Island’s private trust companies lead market

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  • Ashley Fife

    Ashley Fife


Thirteen years is a long time in the sphere of offshore legal developments, but the regime introduced by Bermuda’s Trusts (Regulation of Trust Business) Exemption Order during 2002 may remain the most cost effective and flexible framework for private trust companies (PTCs) in the offshore world today.

However, the Bermudian government cannot rest on its laurels. Other offshore jurisdictions, which may have less experience with PTCs, are introducing attractive features into their PTC offerings.

An express trust is established when a person transfers assets to a trustee to hold for application for one or more beneficiaries or purposes in accordance with specified terms.

A PTC is essentially a company that does not solicit trust business from the public and acts as trustee of a trust or trusts that are connected in some way.

PTCs are often utilised as part of an international family office structure. A number of international families and businesses may not wish to engage an independent licensed administrator to act as trustee of the trusts they establish.

Reasons for this include perceptions that such independent trustees may: not readily appreciate the family’s business objectives or dynamics; be reluctant to implement higher risk investment strategies; or receive information that the family may prefer only to share with existing advisers.

Once a PTC is appointed as trustee, the potentially significant costs and inconvenience involved with appointing, and transferring trust assets to, new trustees is thereafter avoided.

A PTC typically enables clients to appoint members of the family, business and trusted advisers as directors of the PTC. Consequently, decisions of the PTC are controlled by those who truly understand the client’s family or business. It also enables families the opportunity to structure the involvement of younger generations in decisions relating to the management of family assets, businesses and philanthropic activities.

Bermuda’s PTC regime provides flexible planning alternatives and enables clients to determine the extent to which licensed administrators are involved in the PTC’s administration.

Many offshore jurisdictions other than Bermuda require that a licensed administrator in the particular jurisdiction provide certain services to the PTC and impose duties on such administrator to monitor the PTC for compliance with the licensing exemption. This may frustrate clients’ objectives and result in additional costs that are passed on to clients.

Bermuda PTCs can be established as limited liability companies or companies limited by guarantee. The PTC need not be administered in Bermuda. A minimum of one director is required who need not be resident or licensed to carry on trust business in Bermuda. Meetings of the PTC directors need not take place in Bermuda and decisions may be made by written resolution.

If desirable, the Bermuda PTC director may be an unlicensed corporate director situated in Bermuda or elsewhere.

All trustees, including PTCs, owe fiduciary and other duties and may consequently be exposed to claims from beneficiaries and other claimants for breaches of those duties. Bermuda PTCs are also required to comply with Bermuda’s anti-money laundering requirements.

The use of corporate directors further minimises the exposure of individual decision-makers who may sit on the board of the corporate director rather than the PTC itself. Reducing the exposure in this way may reduce costs and increase the likelihood that family members or other trusted advisers may be willing to participate in the management of the PTC and the trusts.

However, directors of the PTC or its corporate directors remain liable for loss caused to the PTC or the trusts that results from their own dishonesty.

Unlike certain other jurisdictions, including several states in the United States, Bermuda PTCs require no minimum level of capital or insurance.

Asset protection, confidentiality or other concerns often make it unattractive for clients to directly own shares in a PTC. Historically, this has been managed by a PTC’s shares being owned by the trustee of a purpose trust that has no beneficiaries. Unlike most other jurisdictions, Bermuda purpose trusts do not require the appointment of a person to enforce the purpose trust, thus minimising complexity and cost.

A PTC may be established as a company limited by guarantee if clients do not wish to utilise a purpose trust in a PTC structure. A company limited by guarantee is a non-profit company that does not have shareholders. It has members, which guarantee payment of a certain sum to the company in order to discharge the company’s liabilities upon liquidation. The amount guaranteed may be nominal. Where a client’s planning objectives permit, the directors of the guarantee company may be its only members.

Other jurisdictions, such as Guernsey and Jersey, permit private trust foundations (PTFs) to perform the same functions of a PTC. Such foundations do not have owners. However, unlike Bermuda PTCs, such PTFs require licensed administrators to perform certain functions in respect of the PTFs. It is anticipated that Bermuda will introduce PTFs in the near future that do not have this requirement.

Bahamian law now permits the creation of executive entities (BEEs). Unlike most foundations, BEEs may only hold assets incidental to their purposes. BEEs do not have beneficial owners or shareholders and may themselves be the shareholders or members of a PTC.

However, BEEs may not be designed to act as PTCs and it appears they are not being used for this purpose. Bermuda law does not prohibit BEEs or foundations established in other jurisdictions from owning shares or being members of Bermuda PTCs.

Bermuda’s experience and its flexible, cost-effective regime for PTCs remains a key component of an international family office notwithstanding some innovative developments in other offshore jurisdictions.

Lawyer Ashley Fife is a Senior Associate and a member of the Private Client and Trusts Practice Group at Appleby. A copy of this column can be found on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.

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Published Oct 15, 2015 at 8:00 am (Updated Oct 14, 2015 at 8:15 pm)

Island’s private trust companies lead market

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