BVI – Sharpening the Tools of Wealth Management

On the 15 May 2013 the BVI enacted the first substantive amendments to its trusts legislation in 10 years.  Four of the Territory's principal trusts and estates statutes were made subject to change as the BVI sought to fine tune its legislation.

The main focus of the amendments was the Virgin Islands Special Trust Act (VISTA) but further important changes have also been made to the Trustee Act, 1961; The Bank and Trust Companies Act, 1990; and the Trust Corporation (Probate and Administration) Act, 1947.

The principal changes are as follows.

VISTA

Trusteeship

Perhaps the most significant amendment to VISTA is the change in the rules governing trusteeship.  The original requirement that a trustee must be a BVI licenced service provider was considered restrictive and has been updated to also allow a BVI Private Trust Company (PTC) to carry out the trustee function.  In addition, co-trusteeship is now permitted (provided one trustee is a BVI trust licence holder or a PTC).  This change makes it possible for trust companies without a BVI licence to be involved in the establishment and administration of VISTA trusts.  It is anticipated that this amendment will facilitate an increase in family controlled VISTA trusts and provide an incentive for foreign service providers to promote VISTA trusts.

VISTA Designation

There is now increased flexibility as to when the provisions of VISTA may apply to shares in a BVI business company.  The amendments allow VISTA designations to be revoked, suspended or 'triggered' at a later date.

VISTA Conversion

Existing traditional BVI law governed trusts may now be converted to VISTA trusts (provided the trustee is either a BVI licensed trustee or PTC).  Previous legislation made such a reclassification complex.

Trustee Information

VISTA trustees have been given an express right to inspect certain documents and accounts of the underlying BVI business companies and their subsidiaries.  This confirms that section 6 of VISTA does not prevent a trustee-shareholder from inspecting the underlying entities records thereby addressing potential concerns as regards trustee reputational risk.

Office of Director Rules (ODRs)

It is now possible to allow for the ODRs, as detailed in the trust instrument, to provide for remuneration of third persons and committees to be paid out of the trust fund.

Appointed Enquirers

‘Appointed Enquirers’ are now permitted to be remunerated and the trustee is obliged to provide them with trust documents and information.

Trustee Duties

Section 15 of VISTA may be varied to allow for a settlor to impose fiduciary duties upon the trustee in respect of the assets of the company.  This allows for modification of the trustee duty of care and leads to opportunities to establish trust instruments with bespoke trustee duties.

Trustee Act

Perpetuity Period

The perpetuity period is extended from 100 years to a period not exceeding 360 years.  This is in line with the current maximum period in certain other jurisdictions.  This extended period will cover all trusts, including those governed by VISTA.  Purpose trusts will continue to be exempt from the rule against perpetuities.  This amendment will only impact upon those trusts instruments which take effect after the 15 May 2013.

Purpose Trusts

The purpose trust legislation, introduced in 2003, has been amended so as to allow a BVI PTC to be a trustee of a purpose trust.  The amendment to section 84A is to be welcomed as it allows for greater flexibility in structuring family arrangements and should lead to an increase in the popularity of BVI purpose trusts.

Trustees and Lending

Section 101 of the Trustee Act, if incorporated in the trust instrument, gives the trustee the power to vary the trust in order to protect a third party creditor.  The ambit of this section has been extended and now includes loans of 'trust assets' as well as 'money'.

Trust Duty

Trust duty payable on chargeable trust instruments will be increased from US$100 to US$200 with effect from 15 May 2013.  In addition the penalty regime for late stamping will increase from US$200 to US$400.

PTC Regulations

Since 2007 it has been possible to incorporate a PTC to act as trustee of trusts without the need to obtain a BVI trust licence.  Many high net worth families have taken advantage of this legislation. The 2013 trust legislation amendments have modified the conditions under which a company may qualify as a PTC.

Pursuant to the regulations a PTC must either conduct 'unremunerated Trust Business' or 'Related Trust Business'.  The amendments have extended the operation of the 'related trust business' limb of the regulations so that trusts which contain settlors within the beneficial class may now qualify.  Previously, the 'related trust business' head of the exemption was unavailable where the beneficiaries of the trust included the settlor.  This amendment should lead to an increase in the use of PTCs as such PTCs will no longer have to carry on only 'unremunerated trust business' if the settlor is in the class of beneficiaries.

Corporate Executors

The Trust Corporation (Probate and Administration) Act 1947 has been revised in order to simplify the process by which a corporate entity may provide executor services. 

Previously, under section 2 of the Act a trust corporation was required to have had a place of business in the Territory, be empowered by its M&A to undertake trust business and satisfy the statutory minimum capital requirement (the previous minimum was US$600,000).  The 2013 amendments allow a company which holds a class I trust licence (in accordance with the Bank and trust Company Act, 1990 (BTCA)) to qualify as a 'trust corporation' under the Act.  This removes the capital requirement test on the basis that a class I trust licence holder is considered to be already sufficiently regulated.  The requirement for a place of business in the Territory remains.  A company not holding  a class I licence will need to satisfy a revised capital requirement of US$1,000,000.

The purpose of this amendment was to move the provision of executorship services under the modern fiduciary licensing regime of the BTCA.  It is further hoped that this change will offer a new service line to BVI Class I licensed trustees.

BVI Trust and Estate Planning

Structuring using BVI trusts remains an attractive proposition for high net worth families and their advisors.  As well as the standard trust planning tools BVI legislation enables practitioners to use VISTA and PTCs in order to create bespoke solutions.  The 2013 amendments seek to enhance the existing framework by providing a greater degree of flexibility.

VISTA

In the 10 years since VISTA was enacted the legislation has achieved significant traction in succession planning for family businesses and individuals.  In particular, VISTA has been extremely popular in civil law jurisdictions (together with the BRIC economies) where the retention of control available in a VISTA structure is appreciated.

Practitioners have increasingly seen the application of VISTA in a commercial context.  Further, VISTA has proved to be a popular tool when establishing structures involving unusual or new asset classes in both balance sheet and off-balance sheet transactions.

VISTA has proved itself to be a helpful planning tool when underlying assets are unconventional or risky as the trustee can seek comfort from the traditional duty of fiduciary care.

PTCs and Purpose Trusts

Purpose trusts (whether subject to VISTA or not) are often combined with PTCs in order to establish a family structure which provides maximum flexibility and control for a settlor wishing to preserve family assets for the next generation.

Business Succession - VISTA and PTCs in Practice

Succession to family business is an area which continues to require attention.  The BVI’s trust legislation provides the tools needed to create a structure that provides controlled succession to family businesses.  A BVI business succession trust achieves two main objectives: immobilisation of the shares in the business and provision for family and corporate governance rules.

Immobilisation of the shares is essential; if the shares were held by individual family members then ownership of the company would tend to fragment across each successive generation, which could eventually dilute overall family commitment to the business. Also, effective cross-generational governance rules would not be possible were the shares freely disposable by individual family members; the business may end up being partially owned by unconnected third parties.

Effective family and corporate governance rules form a critical part of a business succession trust.  These rules typically regulate family decision making and interact with governance of the family business.

A business succession trust created in the BVI will usually be governed by the provisions of the VISTA or would involve use of a BVI PTC.

Broadly, VISTA permits a trust of BVI company shares to be established under which corporate governance rules may be created to deal with succession to the office of director of the company held in trust (through the ODRs) and to regulate the business activities of the company (through the ‘permitted grounds’).

ODRs and permitted grounds, therefore, provide a statutory basis for incorporating governance rules into the trust that assist in regulating the interaction between the trust and the underlying family business.

A typical business succession Vista would contain provisions establishing a family council to facilitate joint family decisions on matters such as distributions of trust funds to family beneficiaries, but would also contain detailed ODRs to permit the family council to make direct decisions on who may be appointed a director of the family business from time to time as well as detailed permitted grounds governing, for example, the circumstances in which family members may be employed by the business and the terms on which they may advance their careers.

Where the family does not wish to use a VISTA then a BVI PTC is often the preferred alternative.  The PTC would act as trustee of the family’s business succession trust.

A PTC business succession trust would contain the usual family council provisions to permit joint family decision-making as well as reserved powers to regulate interaction of the PTC with the family business, but with the added benefit that the family would also be able to control the PTC as trustee of the their trust.

A PTC based structure will also require careful consideration of the ultimate ownership and control of the PTC. In this regard, it is imperative that the shares of the PTC are themselves held in a separate special purpose trust; this aspect of the structure is critical and if not properly addressed could compromise the effectiveness of the underlying business succession trust.

Therefore, it is typical for the shares of the PTC to be held by a purpose VISTA trust. The purpose VISTA would contain detailed office of director rules, which would confer on the family council ultimate control on who may be the directors of the PTC from time to time. A purpose VISTA, like a PTC, can last in perpetuity, and therefore the related governance rules would also last across future generations.

Conclusion

The 2013 amendments are a welcome overhaul of the BVIs trusts and estate legislation.  The regime now provides for greater flexibility in the establishment and administration of BVI trust structures. 

VISTA and PTCs remain important innovative tools in building appropriate asset protection and succession structures for international private clients and their families.