, and financial professionals to maintain the confidentiality of the identity and business of their clients.

'Confidential information' is defined broadly in the CRPL. It includes 'information concerning any property which the recipient thereof is not, otherwise than in the normal course of business, authorised by the principal to divulge'.

G. Rights Of Creditors

I. Transfer Into Trusts

The Fraudulent Dispositions Law (1996 Revision) (FDL) provides that a disposition of property made with intent to defraud and at an undervaluation shall be voidable at the instance of the creditor prejudiced thereby. 'Intent to defraud' means an intention of the transfer wilfully to defeat an obligation owed to a creditor. 'Undervalue' is defined as the provision of no consideration for a disposition or a consideration for the disposition the value of which, in money or money's worth, is significantly less than the value of the property subject to the disposition.

The burden of proving the intent to defraud for the purposes of the FDL is on the creditor seeking to set aside the disposition.

Ii. Limitation Period

The creditor must commence any action within six years of the date of the relevant disposition.

Iii. Rights Of Trustees And Beneficiaries

If a disposition is set aside under the FDL, it will be only to the extent necessary to discharge the obligation owed to the creditor prejudiced by that disposition together with such costs as the court may allow. The FDL also contains various provisions protecting the interests of transferees and beneficiaries of trusts who have not acted in bad faith.

H. Provision For Private Trust Companies And Restricted Trust Licences

I. Requirements – Private Trust Companies

These are governed by the Private Trust Company Regulations, 2008 (the PTCR). Under the PTCR, a company that is a private trust company (PTC) and that is registered under the PTCR does not require a licence to carry on connected trust business.

A private trust company means a trust company that:

  • is incorporated in the Islands, and
  • conducts no trust business other than connected trust business.

'Connected trust business' means trust business in respect of trusts, the contributors to the funds of which are all, in relation to each other, connected persons. A person is a 'connected person' in relation to another person if:

  • they are in a relationship listed in the Schedule to the PTCR
  • one is contributing to the funds of a trust as the trustee of a trust of which the other is a contributor
  • each is in a group of companies, or
  • one is a company and the other is a beneficial owner of shares or other ownership interests of that company or of any other company in the same group of companies.

The Schedule of connected persons states that the following persons constitute connected persons in relation to an individual:

  • spouse
  • the descendants of the individual and their spouses
  • parents, including step-parents
  • grandparents
  • parents-in-law, including step-parents-in-law
  • brother, step-brother, sister, step-sister and their spouses and children
  • parent's brother, step-brother, sister, step-sister and their spouses
  • children of the brother, step-brother, sister or step-sister of the individual's parents, both present and future, including step-children, and their spouses, and
  • children of the individual's brother, step-brother, sister or step-sister, both present and future, including step-children, and their spouses.

For any of the relationships listed above that may be established by blood, that same relationship may also be established by adoption; the term 'descendants of the individual' means the individual's children, the children of his children, the children of those children, and so on; and the term 'children' includes step-children.

'Group of companies' means every company that, directly or indirectly, is a subsidiary (as widely defined) of the same holding company, and such a group includes the holding company.

A PTC must maintain its registered office at the office of a company that holds a trust licence under the Bank and Trust Companies Law (2009 Revision).

In relation to each relevant trust, up-to-date copies of the trust deed or other document containing or recording the trust, its powers and provisions, and any deed or other document varying the trust, its powers or provisions must be kept at the registered office.

A PTC is required to register with the Cayman Islands Monetary Authority (CIMA) and, in order to be registered, must, at the time of registration and on or before the 31st day of January every year thereafter, file with CIMA an annual declaration declaring:

  • the name of the PTC
  • the names of the directors of the PTC
  • the name of the holder of the trust licence who provides the registered office of the PTC
  • that the company is a PTC to which the PTCR apply, and
  • that the PTC is in compliance with the requirements of the PTCR.

A PTC must not in any manner solicit or receive contributions in respect of trusts of which it is trustee from the public or persons other than those who are, in relation to each other, connected persons.

The words 'private trust company' or the letters 'PTC' must be included in the name by which the PTC is registered.

Ii. Fees

On initial registration KYD7,000 (USD8,540) and thereafter an annual registration fee of KYD7,000 (USD8,540) is payable.

Iii. Requirements – Restricted Trust Licences

The licensing procedure for a restricted trust licence (RTL) is normally first to apply in principle to the inspector of financial services. The inspector will consider the application, including the suitability of the directors, officers and shareholders, and present findings and recommendations to the Executive Council (Exco) of government. If Exco approves the application, the necessary procedures relating to incorporation are then completed, and the applicant submits the certificate of incorporation and an opening balance sheet, certified by an approved auditor, back to the inspector. If everything is in order, the government then issues the licence.

An RTL is restricted to providing trust services to a limited number of persons (usually named or referred to by category, e.g. members of a particular family or families).

Iv. Fees

The paid-up capital required for an RTL is at the discretion of the inspector, subject to a statutory minimum of KYD20,000 (USD24,000). The initial and annual licence fee is KYD7,000 (USD8,540).


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© 2012 Society of Trust & Estate Practitioners