Types of trusts
Various types of trust have been developed over time and the most appropriate structure for the settlement will depend on the settlor’s particular circumstances and objectives. Some of the more common types of trust are described below.
Charitable and Non-charitable Purpose Trusts
Generally, in order for a trust to be valid there must be identifiable beneficiaries. In brief, the onerous duties imposed upon trustees are owed to the beneficiaries and without ascertainable beneficiaries who may enforce these duties against the trustees a trust will not be upheld. A long-held exception to this general rule has permitted trusts to be established in favour of charitable purposes, such trusts being enforced by the Attorney General.
The BVI now also permits ‘purpose trusts’, that is, trusts for non-charitable purposes. Such trusts must appoint a person with a duty to enforce the trust, known as an enforcer. At least one of the trustees must be a designated person (as defined in the Act as a barrister or solicitor practising in the territory, an accountant practising in the territory who qualifies as an “auditor” under the Banks and Trust Companies Act 1990, a licensee under the Banks and Trust Companies Act 1990, a private trust company or such other person as the Minister of Finance may by order designate). A purpose trust may be perpetual.
Other forms of BVI trusts
Fixed Interest in Possession Trust
Under the fixed interest trust the principal beneficiary will normally be granted a vested interest in the income of the trust fund throughout his lifetime and the discretion of the trustee regarding the disposition of the trust fund will be limited. For example, the trust instrument may specify that the trustee is required to distribute all of the income of the trust fund to a particular individual during that person’s lifetime and subsequently to distribute the capital of the trust fund in fixed proportions to named beneficiaries (such as the settlor’s children).
Accumulation and Maintenance Trust
An accumulation and maintenance trust is one where no beneficiary has a fixed entitlement to the benefits accruing to the trust for a certain period, during which time income is accumulated and becomes an accretion to capital. The persons who are ultimately entitled to the trust capital may thus benefit from the accumulation of capital. The trust instrument may give the trustee a discretionary power to make distributions amongst the beneficiaries up to a specific age for their education, maintenance and benefit and to provide thereafter for a designated share of the trust fund to be distributed to each child on attaining a specified age. An accumulation and maintenance trust may be particularly appropriate where the settlor wishes to benefit a group of children, for example, his grandchildren.
The discretionary trust provides maximum flexibility and is often the most efficient structure for both settlor and beneficiaries. Under the terms of a discretionary trust the trustee is given wide discretionary powers as to when, how much and to which beneficiaries he should distribute the income and capital of the trust. Such a form of trust is useful where at the time of creation of the trust the future needs of beneficiaries cannot be accurately determined. The beneficiaries are not regarded as having any direct legal rights over any particular portion of the trust fund but only a right to be considered to benefit when the trustee exercises his discretion.
Although for tax and other reasons it is generally desirable for a trust to be constituted as an irrevocable settlement, in certain circumstances the settlor may require the additional comfort of knowing that he has retained the power to revoke the trust and enforce the return of the trust fund. Careful consideration requires to be given to the possible consequences of a revocable trust because under the jurisdiction of the settlor’s domicile, residence or nationality, revocation may negate some of the expected benefits of creating the trust.
The Virgin Islands Special Trusts Act 2003 created a special trust (known as a “VISTA trust”) in the British Virgin Islands which exists as an alternative to a non-charitable purpose trust. A VISTA trust is used purely for the holding of shares in a British Virgin Islands International Business Company, and enables a trustee holding such shares to distance himself entirely from the management of the company in which the shares are held. Where the trust deed contains a provision enabling the application of VISTA, the trustee will hold the shares ‘on trust to retain’, and this duty will take precedence over any duty to preserve or enhance the value of the shares. The responsibility for managing the company lies with the directors and the directors only. Such legislation circumvents the ongoing problem in other jurisdictions with regard to trustees’ liability in relation to such high-risk assets as private family company shares. At least one of the trustees must be a designated trustee (as defined in the VISTA legislation as a licensee under the Banks and Trust Companies Act 1990 or a private trust company).
The Rule Against Perpetuities
With the exception of VISTA, charitable trusts and statutory purpose trusts which are unlimited in duration, all other types of BVI trusts are subject to a maximum perpetuity period of 360 years, plus a “wait and see” rule whereby a disposition or power will fail only if it actually takes effect outside of the perpetuity period.
TBA has a large specialist trust and private client team consisting of three directors, a senior associate, two associates and a trainee. Our specialist team has extensive experience of advising clients in relation to the establishment and structuring of trusts and foundations, estate planning, trust and estate litigation, international tax investigations and TIEA requests.
Further information on these alternative structures is available on request.