Key takeaways from our 2018 Cayman International Trusts and Private Client Conference

Now in its 8th consecutive year, over 100 delegates descended upon the Kimpton Seafire Resort and Spa in the Cayman Islands on 5 October for our annual International Trusts and Private Client Conference.

The sessions were moderated by Mourant partners including Eleanor Morgan, Simon Dickson, Hector Robinson QC, Edward Devenport, Jonathan Speck and Tony Pursall. They were joined by a number of international speakers from firms including Charles Russell Speechlys, Michelmores, Macfarlanes, Payne Hicks Beach, Day Pitney, Taylor Wessing, Stephenson Harwood, Stewarts Law, Wilberforce Chambers, Serle Court Chambers and Blackstone Chambers.

Here we share with you our top four take-away points.

1. Bear in mind the impact of data protection laws

Data protection laws have a potentially ground-breaking impact on trustees. More particularly, in some circumstances they may override long-standing common law principles in relation to the disclosure of trust information. Subject access requests (SARs) can be made to anyone in the trust industry. The costs of complying with SARs can be significant, so trustees should review the terms of their engagement to ensure that those costs are covered by the trust deed. Cayman's new Data Protection Law is due to come into force in 2019, but there is a carve-out which should prevent requests by beneficiaries for trust information. 

2. Challenges by creditors

Whilst the Pugachev judgment is a salient reminder that trustees should ensure that powers reserved to settlors and/or protectors are appropriate, the judgment contains some remarkable findings about the circumstances giving rise to what constitutes a sham/illusory trust and has been roundly criticised. It does not, by any means, signal the end of the ability to establish a trust with reserved powers, but where reserved powers are required trustees and settlors should consider establishing a trust in a jurisdiction where reserved powers legislation exists, such as in the Cayman Islands. Other recent decisions in the US demonstrate that asset protection planning should only be provided for existing clients (preferably offshore) and judgment creditors will not necessarily be entitled to an order appointing receivers by way of equitable execution over a beneficiary's interest in a Cayman trust to satisfy a judgment debt, particularly when a judgment debtor has other assets.

3. Liability to third parties

Recent judgments demonstrate that there are various issues for outgoing trustees to consider, particularly as regards whether they are personally liable for those liabilities incurred whilst they were trustees. Some jurisdictions limit the liability of trustees to third parties, whilst others (such as the Cayman Islands) do not. A trustee's right of indemnity might be lost where, for example, the trustee is found to have acted in breach of trust. Trustees should consider carve-out wording where no statutory protection exists. Limited recourse wording is not always sufficient to prevent them from being found personally liable and trustees should consider exercising their lien over trust assets for known liabilities.

4. The changing role of professional trustees

The establishment of a trust may give rise to adverse tax consequences, so tax advice should always be obtained at the outset. Although a trust's investment powers may be reserved to a settlor and investment functions may be delegated to an investment advisor, trustees have an ongoing duty to monitor investment performance. Where investment performance falls below known benchmarks, a trustee should raise this with the investment adviser and/or the settlor. Where the question of incapacity of a settlor arises, a trustee should involve family members as soon as possible after they become aware of such incapacity, to avoid challenges being made about their administration of the trust.

The conference ended with a keynote address from Sir Jeffrey Jowell, QC, who gave a fascinating and insightful talk on the impact which the passing of the UK's Sanctions and Anti-Money Laundering Act will have on the Cayman Islands, insofar as it requires the introduction of a publicly-accessible register of the ultimate beneficial owners of companies by the end of 2020. Sir Jeffrey raised doubts as to the constitutionality of any order in council passed pursuant to the Act, but whether a constitutional challenge will be made by the Cayman Islands government remains to be seen.