With the Transcontinental Trusts Bermuda Forum taking place next week, it is timely to reflect on some of the attractive features and structuring alternatives that Bermuda’s trusts and related law provides and to consider some recent exciting developments.
Bermuda provides a flexible, cost effective regime for the formation and administration of private trust companies (PTCs), which are not regulated as a trust business.
Unlike a number of other jurisdictions, Bermuda’s PTC regime permits corporate directors to be appointed as directors of the PTC; does not require directors or secretaries to be resident in Bermuda; and does not require a licensed administrator to administer the trusts.
Bermuda law provides its courts with the power to vary beneficial interests and administrative powers of trusts where it is in the interests of the beneficiaries to do so. It may be that no other jurisdiction provides such wide powers for restructuring trusts as Bermuda’s renowned ‘section 47’.
Bermuda trust law provides the ability for a settlor (including an investment manager launching a fund) to act as a managing trustee.
When a managing trustee is appointed, the co-trustees will generally not be liable for the duties that the trust instrument allocates to the managing trustee. This can provide settlors and fund managers with greater flexibility when investing trust funds as well as reducing the co-trustee’s risks and costs.
Bermuda’s trust law includes effective firewall legislation that prevents or reduces the impact of foreign laws and judgments on the Bermuda trust’s validity or its assets.
Bermuda was a pioneer in the development of purpose trusts, which are frequently used to own companies (to create bankruptcy remote structures), to hold security for parties to a contract, and to hold funds for application towards philanthropic causes.
Last year, Bermuda introduced two significant amendments to its trust legislation.
First, a clear and extensive regime for the reservation or granting of powers over trusts was introduced. Bermuda law permits settlors to reserve or grant extensive powers or beneficial interests without invalidating the trust. No other jurisdiction appears to have provided the same level of clarity regarding the nature of the powers that may be reserved and how they may be exercised.
In addition, last year also saw the introduction into Bermuda’s trust legislation of a provision known as ‘statutory Hastings Bass’. The provision effectively preserves principles developed from the English Court of Appeal’s ruling in 1975 which had been restricted significantly recently by the decisions in the English Supreme Court cases of Pitt v Holt and Futter v Futter. ‘Statutory Hastings Bass’ provides fiduciaries and others with the possibility of asking the court to exercise its discretion to set aside a flawed exercise of a fiduciary power where the fiduciary’s exercise of it had resulted in adverse tax or other consequences upon the beneficiary or the trust fund. Few jurisdictions provide such a unique remedy.
Bermuda provides an efficient regime for regulated and unregulated international pension funds, which benefit from the availability of a range of providers of insurance linked contracts in Bermuda.
- boasts the ability to create trusts that have an indefinite duration;
- provides an efficient regime for unregulated private funds and close ended funds and a lightly regulated regime for exempted funds; and
- is one of the strongest insurance markets in the world. Insurance products are often used to provide stability, investment growth and tax efficiency with respect to private and commercial trust structures.
From a tax perspective, Bermuda is attractive for international structuring because it does not impose income or capital gains tax. Further, Bermuda ‘exempted’ entities (established for international clients) may apply for an assurance from the Minister of Finance that such taxes will not be imposed on such entities before 31 March 2035. Bermuda also does not impose exchange controls on non-Bermuda assets.
Bermuda’s infrastructure and availability of internationally renowned financial service providers is impressive.
Bermuda also reaps the benefits of having a number of effective international agreements that facilitate business between Bermuda and other jurisdictions.
For example, Bermuda’s Tax Information Exchange Agreement with Mexico in 2009 and consequent amendments to Mexican income tax regulations has led to the removal of Mexican withholding tax and the annual filing requirement for Mexican residents who transfer to, or receive funds from, Bermudian structures including trusts.
Bermuda’s government has adopted a Model 2 intergovernmental agreement (IGA) with the United States government for the implementation of the Foreign Account Tax Compliance Act.
A Model 2 IGA requires reporting entities to report directly to the United States Internal Revenue Service (IRS) thereby enabling entities to control and be more aware of the information that is provided to the IRS.
If that is not enough, Bermuda is a beautiful environment in which to do business, hold a conference, play golf, and now, to watch the America’s Cup.
Article first published in The Royal Gazette, April 2015