Trust and Corporate Services
Exempted Trusts and Ordinary Trusts
In the Cayman Islands there are two categories of trusts,
exempted trusts and ordinary trusts.
Exempted Trusts
An exempted trust must be registered with the registrar of
trusts located in Grand Cayman. The registrar retains the original trust deed and issues
the trustee with a certificate of registration. A fee is payable to the registrar upon
registration and in addition to this there is also an annual fee payable to the registrar.
The trustees of an exempted trust may obtain a guarantee from the government against the
imposition of income or capital taxes for a period of up to fifty years. Exempted trusts
are typically used by corporations for the purposes of managing an investment fund and
although there are some exceptions exempted trusts are not usually used for
private/personal trusts.
Ordinary Trusts
An ordinary trust is not registered with the registrar of
trusts and is considered to be a private and confidential legal agreement between the
settlor and the trustees. As a result of this an ordinary trust is not subject to any
government fees, other than the payment of a fixed rate of stamp duty on execution of the
trust deed. Typically, an ordinary trust is created by an individual to take advantage of
some or all of the benefits which are detailed below.
Selecting the Right Trust
Once a decision has been made as to whether an ordinary or
exempted trust is most suitable, further consideration has to be given to the structure of
the trust deed. The trust deed will normally detail the powers and duties of the trustees,
establish the life of the trust (the perpetuity period) and identify all of the parties to
the trust ie: trustees, settlor, beneficiaries and the protector if indeed a protector is
required. Trust deeds are very flexible and can be either:-
a) Customised - This means that the terms of
the deed are drafted to meet the settlors specific personal requirements. For example the
settlor can determine the age or ages at which the beneficiaries will receive their
entitlements and the percentage of capital or income that they are entitled to receive.
b) Discretionary - The discretionary trust is
generally considered to be a more flexible arrangement than the customised trust. In
accordance with the terms of the trust deed all powers and discretions are vested in the
trustee. A discretionary trust is accompanied by a letter of wishes which sets out the
settlor's wishes with regard to the distribution of capital and income. The trustee is
guided by this letter when making a decision considering the distribution of assets to a
beneficiary.
Creating a Trust
It is very simple to establish a trust with HSBC Financial
Services (Cayman) Limited. A trust is effective once the settlor has transferred the legal
ownership of the initial trust property to the trustees and the trust deed has been signed
by the settlor and the trustee.
Unfortunately we are unable to provide the trust product
to residents of the United States for the simple reason that an offshore trust offers very
few advantages to residents of this country.
Unlike a corporation, a trust is not a separate legal
entity. Cayman Islands Trusts are governed by the Trusts Law (2001 Revision) which is
based upon the English Trustee Act 1925. The law relating to Trusts has developed over
centuries and serves to enforce the duties of the trustees and the rights of
beneficiaries.
Benefits
A trust might be created to take advantage of some of the
benefits detailed below:-
Estate Planning: A trust is considered to be a
more confidential and flexible estate planning tool than a will which of course becomes a
public record on the death of the testator. A trust can be used to avoid probate and
ensure the smooth transfer of assets in accordance with the settlor's wishes.
Avoidance of Fixed Succession Laws: The Trusts
(Foreign Element) Law (consolidated in the Trusts Law) (2001 Revision) is intended to
protect property settled in a trust that is governed by Cayman Law against any forced
heirship rules which may exist in the settlors country of domicile.
Wealth Preservation: In accordance with
Cayman Law the trustees have a fiduciary responsibility to enhance/preserve the value of
the trust assets. As part of one of the largest financial organistaions in the world we
are able to access a whole range of investment management services within the HSBC Group.
Transfer Of Legal Ownership: A trust is
effective once the legal ownership of the assets has been formally transferred from the
settlor to the trustee. This means that the assets are now the legal property of the
trustee and would not be considered as part of the settlors personal estate.
Confidentiality: An ordinary trust offers
complete confidentiality and is a private legal agreement between the trustee and the
settlor.
Tax Benefits: Certain tax benefits may be
enjoyed subject to the residence and domicile of the settlor and the beneficiaries.
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