Member Article

Whilst generational wealth from around the world has commonly been held, in some form, via Cayman trusts, the client base of the local trust industry has in recent years expanded greatly to include a wider range of global family offices, ultra-high-net-worth individuals, and entrepreneurs keen to take advantage of the modern and flexible options on offer.

As the modern client takes on different forms and expresses different needs, the islands' attractive tax neutral status is often a secondary consideration for individuals who are now increasingly looking – in the first instance, at least - for a safe-haven, both in the physical and structural sense, in a volatile world.

The Cayman Islands Trust

It is already well known that the Cayman Islands offers a range of forward thinking and bespoke forms of offshore trusts, all of which can be drafted and finalised with the assistance of structuring by highly skilled professionals (including attorneys and trustees) located within the islands. With a robust legal and regulatory framework in place for decades, the Cayman Islands is generally viewed as a jurisdiction of choice both for established families and first-generation wealth creators, whether their goal is to secure their legacy, preserve their assets, plan for their succession, or address legitimate privacy concerns.

The basic form of Cayman Islands trust on offer follows the usual recipe in this context, which may nonetheless be unknown to clients with no previous experience of trusts: the settlor (or grantor) of a Cayman trust is the person who creates the trust by transferring assets (the trust fund) to the trustee to hold:

• for the benefit of beneficiaries (particular individuals or charities);
• to achieve certain purposes (which may or may not be charitable); or
• for a mixture of both.

After the assets are transferred to the trustee, the settlor no longer owns the assets (but if they are a beneficiary of the trust, they may still be able to benefit from them). A trust deed will set out the terms on which the settlor and the trustees have agreed that the trust fund will be held and administered, and the trustee will take the reins and exercise its discretion with due skill and care from there. With these minimum requirements met, bespoke drafting begins to meet the specific needs of the client family or individual. Whilst clients of the past needed little more than these basics, the modern client often now requires more careful, sensitive, and, frequently, delicate attention.

A Modern Trust For A Modern Family

It is somewhat trite but nonetheless true to say that every family has its own unique identity. In an age of assisted conception, surrogacy and non-traditional familial structures, the social and legal meaning of the word 'family' continues to develop. Modern families require a succession plan which is moulded to their own individual circumstances and built to accommodate their future needs, including the needs of new generations who may look and operate differently than those who came before.

A Cayman Islands trust is an ideal vehicle to evolve with the modern family because it is so flexible.  Tailor-made mechanisms can be incorporated into a Cayman Islands trust to hardwire in the settlor's wishes for their family (now and in the future). This allows the settlor to plan as much as possible for whatever circumstances their descendants may find themselves in: while traditional trusts may have been drafted to provide for a simple transfer of wealth to the issue of the settlor, a modern-day settlor can be more specific and make it clear, for example, that it is their wish that family members born via a surrogate, whether or not they are genetically related, may benefit under the trust – or that members of their family should reach a certain level of maturity before being able to benefit from the family's wealth.

Trustees with discretionary powers will be confident and comfortable in acting when the wishes of the settlor are clearly expressed in this way. This is a powerful tool for safeguarding the future of the descendants of the settlor.

Cayman Islands trusts are also proving to be an effective mechanism for engaging the next generation in the protection and growth of the family's wealth, which can, in turn, help to bridge the generational gap. With careful drafting, these trusts can provide for the establishment of a family council or protective committee to exercise a degree of oversight over the operation of the trust and/or the investment of the trust fund.

Some families have found it helpful to establish a separate series of trusts (sub-trusts) for different branches of the family, with each sub-trust conferring powers of direction on the relevant family branch. This strategy can be useful if different branches of the family have different preferences regarding investment (for example, if there are different attitudes towards risk) or if they wish to hold particular assets, including wasting assets.

The ability to draft in powers allowing family members to direct trustees regarding the investment of the trust fund and to establish trusts for specific purposes also makes Cayman Islands trusts ideal for holding modern investments likely to engage upcoming generations (such as new technologies and novel assets including cryptocurrencies and NFTs; and ESG-focused projects). Likewise, philanthropy can bring the family together and train younger generations around responsible wealth ownership and there is a long tradition of family charities established by way of a Cayman charitable trust.

Business, And Heir, Protection

For business owning families, Cayman trusts are already facilitating continuity and the smooth transition of the family business down the generations.

For instance, Cayman trusts are often used as part of a wider structuring plan to allow family members to benefit equally from the profits of a family business, whilst preventing any one individual from exercising control of the voting rights. Transferring assets to a Cayman trust also has the advantage of avoiding probate formalities which can hamper the effective running and governance of an operating company. Specific provision can be made to limit interference by the trustees in the decisions of family directors. Cayman trusts can also be used to plan for significant events in the lifespan of a family company, for instance they can be used to create pre-IPO or liquidity event structures to protect the family's holding in the business for the future.

A final and important factor for international families concerned about security in a world in the midst of great upheaval: in the Cayman Islands, the documents setting out the terms of the trust and the wishes of the settlor are kept private. There is no requirement to register a Cayman Islands trust on a public register at this time. This can be a paramount concern for individuals living in potentially dangerous jurisdictions where there is a real risk of kidnapping or state appropriation of assets. A unique feature of a Cayman trust is that it can be established to limit the trust beneficiaries' access to information concerning the trust. This can be beneficial where there are family heirs and other vulnerable family members to protect, including young children.

The Bigger Picture

Wealthy families are increasingly likely to have interests spread across the globe and a physical presence in multiple jurisdictions. Creating a streamlined and internally consistent structure which serves a family's needs appropriately, regardless of where in the world they might be at any given moment, requires a collaborative 'without borders' approach from the family's expert advisors.

The flexibility offered by contemporary Cayman Islands trusts means that they are frequently used as a building block within complex, multijurisdictional family structures.  Professionals working in the modern Cayman Islands trust industry are used to adopting a team-based style, working alongside family offices, tax specialists, wealth managers and other trusted advisors throughout the world to deliver the best results for their clients.

As a result, the future is bright for the modern Cayman Islands trust, and robust for the clients who use the structures found here. Cayman Islands trustees are subject to rigorous supervisory oversight by the Cayman Islands Monetary Authority, to ensure that adequate safeguards and internal controls are in place.

The jurisdiction is also committed to the global fight against money laundering, tax evasion and other illegal activities. It is compliant with internal regulatory requirements concerning the exchange of tax information, including the United States' Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). Local trust and regulatory laws have clearly been consciously developed to align with the evolving needs of modern global families. Clients benefit from skilled professional advice, delivered in a well-regulated professional environment.

Meanwhile, the utility and versatility of the trust structuring options available mean that each family's specific needs are individually catered for. Whatever the client's circumstances and objectives, the contemporary Cayman trust maximises their chances of continued wealth, prosperity, and success.

 

The original version of this article was published by IFC Review, September 2022. 

 

Link to article