Revisions to VISTA and Other Trust-Related Laws
Following the recent revisions of, and updates to the British Virgin Islands ("BVI") companies and investment funds laws, the BVI has now turned 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 amendments have been made to four pieces of trusts legislation and a related change to private trust companies ("PTCs"). All of the changes came into force on 15 May 2013 and each is discussed briefly in turn 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".
The definition of "trust corporation" for these purposes now includes 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 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 (of which not less than US$500,000 is paid up) – unless such trust corporation satisfied the US$600,000 requirement (of which not less than US$480,000 is paid up) as at 15 May 2013.
In addition to having a Class I trust licence or meeting the capitalisation test, a trust corporation must also have a place of business in the BVI and be empowered under its constitution to undertake trust business.
Amendments to the Trustee Act
The amendments to the Trustee Act cover four areas:
(a) For instruments taking effect after 15 May 2013, the maximum perpetuity period shall be a period not exceeding 360 years instead of the previous period of 100 years. 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 trusts1, other than purpose trusts, to which the rule against perpetuities does not apply.
(b) BVI PTCs2 are now "designated persons" in respect of acting as 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 such purposes are exclusively charitable).
(c) 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.
(d) The provisions in section 1013 which, if incorporated into the trust instrument, govern the relationship between trustees and creditors have been 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 Act4
VISTA5 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. Amendments have been made which provide certain clarifications and improvements adding to the attractiveness of the regime.
In summary, as a result of the amendments, the restrictions as to the trustees of VISTA trusts have been relaxed; property may be appointed onto VISTA trusts from existing BVI trusts, and the circumstances in which the legislation will (or will not) apply have been clarified.
For simplicity, the principal amendments are summarised in the order of the relevant sections of VISTA:
(a) The first amendment clarifies the position relating to designating shares to which the legislation can apply. By adding the requirement that designations must be "in effect", it is now clear that designations can be revoked, suspended or, as shall be seen below, take effect in the future.
(b) A BVI PTC is 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" includes all licensed trust companies and PTCs. It is therefore possible for trust companies without a BVI licence to be involved in the trusteeship of VISTA trusts either through co-trusteeship6, by administering the PTC or by establishing their own PTC as a subsidiary.
(c) The definition of "interested person" has been expanded to include any persons so designated as opposed to a previous reference only to specified persons or groups of persons. In addition, a settlor is now able to specify that a protector is not an interested person.
(d) Further key changes now 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. These changes will allow ordinary trusts governed by BVI law to resettle or to appoint assets onto VISTA trusts.
(e) No longer will a designated trustee need to be the only trustee. At all times (including in relation to successor trustees) the trustees will need to include a designated trustee but, similar to the STAR7 regime in the Cayman Islands, the designated trustee will not need to be the only trustee. This may be of interest to families with a private trust company outside 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.
(f) The terms of the trust may now 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.
(g) There is an express statement that trustees of VISTA trusts do still have rights as shareholders to certain documents and accounts. This is a welcome amendment and underlines the fact that VISTA trustees can still exercise (and therefore should consider whether to exercise) certain shareholder rights, particularly in relation to financial information.
(h) The "office of director rules" may now be qualified further by the trust deed to extend the trustee's duties in relation to the appointment and removal of directors. A settlor is now 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 have occurred, which would trigger an obligation to appoint or remove directors.
(i) "Appointed enquirers" are now permitted to be paid and the trustee has an increased obligation to provide them with information.
(j) The modification of the rule in Saunders v Vautier is now permitted for any period of up to 20 years as opposed to the previous fixed period of 20 years.
(k) It is now possible to increase the fiduciary responsibility of a trustee, providing this is done 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.
PTC regulation8 and fees
With effect from 15 May 2013, the Financial Services (Exemptions) Regulations 2007 were amended to clarify that, in respect of related trust business undertaken by the PTC, the settlor may be a beneficiary of a qualifying trust and may also be the settlor of more than one related trust.
From 15 May 2013, the fees for the incorporation of a PTC as set out in Schedule 1 to the Business Companies Act 2004 were increased from US$750 to US$1250 (for up to and including 50,000 shares) and from US$1500 to US$2500 (for over 50,000 shares).
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.
1 Including VISTA trusts.
2 A Maples and Calder legal guide is available on this topic.
3 In 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.
4 A Maples and Calder legal guide is available on this topic.
5 Virgin Islands Special Trusts Act 2003.
6 See point (e).
7 Special Trusts (Alternative Regime). A Maples and Calder legal guide is available on this topic.
8 A Maples and Calder legal guide is available on this topic.