Top Takeaways from our Zurich and Geneva Trust and Private Client Seminars
09 October 2019
We were pleased to host our inaugural Swiss seminars in both Zurich and Geneva earlier this month, where members of our International Trusts and Private Client Team and Litigation Partners shared topical insights with 111 attendees on trust law in the BVI, Cayman, Guernsey and Jersey.
Here are our top takeaway points from the topics discussed:
1. Economic substance
Whilst there are considerable similarities in the rules as between the Channel Islands, the BVI and the Cayman Islands, there are also some important differences. Any trust and company service provider's approach to assisting their clients with meeting the challenges posed by the rules will need to take these into account, as well as the particular capabilities and geographical footprint of the service provider. Further guidance and information about Economic Substance can be found here.
2. Private trust companies
The popularity of PTCs endures, and various light touch regulatory regimes exist offshore. Where clients seek an element of control or involvement, PTCs can be a very useful tool, provided that the client is well educated in corporate governance and trust matters. If the client is not, then allowing involvement can present risks to the client and the service providers. Note that although STAR trusts and VISTA trusts require a trustee in the Cayman Islands or the BVI respectively, a PTC incorporated there can act as a trustee of such trusts and outsource day to day trust administration to service providers elsewhere.
3. Foundations and Foundation Companies
Foundations emerged as a new type of incorporated entity in Jersey and Guernsey some years ago and have become an essential element in the planning toolbox, for example, for clients who favour incorporated entities over trusts, as philanthropic vehicles or as orphan owners of SPVs. Foundation companies have also now been launched in the Cayman Islands and follow a different approach by drawing on the existing framework and jurisprudence of Cayman company law, and have already attracted considerable interest. Read more on Cayman Islands foundation companies here.
4. Disclosure and Confidentiality
When faced with requests for trust information, trustees must navigate through different rules depending on whether the request is internal (e.g. from beneficiaries) or external (e.g. from foreign tax authorities via TIEA requests). Court proceedings in the Channel Islands, BVI and the Cayman Islands concerning trusts (other than claims against trustees for breach of trust) will normally be heard privately or otherwise be kept confidential, with any judgment being anonymised.
There are limited ways in which it is possible for a creditor to break open a trust and enforce directly against trust assets. If the trust is valid, it is generally necessary for a creditor to have a proprietary tracing claim or an insolvency claim directly against the assets. It is not sufficient just to have a claim against a beneficiary of a discretionary trust, as the discretionary beneficiary has no underlying entitlement to the trust assets.
6. Insolvent Trusts
Recent decisions in the Z Trusts litigation in Jersey have developed the law in relation to "insolvent trusts", relevant to jurisdictions such as Jersey, Guernsey and the BVI which (unlike under English law) have statutory limitations on trustee liability to creditors. This has implications for those seeking to transact with trustees and for those who take over the trusteeship of a trust which is or becomes insolvent.