LexisNexis Q&A: COVID-19 and the Trusts/Private Client Industry in the Cayman Islands

HSM’s Head of Private Client & Trusts, Robert Mack, discusses the impact of COVID-19 on the trusts and private client industry in the Cayman Islands – setting out what practitioners could be doing now to prepare for potential issues in the future.

Robert was interviewed by Katharina Byrne from LexisNexus. This was first published by LexisPSL Private Client.

How has the Trust and Private Client in the Cayman Islands reacted to COVID-19?
The industry has reacted swiftly by implementing work-from-home policies and procedures across the board, maintaining a high level of client service despite temporary office closures due to ‘shelter-in-place’ orders and curfews implemented by the Cayman Islands Government.

The local council of the Society of Trust and Estate Practitioners (“STEP”), of which I am a member, has continued to function and hold virtual meetings. They have been focusing their efforts on entering into dialogue with the Cayman Islands Government and the local regulator, the Cayman Islands Monetary Authority (“CIMA”) to address the various challenges brought on by the COVID-19 pandemic impacting the local industry.

What is the current state of the Trust and Private Client Industry in the Cayman Islands?
Private client practitioners are reporting an increase in estate planning instructions as clients seek to get their affairs in order partially out of fear of COVID-19 and partially due to the fact that many clients are in self-isolation and therefore have more time to dedicate to personal matters.

There is a noticeable increase in lifetime planning instructions using trusts and foundation companies, while some reports indicate that clients are putting matters on hold while they await global developments on COVID-19.

Trustees are experiencing increased client contact on a number of fronts, including tweaking existing structures and considering techniques to improve tax efficiency of their structures; for example, by taking advantage of recent stock market losses to capitalise on losses.

Sadly, it is expected there will be an increase in estate work, especially given the global nature of the client base in the Cayman Islands and the fact that COVID-19 is now present in the vast majority of countries in the world. While the virus is present in the Cayman Islands the numbers infected are very modest at present, and it is hoped the measures taken by the Cayman Islands Government, which include closure of the borders, curfews, and social distancing will halt the spread of the virus allowing the local economy to re-open.

What are the current challenges facing the Trust and Private Client industry in the Cayman Islands?
The primary challenge is the uncertainty COVID-19 has introduced into the market, and the resulting decease in wealth felt at all levels of society, including high-net-worth individuals and families, particularly those with a large exposure to the global equity markets who have suffered historical losses. It is impossible to predict what effect this will have on the industry as a whole, but most practitioners agree that wealth and estate planning remain vital tasks for their clients despite the state of the economy. That said, activity in the commercial trust sphere (such as investment unit trusts) are likely to see a decrease in the short to medium term while the global economy remains unstable.

There are also practical problems with respect to the collection and verification of client due diligence and the execution/notarisation of documents, particularly Wills which require two witnesses to be present at the time of execution to be formally valid as a matter of Cayman Islands law. Will practitioners are having to become creative to overcome such limitations, but it certainty remains possible to comply with the current formalities by taking precautions, such as ensuring witnesses wear suitable protective equipment (gloves, masks) and by maintaining a certain distance (six-feet minimum) from the testator/testatrix and the other witness at all times.

Face-to-face meetings with clients have ceased and have been replaced with teleconference or video conferencing meetings. This has introduced some challenges dealing with elderly clients who may not be familiar with teleconferencing and may be more used to face-to-face meetings, as well as making it more difficult for private client practitioners to detect the presence of undue influence or lack of mental capacity in their clients.

Clients who are hospitalized for COVID-19 present a particular challenge and would require private client practitioners to exercise extreme caution when taking instructions to ensure such clients have the requisite mental capacity to provide instructions, and would also require special procedures to be observed to ensure the witnessing of documents is compliant with local formalities as previously mentioned. It should be possible for medical staff to act as witnesses on documents such as Wills (if they are permitted to do so by their employers) so long as they are given sufficient coaching by the private client practitioner.

Has the Cayman Islands Government responded to these challenges?
CIMA have been in regular dialogue via video conferencing with the local branch of the Society of Trust and Estate Practitioners (“STEP”), and CIMA is in separate dialogue with the Cayman Islands Government on the concerns raised by STEP. It is possible the Cayman Islands will follow other jurisdictions to allow virtual witnessing of Wills and other documents, however, that is not yet confirmed.

CIMA continues to function well despite staff working from home. There are several reports from practitioners that CIMA has been highly responsive during this period, which is reassuring.

The Court continues to function well and has implemented several new polices such as video-link hearings to enable its business to carry on.

The General Registry remains open and is fully functional.

As a result of COVID-19, the Cayman Islands Government has extended the 2019 FATCA reporting deadline to 16 November 2020 in response to the US Government relaxing its deadlines.

The Cayman Islands Government has also extended the 2019 CRS reporting deadline to 18 September 2020.

What should private client practitioners and professional trustees be doing now to prepare for potential and current issues in the future as a result of COVID-19?
There should be a recognition that the global COVID-19 crisis will continue to have powerful and unpredictable effects on the way private client and trust business is done during the crisis and in the foreseeable future. Even as the pandemic subsides, clients and service providers may be more reluctant to conduct face-to-face meetings, with virtual meetings likely becoming the preferred option.

Working from home will likely become more commonplace, so it is important for our industry to invest in the necessary infrastructure to enable its workers to adapt to this new reality.

I expect to see a bump in trust and estate litigation in the medium term to address losses to trusts and estates arising as a result of the collapse in global equity markets. Trustees and other fiduciaries with investment responsibilities should be implementing steps to mitigate losses as well as being extra vigilant in the management and deployment of assets until global markets settle.

Dialogue is continuing with CIMA and the Cayman Islands Government to ensure that appropriate legislation and regulations are introduced in a timely manner to further enhance the position of the Cayman Islands as a premier trusts and private client jurisdiction. Practitioners will need to be aware of changes as they arise so they can be put into practice quickly.

Lastly, we have to be able to anticipate the needs of our clients in advance and listen carefully to our clients’ needs to ensure we continue to deliver a high level of professional service despite any challenges COVID-19 brings. The Cayman Islands has weathered many challenges in the past and we have learned to adapt and overcome adversity. The Cayman Islands remains very much open for business and we will continue to take such steps as are necessary to maintain our position as a premier financial center, and we hope to play a key part of reviving the global economy once the pandemic passes.