Forbes Hare Trust Company, the Cayman Islands
Forbes Hare Trust Company (FHTC) has a significant trust operation in the Cayman Islands, located in the thriving financial business district of Camana Bay. FHTC’s Cayman office is fully licensed by the Cayman Islands Monetary Authority (CIMA), and is managed by a team of experienced trust and corporate lawyers, who are assisted by a qualified compliance, tax, corporate services and trust staff.
Trust law in the Cayman Islands is based on English statute and common law principles, supplemented by innovative local legislation. Cayman trust law for example allows settlors to reserve powers to do certain things to meet settlors’ objectives for asset protection, estate planning or tax mitigation without compromising the integrity of the trust.
Trusts are often used as an asset-protection vehicle, to prevent forced heirship claims or other attacks by creditors.
The most common types of trusts created in the Cayman Islands are discretionary trusts, reserved power trusts and so-called ‘STAR’ trusts.
Discretionary trusts
In this type of trust trustees are given absolute discretion as to how to manage the trust assets and also when distributions are made to beneficiaries and the size of them. They can have significant tax planning benefits in some circumstances, but it is always important for clients to take tax advice in their home jurisdiction in this regard.
Reserved powers trusts
Unlike many onshore jurisdictions, Cayman Islands Trusts Law permits settlors to retain certain powers over the trust including powers to revoke or vary the trust deed, act as a director of officer of a company wholly-owned by a trust, appoint, add or remove a trustee.
The reserved powers trust works well for a settlor who is uncomfortable with the concept of handing over all control of trust property to a trustee. They aren’t always suitable though and settlors would need to take advice as to the effect of reserving some powers in their home jurisdiction.
STAR trusts
The most popular trust available in the Cayman Islands is the STAR trust. Leading commentators believe the STAR trust is the most flexible and effective wealth planning tool available today. The reasons for this are as follows:
- They can be designed and drafted to hold wealth in whatever way is desired. Beneficiaries are not required at all and the trust can instead be established for any lawful purpose that is not contrary to public policy.
- Even if beneficiaries are included they have no right to receive information or to enforce the trust significantly reducing the risk of a challenge by a disgruntled beneficiary.
- The STAR trust legislation introduces the concept of an Enforcer. It is only the Enforcer who has the power or the duty to enforce a STAR trust. The Enforcer is a trusted individual, adviser or a corporate entity chosen by the settlor.
- A philanthropic trust can be established even if there is no element of public benefit. The philanthropic purpose can also be combined with other family or business objects.
- One of the trustees must be a Cayman licensed trust company. Cayman is a well regulated jurisdiction and a STAR trust therefore has a level of oversight and regulation above that offered in other jurisdictions which authorise non-charitable purpose trusts.
- They are indefinite in duration so it is possible to create a perpetual dynastic trust.
- They can be used to hold shares in a family business with ultimate flexibility without a need to diversify the trust fund.
- They can be used to hold shares in a Cayman private trust company to avoid the problem of the ownership of such an entity.
- There are no reported cases anywhere in the world which challenge the validity of STAR trusts. They would undoubtedly be recognised as trusts under the Hague Convention on the Recognition of Trusts.
- They cannot be rendered void for uncertainty and the trust can be reformed via its own powers or by application to the Cayman Court.