Tag Archives: Cayman Islands Trusts
On 17 August 2020, the Cayman Islands Monetary Authority (“CIMA”) wrote to the heads of several private sector associations in the Cayman Islands, including the Cayman Islands chapter of the Society of Trust and Estate Practitioners (“STEP”) seeking their views regarding a proposal to introduce a new rule which would require Cayman Islands private trust companies (“PTC’s”) to inform CIMA if they intend to cease conducting ‘trust business’ (as defined in the Banks and Trust Companies Law (2020 Revision)), and to enable CIMA to de-register any PTC that they deem to be in breach of Anti-Money Laundering Regulations or in circumstances where the directors and officers of any PTC cease to be ‘fit and proper persons’ (as defined in the Banks and Trust Companies Law (2020 Revision) (the “New Rule”).
By way of background PTC’s are permitted to act as a corporate trustee for one or more CIMA approved family connected trusts and they cannot offer their services to the general public in competition with commercial trust corporations.
HSM is at the forefront of this process as Robert Mack sits on the STEP Legislative Reform Sub-Committee and is working to provide commentary on the proposal during the prescribed consultation period.
The nub of the problem lies in the fact that while every PTC must seek the prior approval of CIMA to conduct ‘trust business’ in the Cayman Islands and to be granted PTC status prior to assuming any trusteeships, however, there is currently no mechanism to de-register a PTC if it wishes to cease conducting ‘trust business’ for whatever reason.
In addition, there is no de-registration sanction which CIMA can impose where a PTC is in breach of Anti-Money Laundering Regulations or where the persons controlling the PTC cease to be ‘fit and proper persons’ in the opinion of CIMA. The New Rule, if implemented, will allow PTC’s to be deregistered either by their own volition or by CIMA acting independently with a view to maintain compliance with Cayman Islands laws and regulations.
A PTC wishing to de-register under the New Rule will be required to submit an application to CIMA within 21 days of ceasing to carry on ‘trust business’, and such application must be supported with a License Termination/Surrender/Deregistration Form, a resolution signed by at least two directors of the PTC indicating on what date the PTC ceased carrying on ‘trust business’, together with a declaration signed by at least two directors of the PTC confirming that (1) all clients have been informed of the de-registration (2) all outstanding liabilities of the PTC have been settled (3) all outstanding complaints (if any) against the PTC have been resolved, (4) there are no pending or threatened legal proceedings against the PTC, and (5) the PTC is not acting as trustee of any trusts.
The New Rule, if implemented, should further enhance the reputation of the Cayman Islands as a well-regulated financial centre and place the jurisdiction on par with other competing onshore and offshore centres. Also, it will create a clear procedure for PTC’s wishing to voluntarily deregister and will further enhance the powers of CIMA to oversee and regulate PTC’s and is therefore a welcome enhancement to the regulatory regime of the Cayman Islands.
Our Head of Private Client and Trusts, Robert Mack, will be travelling this year to attend two conferences by the Society of Trust and Estate Practitioners (STEP).
STEP Miami’s 10th Annual Summit takes place on May 31 at the Four Seasons Hotel. Robert will also be moderating a panel discussion on Planning Strategies + Substance with Wendy Warren of Caystone Services (Bahamas), Alejandro Gil Rivero TEP of Sophos Advisors (USA) and Chris Reimer TEP of Long Reimer Winegar Beppler LLP (USA).
STEP Canada’s 21st National Conference takes place June 6-7 at the Metro Toronto Convention Centre. The two days will be filled with technical sessions, insightful keynotes and valuable networking opportunities.
These conferences attract hundreds of leading trusts professionals from around the globe and provides Robert the opportunity to keep abreast of the many issues and regulatory changes affecting the trust and private client world.
We look forward to connecting with you at these conferences.
Since 2010, Robert has been a council member of the local branch of STEP where he currently holds the position of Vice Secretary. Robert also sits on the STEP legislative review sub-committee and the Global Transparency sub-committee, which works in partnership with the Cayman Islands Government to implement and improve legislation connected to the trusts and private client industry. Robert is the Cayman Islands representative of the STEP Mental Capacity Special Interest Group. He also attended and was part of a panel discussion at this year’s STEP Cayman Islands Conference that took place January 31-February 1.
Key Contact:
Robert Mack
rmack@hsmoffice.com
Tel: +1 345 815 7356
On March 8 2019, the Legislative Assembly approved a broad series of enhancements to the Trusts Law of the Cayman Islands as described in the Trusts (Amendment) Bill, 2019. Our Head of Private Client and Trusts, Robert Mack, shares that while some of the enhancements are highly technical in nature, there are four key changes to be aware of.
Statutory “Hastings-Bass”
The Courts of the Cayman Islands now have statutory powers to rectify mistakes in relation to the exercise of fiduciary powers where:
- The person who exercised the power (typically a trustee) failed to take into account one or more considerations that were relevant to the exercise of the power; or
- Where such person took into account one or more considerations that were irrelevant to the exercise of the power; and
- But for acting the way they did in the light of these relevant considerations the power holder would not have exercised the relevant power at all, or would have exercised it on a different occasion or in a different way.
Such a procedure is typically deployed by trustees where an unforeseen onshore tax consequence has arisen as a direct result of the exercise, or rather mis-exercise, of a fiduciary power. It is useful where the effect of the exercise of the power is not what was expected. It can be viewed as a ‘get out of jail free card’ as it allows trustees and other power holders to reverse what might otherwise be very negative and unintended outcomes. Although the Cayman Islands Courts have applied Hastings-Bass principles in the past, the fact that the principle is now codified should provide an extra layer of comfort to every holder of a fiduciary power.
Variation of Trusts by the Cayman Court
The Cayman Islands Courts have long held statutory powers to vary the terms of Cayman Islands trusts provided the circumstances were right, however, for such applications to be successful it had to be shown that such variation(s) would be for the ‘benefit’ of the beneficiaries who were unable to speak up for themselves – typically minor beneficiaries and beneficiaries who have yet to be born. To put this into context, many trust instruments are drafted in such a way to benefit a large group of family members over long periods of time. As such, it is possible, and very common, for some of the beneficiaries to be under the age of majority, in the womb, or not yet born. In such circumstances where a trust variation is ongoing, separate legal counsel will usually be appointed to represent this group. Since many trust variations are necessary to create family harmony, settle some dispute, or achieve some form of onshore tax advantage(s) these would often be viewed as a ‘benefit’ to the minor and unborn beneficiaries, but in some cases it may be difficult to locate a ‘benefit’ at all as some trust variations are neutral in effect, and as a result lawyers had to get creative in order to make their applications successful. The term ‘benefit’ in this context is not limited to financial benefits, but may also include wider social benefits, such as achieving family harmony.
The recent change now only requires that such variation(s) are not to the ‘detriment’ of such persons.
Compromise of Trust Litigation
As with the variation of trusts, the endorsement by the Cayman Islands Courts to compromise or settle trust litigation no longer requires the presence of any ‘benefit’ but rather the ‘no detriment’ test is also to be applied in relation to beneficiaries even in circumstances where there is clearly no ‘benefit’ present. This is certainty helpful in a litigation context as the settlement of litigation inevitably requires some ‘give and take’ and it is often the case that the only benefit to be had is the extinction of protracted and expensive litigation.
Firewall ‘Beefed Up’
The so-called ‘firewall’ provisions of the Trusts Law of the Cayman Islands, which are the provisions which seek to repel claims which attack the validity of a Cayman Islands trust (and Foundation Companies) on the basis that its creation did not conform to or offended some provision of foreign law, have been enhanced by expanding the class of persons offered protection from such claims. Previously this group included persons who have a “personal relationship with the settlor” (whether by way of blood or marriage) but now includes “any beneficiary (whether discretionary or not)”. The end result is that the revised Trusts Law now provides enhanced protection from such attacks.
Conclusion
Whilst there are some other minor amendments not discussed, such as the inclusion of controlled subsidiaries and private trust companies in the definition of “trust corporations” these points are really left for the trust nerds amongst us to ponder. Otherwise, all of the refinements should be welcomed by practitioners, fiduciaries, and beneficiaries alike and will certainty keep the Cayman Islands on the cutting edge of progressive trust jurisdictions worldwide.
This article can also be seen in The Journal – May 2019 issue.
In order for a Cayman Islands Will to be valid it must be both ‘essentially’ valid and ‘formally’ valid. HSM’s Head of Private Client and Trusts, Robert Mack, explores this structure and what’s new for 2019.
Essential Validity
For a Cayman Islands Will to be ‘essentially’ valid, the person creating it must possess the fundamental power derived from the law of their domicile1 to dispose of their property by Will. Persons who are suffering from a loss or a diminishment of mental capacity for example would typically, under most legal systems, be incapable of disposing of the property by Will or otherwise until such time (if any) as they regain a sufficient degree of their mental faculties.
Legal systems themselves can sometimes impose restrictions on its citizens concerning the disposal of property on death. This typically occurs in ‘civil’ law jurisdictions in Europe and Latin America, Islamic law-influenced jurisdictions, and in some common law jurisdictions,2 where such legal systems prescribe that a deceased person’s property or a portion a deceased person’s property must pass to certain people in certain prescribed shares. Typically those people are comprised of spouses3, children, and other close blood relations of the deceased.
In relation to real/immovable property, it is usual that the legal system of the country where the real/immovable property is situated will be the legal system which governs how such real property will pass on the death4. Therefore, any attempts to use a Cayman Islands Will to control the devolution of foreign5 real property may fail if the succession regime of the foreign country differs from that of the Cayman Islands. In such circumstances it is usually preferable to have a separate Will (if possible/permissible) governed by the law of the country in which the real property is located and to take advice from local attorney in that country regarding the local laws and procedures governing the devolution of real property on death.
The Cayman Islands, in contrast to many other legal systems in the world, offers complete freedom of testamentary disposition, meaning that so long as the Will is ‘essentially’ valid and ‘formally’ valid (see more below), a testator or testatrix may dispose of his or her own property6 as they see fit, and it is extremely difficult for disappointed heirs to challenge an otherwise valid Cayman Islands Will.
Formal Validity
Formal validity refers to the legal formalities which must be observed in order to perfect an ‘essentially’ valid Will. For a Will to be formally valid in the Cayman Islands, it must be (1) in writing, (2) signed at the foot of the Will by the testator or testatrix and (3) be witnessed by two witnesses who must be present at the moment the Will is signed by the testator or testatrix and must attest as such by way of signature on the Will.
If any one of the above three elements are missing, the Will cannot be formally valid as a matter of Cayman Islands law, even if the Will is essentially valid.
So what’s new?
On 1st February 2019, The Formal Validity of Wills (Persons Dying Abroad) Law, 2018 (the “Law”)7 came into force. The Law seeks to simplify the formal validity process by allowing Cayman Islands governed Wills, which are executed by foreign domiciled individuals, from being declared invalid on the grounds that they fail to satisfy the formal validity procedures prescribed by the testators or testatrix’s place of domicile.
The Law states that so long as the Cayman Islands requirements for formal validity are satisfied, the Will should not be declared invalid simply because the testator or testatrix failed to observe the formal validity requirements imposed by the legal system of their place of domicile8.
So for example, if a testator is domiciled in a jurisdiction which requires that Wills must be executed in the presence of a Notary Public and that does not in fact happen, so long as the Will is expressed to be governed by Cayman Islands law and it conforms to the Cayman Islands formal validity requirements, it will be considered valid as a matter of Cayman Islands law.
It’s important to note that the Law doesn’t attempt to modify the requirements for the ‘essential’ validity of a Will.
Why is this important?
Given the Cayman Islands is a magnet for international investment and asset structuring, many people from around the world routinely own valuable assets in the Cayman Islands and often utilise Cayman Islands holding companies to hold such valuable assets. As such, the well-advised client is usually encouraged to put a Cayman Islands Will in place to govern how their Cayman Islands property, including shares in a Cayman Islands company, should devolve upon death. Before the Law came into force, simply adhering to the Cayman Islands test for formal validity might not be sufficient to guarantee the validity of a Cayman Islands Will where a foreign domiciled testator or testatrix was involved — a critical point which is sometimes overlooked.
In a nutshell, the Law provides a safety net in such circumstances to make an otherwise formally invalid Will valid, so long as the Cayman Islands requirements regarding formal validity are observed.
Helpfully, the Law is drafted such that it covers Wills made prior to the introduction of the Law, so it appears to have retrospective effect. This is great news for all of the Cayman Islands Wills floating around the four corners of the Earth, as the Law increases the chances of Wills made prior to the 1st of February 2019 being considered formally valid as a matter of Cayman Islands law even if prior to the 1st of February 2019 they may have been formally invalid.
Conclusion
The Law has improved the odds that Cayman Islands Wills for international clients whether past, present or future will be found to be formally valid as a matter of Cayman Islands law, regardless of any contradictory laws, policies, or procedures which may exist in other parts of the world. This will certainly provide an extra layer of comfort and protection for international clients who utilise or have utilised the Cayman Islands as a planning and structuring base.
This article can also be seen on Mondaq – March 2019.
Footnotes
1 The method of establishing a persons’ domicile is outside of the scope of this article, however, it can be quite complex and requires a careful examination of the personal history of the testator or testatrix.
2 England, for example, has in place The Inheritance (Provision for Family and Dependants) Act 1975, which allows persons closely connected with a deceased testator or testatrix, such as a child or spouse/civil partner, or other dependants to make a claim for financial provision against an estate even where the Will is otherwise valid if such aggrieved individual believes they are entitled to a share or a greater share of the estate by reason of a close relationship with the deceased.
3 Often civil or common law partners are included in this definition.
4 Section 5(1)(b) of the Law specifically states that in relation to foreign real property, the execution formalities regarding the devolution of such real property must conform with the laws of such foreign territory rather than those of the Cayman Islands.
5 Meaning outside of the Cayman Islands.
6 Assuming the property is unencumbered, and is not jointly owned for example.
7 Despite the name of the Law, the Law is meant to cover persons who are not domiciled in the Cayman Islands at the time of their death. A person may be domiciled in the Cayman Islands and yet die abroad, but the Law is not intended to address that situation.
8 Section 4(1)(a) of the Law.
The HSM Group congratulates Partner William (Bill) Helfrecht for his recognition by Chambers and Partners. For the second consecutive year, William is featured in the Band 3 ranking in the 2019 Chambers Global Guide for dispute resolution: trusts in the Cayman Islands.
William’s practice primarily focuses on advising and acting for liquidators, professional trustees, trust protectors and high net-worth individuals in relation to non-contentious and contentious trust matters, professional negligence and other tort actions, Company Law matters (including directors’ liability and shareholders’ rights) and all forms of disputes concerning the ownership and occupation of land.
A peer who was contacted by Chambers and Partners says: “Bill Helfrecht of HSM Chambers is a highly appreciated practitioner whose practice has a particular focus on trust disputes. He garners respect in the market for his wealth of experience in this field.”
Chambers and Partners is a prestigious hub for lawyer recommendations. They diligently research and feature the world’s best lawyers and have done so since 1990, covering over 185 jurisdictions.
Key Contact:
William Helfrecht – Partner
whelfrecht@hsmoffice.com
Tel: +1 345 815 7418
The HSM Group is proud to sponsor the 2nd Annual Society of Trust and Estate Practitioners (STEP) Cayman Conference, taking place at Kimpton Seafire Resort + Spa in Grand Cayman from January 31 – February 1.
Visit our booth during the conference to learn more about our legal and corporate services, and be entered to win one of our 5-in-1 BBQ tools – a useful memento to remind you of our law firm in the Cayman Islands.
Robert Mack, HSM’s Head of Private Client and Trusts, will be speaking during one of the breakout panel sessions on February 1 at 12pm and will be exploring wealth structuring for PEPs (politically exposed persons) – the impact of politics, conflict and sanctions on PEPs.
Since 2010, Robert has been a council member of the local branch of STEP, where he currently holds the position of Vice Secretary.
Robert also sits on the STEP legislative review sub-committee and the Global Transparency sub-committee, which works in partnership with the Cayman Islands Government to implement and improve legislation connected to the trusts and private client industry. Robert is also the Cayman Islands representative of the STEP Mental Capacity Special Interest Group.
We look forward to connecting with you at this conference.
(L-R): Samantha Bartley and Robert Mack
While HSM is a relatively new law firm, they have been making waves in the legal industry since opening in 2012 and being recognised in Chambers and Partners is testament to their success.
HSM lawyers William Helfrecht and Robert Mack have been ranked by Chambers and Partners for their exceptional work in trust services in the Cayman Islands.
William Helfrecht, HSM’s Partner, is featured in the Band 3 ranking in the 2018 Chambers Global Guide for dispute resolution: trusts in the Cayman Islands.
William is a well-known litigator who is recognised by the market “a real trust-law specialist.” A peer went on to say: “He is a leading attorney who has been in Cayman forever. He is very well established and carries real authority and gravitas.”
Robert Mack, HSM’s Head of Private Clients and Trusts, is featured as an Associate to Watch in the 2018 Chambers High Net Worth (HNW) Guide for offshore trusts in the Cayman Islands.
“He is a good lawyer for the jurisdiction,” says one of his peers, adding: “He is experienced and does good work.” Mack focuses his practice on advising high net worth families and trust companies on private and commercial trusts. Market insiders say: “He is a good person and well-recognised in the industry.”
Chambers and Partners is a prestigious hub for lawyer recommendations. They diligently research and feature the world’s best lawyers and have done so since 1990, covering over 185 jurisdictions.
Key Contacts:
William Helfrecht
whelfrecht@hsmoffice.com
Tel: +1 345 815 7418
Robert Mack
rmack@hsmoffice.com
Tel: +1 345 815 7356
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