British Virgin Islands to Revise VISTA and Other Trust-Related Laws
Following the recent revisions of, and updates to the British Virgin Islands (the "BVI") companies and investment funds laws, the BVI is now turning its attention to another strong component of the financial services sector – trusts and their trustees.
The BVI is a long established trust jurisdiction with trust law forming a core of its legal system. There is therefore clarity and certainty as to the position of trusts in the BVI legal system. There are a substantial number of legal advisors experienced in BVI trust law matters located both in the BVI and in other jurisdictions (including London and Hong Kong).
With a view to improving the offering in the BVI, a number of proposed amendments have been put forward relating to four pieces of trusts legislation.1 Each of the proposed changes is discussed briefly in turn.
The changes are not yet in force and are currently subject to a consultation process, so it is possible that these may not be enacted in the form outlined in this update.
Amendments to The Trust Corporation (Probate and Administration) Act
Under this Act, probate cannot be granted to a corporate executor unless such corporate executor falls within the definition of a "trust corporation".
Such a trust corporation must:
(a) have a place of business in the BVI;
(b) be empowered by its memorandum and articles of association to undertake trust business; and
(c) satisfy capitalisation requirements.
The proposed amendments will amend the definition of "trust corporation" for these purposes to include the holder of a Class I trust licence (with no capital requirements other than any required under the Banks and Trust Companies Act).
This change will enable holders of Class I trust licences to also act as executors and administrators. This will be of benefit to such trust companies allowing them to offer estate administration services.
For companies other than those with a Class I trust licence, the capital requirements will be increased from US$600,000 to US$1,000,000.
Amendments to the Trustee Act
The proposed amendments to the Trustee Act cover four areas:
1. From 15 May 2013, the maximum perpetuity period shall be a period not exceeding 360 years instead of the current 100 years. This is in line with the current maximum period in certain other jurisdictions. This will be of interest for clients looking at "dynastic trusts" and who regarded 100 years as too short. This extended period applies to all trusts2, other than purpose trusts, to which the rule against perpetuities does not apply.
2. The purpose trust legislation introduced in 2003 is to be improved. The proposed amendment to s84A will allow BVI private trust companies ("PTCs"3) to be designated trustees of purpose trusts. This is a welcome change. For example, under the current law, a family with a PTC cannot use the same PTC to be trustee of a trust for philanthropic purposes (unless they are exclusively charitable).
3. For chargeable instruments executed after 15 May 2013, trust duty and the relevant penalties are to increase from US$100 and US$200 to US$200 and US$400 respectively.
4. The provisions in section 1014 which, if incorporated into the trust instrument, govern the relationship between trustees and creditors will be extended to cover loans of assets in addition to loans of money. Again this is to recognise the fact that financial transactions cover more than just cash.
Amendments to the Virgin Islands Special Trusts Act5
VISTA6 trusts are a key component of the BVI's trust industry. They continue to be popular – particularly in Asia, South America and the Middle East. These proposed amendments provide certain clarifications and improvements which add to the attractiveness of the regime.
In summary, as a result of the amendments, the restrictions as to the trustees of VISTA trusts would be relaxed; property may be appointed onto VISTA trusts from existing BVI trusts; and the circumstances in which the legislation will (or will not) apply is to be clarified.
For simplicity, the principal amendments are summarised in the order of the relevant sections of VISTA:
1. The first proposed amendment will clarify the position relating to designating shares to which the legislation can apply. By adding the requirement that designations must be "in effect", it will now be clear that designations can be revoked, suspended or, as shall be seen below, take effect in the future.
2. A BVI PTC would be able to be the trustee of a VISTA trust. This is certainly something which will be of interest both to families seeking to retain control and to service providers without a BVI licensed trust company. Following the amendment a "designated trustee" will include Class I trust licence holders and PTCs. It would therefore be possible for trust companies without a BVI licence to be involved in the trusteeship of VISTA trusts either through co-trusteeship7, by administering the PTC or by establishing their own PTC as a subsidiary.
3. The definition of "interested person" would be expanded to include any persons so designated as opposed to the current law which refers to specified persons or groups of persons. In addition, a settlor would be able to specify that a protector is not an interested person if he so wished.
4. A key change would permit shares to be added to a VISTA trust from other BVI trusts where one trustee is a designated trustee and for VISTA trusts to be created by the exercise of powers conferred by another trust with at least one designated trustee. At present, it is difficult for existing BVI trust structures to move into the VISTA regime. These changes will allow ordinary trusts governed by BVI law to resettle or to appoint assets onto VISTA trusts.
5. No longer would a designated trustee need to be the only trustee. At all times (including in relation to successor trustees) the trustees would need to include a designated trustee but, similar to the STAR8 regime in the Cayman Islands, the designated trustee would not need to be the only trustee. This may be of interest to families with a private trust company outside of the BVI or to institutions without a BVI licensee. Care will still need to be taken where the person exercising the power is in a fiduciary position to ensure that the transfer is in accordance with his or her duties.
6. It will expressly provide that the terms of the trust may specify that VISTA applies or ceases to apply at certain times or on the occurrence of specified events and also allows persons other than the trustee to direct that VISTA applies or ceases to apply.
7. It will be expressly stated that trustees of VISTA trusts do still have rights as shareholders to certain documents and accounts. This will be a welcome amendment and will underline the fact that VISTA trustees can still exercise (and therefore should consider whether to exercise) certain shareholder rights, particularly in relation to financial information.
8. The "office of director rules"9 would be able to be qualified further by the trust deed to extend the trustee's duties in relation to the appointment and removal of directors. A settlor would be able to specify a more active role for a trustee, such as imposing a duty on the trustee to make certain enquiries as to whether specified events had occurred, which would trigger an obligation to appoint or remove directors.
9. "Appointed enquirers"10, would be permitted to be paid and the trustee would have an increased obligation to provide them with information. At present the law is silent on these points.
10. The modification of the rule in Saunders v Vautier will be permitted for any period of up to 20 years as opposed to the current fixed period of 20 years.
11. It will also be possible to increase the fiduciary responsibility of a trustee, providing such departure is made in accordance with the revised s15. This will enable more bespoke VISTA deeds to be entered into in this regard where certain duties can be expressly set out.
These changes should be welcomed. An increase in the potential use of PTCs is to be applauded, especially with the BVI's competitive regime in this regard. In addition, increased flexibility of the VISTA regime is desirable and will keep this legislation at the forefront of the major trust centres.
For further information, please speak with your usual Maples and Calder contact or one of the individuals listed above.
1Drafts of the Acts discussed in this update were published with the Gazette of 18 April 2013. The amendments are therefore not yet in force and are subject to a consultation process. Once they are finalised and in force, a revised Maples and Calder update will be produced.
2Including VISTA trusts.
3A Maples and Calder legal guide is available on this topic.
4In short, this section states that a lender to a trustee may, for its own protection, request that the trustee restrict the exercise of certain powers and that the trustee may if it thinks fit comply.
5A Maples legal guide is available on this topic.
6Virgin Islands Special Trusts Act 2003. A Maples and Calder legal guide is available on this topic.
7See point 5 above.
8Special Trusts (Alternative Regime). A Maples and Calder legal guide is available.
9As defined in VISTA. A Maples and Calder legal guide is available.
10As defined in VISTA. A Maples and Calder legal guide is available.