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9 June 2014
The highly anticipated Private Trust Companies Regulations 2008 have now been enacted in the Cayman Islands, a development that has been greeted with enthusiasm by clients and practitioners alike. As a result, provided certain criteria are met, private trust companies (PTC) no longer have to obtain a trust licence to act as trustee to a specific trust or number of related trusts.
The new regulations offer an increasingly popular option for the management of trusts in the jurisdiction, in particular trusts to hold assets for the benefit of wealthy families, who value flexibility and confidentiality and wish to maintain a significant level of involvement of family members in managing the underlying assets.
The regulations came into force on 15 September. They exempt PTCs that are carrying on ‘connected trust business’ from ;the requirement to have a restricted trust licence, but such companies are required to be incorporated in Cayman and maintain their registered office at the office of a licensee under the Banks and Trusts Companies Law. That licensee may also provide administration and ;other services to the PTC ;and shoulder the responsibility for meeting any due diligence requirements imposed on it under local law.
‘Connected trust business’ is defined as “trust business in respect of trusts the contributors to the funds of which are all, in relation to each other, connected persons”. ‘Connected persons’ includes family relationships as well as companies in the same group. The name of the company must include the words ‘Private Trust Company’ or the letters ‘PTC’.
PTCs will be required to register with the Cayman Islands Monetary Authority (Cima) and make an annual declaration to Cima containing the name of the PTC and the names of its directors, and the name of the licensee acting as its registered office. In addition, a PTC will be required to pay an initial fee of CI$3,500 (£2,740) to Cima and an annual registration fee of CI$3,000 (£2,350) thereafter.
Before the introduction of the new regime, companies acting as PTCs were required to obtain a restricted trusts licence. The procedure for obtaining a licence was viewed as onerous and time-consuming, in particular in light of the fact that other jurisdictions such as Bermuda and the British Virgin Islands had introduced their own form of PTC regulations.
The regulations will allow Cayman to maintain the competitive edge in the offshore trusts industry, which it had gained through other legislative innovation, being among the first jurisdictions to offer foreign element protection and reserved powers legislation for trusts governed by Cayman law, as well as Star (non-charitable purpose) trusts.
There are a number of ways in which PTCs can be used. Perhaps the most popular will be to act as trustee of underlying family companies. The settlor, or trusted family members, friends and advisers, may be appointed to act as director of the PTC and therefore drive the trustee’s involvement in the management of the underlying company. It will also be much easier to change or rotate members of the board of the PTC rather than removing and replacing trustees, which will allow a wider range of family members and friends to be involved at different times depending on the changing needs of the business. In this way, the PTC regime ties in well with a family office-style management with which many European families have become familiar.
PTCs also overcome a number of the traditional fears or concerns settlors have about establishing offshore trusts. The assets do not have to be vested in an offshore institutional trustee in a far-flung jurisdiction, with whom the settlor might not be familiar or ever be able to achieve the level of intimate relationship they have with the handpicked board of directors for the PTC.
The corporate structure will be one that the settlor understands easily and will require little explanation. The settlor and their family will also be able to exercise a greater level of control by controlling the board of the PTC, although in many cases it will be advisable for the settlor to avoid accepting an appointment to the board.
However, there are some notes of caution to be sounded. In many instances, the requirement for the directors of a PTC to take professional advice is greater than that of professional trustees as they will not have the training or experience that the trustee role requires. This might actually increase the expenses that will be borne by the trust fund in the long run. There are also a number of issues that need to be considered carefully with the benefit of advice when the company is being set up, including the drafting of its constitutional documents to allow it to undertake the contemplated activities, and the provision of suitable indemnities.
Sara Collins is a partner at Maitland in the Cayman Islands