This summary should be read in conjunction with the general article about trusts entitled “An Offshore Trust:   The Chameleon of Financial Strategies” on our website.

Throughout the past decade offshore financial centres have been particularly mindful of the significant changes made to the laws of leading nations which have affected the three pillars of the offshore business: banking, corporations and trusts.  The Turks & Caicos Islands (TCI) undertook an ambitious legislative exercise and introduced new banking, trust, trustee and insurance laws, in the early 1990s.

The trust law was particularly innovative and in preparing the initial draft elements of the Cayman Islands, Channel Islands and Isle of Man trust laws were included.  I believe  the result is that both the practitioner and the client have a sound, practical and imaginative Trusts Ordinance.  The Ordinance is not a codification of the law of trusts, but addresses those fundamental issues which are essential to the smooth operation of a trust.  In plain language the requirements for forming, managing, varying and terminating a trust are spelled out, as are the duties and powers of trustees and the rights of beneficiaries.

TCI is a British Dependent Territory so English Common Law and English rules of equity - the cornerstone of Anglo-Saxon trusts - augment the Trusts Ordinance.  Consequently, the internationally-recognised classifications of trusts, namely, express or implied,  constructive, resulting, inter-vivos or testamentary, fixed or discretionary, revocable or irrevocable all apply to TCI trusts.

The most frequently-used type of TCI trust is the express discretionary trust which is usually declared - as opposed to settled - by a third party on behalf of the individual or corporate party wishing to place assets into trust (settlor).  This method of creation does, of course, obscure the identity of the settlor and even more so if he is not named as a beneficiary in the deed.  The settlor can be added subsequently to the beneficial class although his name, of course, will not appear in the trust deed itself.  In such a trust the beneficiaries have no vested (fixed) right to any of the trust’s assets and the trustee decides (discretion) which beneficiaries will benefit.  It is usual under a TCI trust for a letter of wishes to be given to the trustee by the settlor indicating who should (and in what proportions) benefit from the trust.  There is a tendency to include other matters in the letter of wishes and whilst there is no problem with that, it is important to ensure that the contents are brief and precise.  Unless the wishes expressed are contrary to public interest, unreasonable or incapable of performance, there is little question of the trustee not complying.  Letters of wishes can be cancelled or revised at any time, and can be very useful aids in keeping matters confidential.

The Trusts Ordinance has many attractive provisions, including:

1.       The nationality, domicile or residence of either a settlor or the beneficiaries will not affect the proper application of TCI law.  The trust property will be immune from foreign laws although circumstances can arise where assets can fall under the control of a hostile jurisdiction’s courts.

2.       Importantly, TCI law deals with the matter of forced heirship (entrenched rights under the laws of certain countries) by stipulating, inter alia, that where the laws of any foreign jurisdiction contain contrary provisions as to how assets are to be distributed upon the death of a settlor, then such laws are to be ignored - always provided that, as stated earlier, the assets in dispute do not fall under the control of the foreign jurisdiction’s courts.

3.       Appointment of protectors is covered and, importantly, in light of recent court decisions, the Ordinance spells out that a protector will not be deemed to be a trustee by reason of his position or powers.  Nevertheless, the appointment of protectors is a matter not to be taken lightly and is deserving of very careful consideration and discussion with qualified advisers.

4.       The common law rule against perpetuities (as well as accumulations) does not apply and, therefore, a trust, like a company, can be of perpetual duration although the trust deed itself can provide otherwise if the settlor wishes.

5.       Trusts have no registration requirement with the TCI Government and thus the creation of a trust remains a private, rather than a public, act.

6.       Trusts may be imported into and exported from the TCI.  There are adequate provisions in the Ordinance to remove any ambiguity as to the procedures necessary.

The protection or conservation of assets through the operation of trusts is a centuries-old practice.  In recent times the subject has become very topical with the onslaught of aggressive litigation, particularly in the United States of America.  The Trusts Ordinance supports the protection of assets and does not concern itself with the legitimate intentions of the settlor.  In deciding if a transfer of assets is void or voidable, the Ordinance requires only that at the time of the transfer the settlor was either not insolvent or did not become insolvent because of the transfer.  The burden of proof of insolvency is placed upon the person asserting it. 

The privacy of TCI trusts is underpinned by the Confidential Relationships Ordinance, 1979, which forbids the disclosure of information to unauthorised persons.    Only in the case of serious criminal offences is an exception made.

A TCI trust is, as previously stated, an effective tool which has multiple advantages when planning income and capital tax programmes, succession on death, creation of investment vehicles for collective investments (mutual funds), in addition to serving as an ideal shelter against both political and economic risk.  Very often the trust can be used in conjunction with a foundation, blending civil and common laws which, if structured correctly, can produce considerable benefits.  Please see the article “Panamanian Foundations” on our website.

Doubtless offshore jurisdictions will continue to offer variations on the trust theme but the essential building blocks of an offshore trust strategy are a competent trustee backed up by a sound and well-defined trust law, such as the one offered by the Turks & Caicos Islands.