Trust and Corporate Services

STAR Trusts

The name STAR is an abbreviation of the governing legislation known as the Special Trusts (Alternative Regime) Law, 1997, which has been consolidated in the Trust Law (2001 Revision).

A STAR trust is a non-charitable purpose trust which must have at least one trustee that is a trust corporation licensed in the Cayman Islands. Other offshore jurisdictions have existing legislation in place for this type of vehicle but there are areas which remain unanswered such as the issue of uncertainty which the STAR legislation addressed.

A STAR trust can be set up as:

• a pure purpose trust with no beneficiaries

• for non charitable purposes and for the benefit of individual beneficiaries

• a traditional trust for individual beneficiaries whilst taking advantage of perpetuity and the right to appoint an enforcer

STAR trusts are proving to be very useful planning vehicles and are becoming more and more popular for a variety of reasons.

• The perpetuity rule does not apply to STAR trusts, therefore an unlimited life span is possible as opposed to the 150 year life span of an ordinary trust.

• A trust with mixed purposes, for persons and purposes is permitted.

• The settlor has the power to designate the enforcers who can but are not required to be beneficiaries of the trust.

• STAR allows the settlor to defer the rights of the beneficiaries. This can be useful if the settlor does not want the beneficiaries to know about the existence of the trust.

• The settlor has the power to make the trust's investment decisions and the trustee is under no obligation to ensure the investments are in the interests of the beneficiaries.

To conclude, a STAR trust as a result of the legislation, can result in being a radical departure from a traditional trust. A STAR trust which has been created for the benefit of persons where the individual beneficiaries have been appointed as the enforcers will in fact be very similar to a traditional trust with the exception of being governed by the provisions relating to STAR Trusts contained in the legislation. In the event that the beneficiaries have not been appointed as enforcers the beneficiaries will have limited rights and this is quite different from a traditional trust and should be carefully considered.