British Virgin Islands Trust Structures
To establish an offshore trusts in the British Virgin Islands (BVI) is a highly sought-after choice due to its combination of tax benefits and the security afforded by its status as a British overseas territory with a stable economic and political environment.
BVI trust law draws heavily from English trust law, but it has evolved beyond its English counterpart, allowing for purpose trusts, extending the perpetuity period, and introducing the unique VISTA trust.
The governing legislation for BVI trusts is the Trustee Ordinance Act 1961 (commonly known as “the Act”), which has been updated recently through the Trustee (Amendment) Acts of 2013 and 2015. The legal framework is complemented by the Virgin Islands Special Trusts Act 2003, often referred to as the “VISTA legislation,” which was most recently amended by the Virgin Islands Special Trusts (Amendment) Act 2013.
The main principles of BVI trust law find their roots in English trust law, but progressive legislative enhancements have transformed it into a contemporary and adaptable jurisdiction for the establishment and administration of trusts.
Unlike some other legal jurisdictions, BVI trusts can endure for up to 360 years, except in the case of charitable or other purpose trusts, which may continue indefinitely.
Setting Up a Trust in BVI
Key Components of a BVI Trust
Once a BVI trust is established, the settlor relinquishes legal ownership of the trust assets. The settlor may also be a beneficiary and, in specific situations, may serve as a co-trustee. The settlor might retain some control over the trust, such as the authority to approve distributions, appoint and remove trustees, or revoke the trust. Nevertheless, it is crucial for the trust’s validity that the settlor genuinely divests themselves of the trust assets and cannot simultaneously act as the sole trustee and sole beneficiary.
The legal title to trust assets is entrusted to the trustee, who is obligated to oversee the trust’s administration. A trustee must exercise their powers solely in the beneficiaries’ best interests. Importantly, the trust assets constitute a separate entity and do not form part of the trustee’s personal estate.
BVI’s legal framework offers substantial flexibility regarding trustee arrangements. There is no requirement for a BVI-resident trustee, and, subject to the trust’s terms, there is no specific minimum number of trustees required, with a maximum limit of four trustees.
Beneficiaries are the individuals entitled to benefit from the assets held in trust. As mentioned earlier, the settlor may also be among the beneficiaries. To ensure the trust’s validity, there typically must be sufficient clarity regarding the beneficiaries’ identities. However, the trust instrument may include an explicit provision allowing for the addition of further beneficiaries over time. Beneficiaries may enjoy benefits that are either equal or unequal, as stipulated in the trust instrument or determined at the trustee’s discretion in the case of a discretionary trust. The trust instrument can also include a provision for excluding certain beneficiaries from future benefits.
The Trust Fund
After the initial assets are settled in trust, additional assets can be added at any time. It is not uncommon to establish a trust with a nominal initial amount and subsequently infuse it with more substantial assets. The BVI trust fund may consist of various types of real and personal property, except in the case of VISTA trusts, where the assets are limited to shares in specific BVI companies.
Statutory provisions explicitly acknowledge the possibility of appointing a protector in the trust instrument, without whose consent the trustees cannot exercise their powers and discretion. The trustees are shielded from liability for any losses resulting from their actions when acting with the protector’s consent.
A protector may also be appointed with the power to make determinations, such as selecting the trust’s governing law, altering the trust’s administrative jurisdiction, removing trustees, appointing new or additional trustees, excluding beneficiaries, and granting or withholding consent for specific trustee actions, either conditionally or unconditionally. Unless the trust instrument dictates otherwise, a protector is not liable to beneficiaries for exercising their powers and is not deemed a trustee due to the powers vested in them.
BVI Trusts – Key Features
There is no obligation to register trusts in the British Virgin Islands.
The settlor is not required to be a permanent resident of the British Virgin Islands.
Beneficiaries need not be permanent residents of the British Virgin Islands.
There is no mandate for the trustee to be licensed or reside in the British Virgin Islands.
The appointment of a protector is discretionary.
Trusts in the British Virgin Islands can last for a maximum of 360 years, with the exception of Charitable Trusts, which can have an unlimited duration.
There are no restrictions on the types of property that can be held in a British Virgin Islands Trust.
Since there are no registration requirements for trusts in the British Virgin Islands, details regarding the settlor and beneficiaries are not disclosed to anyone other than the trustee.
British Virgin Islands trusts are exempt from taxation if all beneficiaries are non-residents of the British Virgin Islands. Distributions to beneficiaries from a British Virgin Islands Trust are not subject to taxation within the British Virgin Islands.
There is no specific legislation providing for asset protection within British Virgin Islands trusts.
There are no reporting obligations for trusts in the British Virgin Islands.
BVI Private Trust Company (PTC)
A BVI Private Trust Company, commonly referred to as a “PTC,” is established for the specific purpose of serving as the trustee for either a single trust or a group of related trusts. Many international business owners or high-net-worth families opt for BVI Private Trust Companies when they prefer not to transfer their assets to an external trust company or when they intend to establish distinct family trusts.
Advantages of a BVI Private Trust Company
- Enables the Settlor to maintain effective control over the investment and management of assets placed in the trust.
- The Settlor can serve as the sole director of a BVI Private Trust Company, or family members can participate on the board of directors.
Additional features of a BVI Private Trust Company
- No necessity for local directors or authorized representatives.
- While the memorandum and articles of a BVI PTC must be publicly filed, they are not required to include details of the directors, shareholders, or any trusts for which the PTC acts as trustee.
- The register of members is not mandated to be filed for the BVI Private Trust Company, whereas the register of directors must be filed. The latter is not publicly accessible and is not part of the public record.
British Virgin Islands Trusts
In essence, a BVI trust is a legal mechanism, initially developed in English law, where legal ownership of assets is transferred to a trustee while the enjoyment of the trust fund is preserved for the benefit of the beneficiaries according to the settlor’s terms.
The scope of applications for trusts is continually evolving, with flexibility and confidentiality being the primary advantages they offer over other legal structures designed to manage, protect, and transfer wealth. The trust concept has demonstrated its remarkable adaptability and is widely employed in financial planning.
Here are some common practical applications:
BVI Trust Wealth Preservation
British Virgin Islands Trusts can be employed to ensure the uninterrupted ownership of specific assets, such as a family-owned business, within a family. By placing legal ownership of these assets in the hands of a trustee, individuals involved can continue to benefit from them without dividing ownership among numerous second and third-generation beneficiaries. Trusts prevent the risk of assets leaving the family’s ownership upon a beneficiary’s death, allowing assets to be preserved intact for future generations.
BVI Trust Avoidance of Forced Heirship
When a settlor transfers assets to a BVI trust during their lifetime, those trust assets do not form part of the settlor’s estate upon their death. This strategy can help a settlor avoid forced heirship regulations, which may be compulsory under the laws of their domicile, residence, or nationality. This means the settlor can determine how their estate devolves, rather than it being dictated by such regulations.
Article 83 of the Act explicitly states that inheritance or succession rules from the settlor’s domicile cannot affect transfers or dispositions of personal property to a trustee, preserving the trust’s validity.
BVI Trust Succession Planning
By creating a trust, the settlor divests themselves of ownership of the assets in question. Consequently, upon the settlor’s passing, there is no need to obtain probate or follow formalities to handle the trust fund. A trust provides an efficient means of transferring beneficial ownership interests after the settlor’s demise.
For beneficiaries under discretionary trusts, their interests are not separate assets but represent a beneficial stake in the assets held by the trustees. This trust structure can aid in avoiding stamp duty or inheritance taxes that might otherwise be levied upon a beneficiary’s death, although this depends on the beneficiary’s tax residency, and professional advice should be sought.
Additionally, a trust can hold shares in a company that owns real property located outside the BVI, instead of directly holding the property. This change can influence the tax and financial planning opportunities, converting immovable interests into movable ones. Trusts are also useful for safeguarding financially inexperienced beneficiaries and making provisions for those who might be improvident.
BVI Trust Asset Protection
Historically, trusts were established primarily to shield assets from risks. In the modern context, trusts can be used to secure assets in a politically stable environment. Trusts play a crucial role in financial planning for individuals, families, and businesses. Combining a trust with an underlying company can transform an onshore asset into an offshore one, adding an extra layer of confidentiality to the ownership structure. This combination can also enable trust assets to be held in a jurisdiction that doesn’t recognize trusts, a feature attractive to lenders seeking security against assets. Trusts can protect assets from strategic risks, such as confiscation or expropriation by the state in the settlor’s domicile, residence, or nationality. Furthermore, a modern trust instrument can include provisions for moving the trust’s governing law or administration to another jurisdiction in case of political or strategic emergencies in the trustee’s home country.
Establishing a Trust in British Virgin Islands
Creating a BVI Trust in writing can take the form of a Settlement of Trust, signed by both the settlor and the trustee, or a Declaration of Trust, signed by the trustee alone. The trust comes into effect upon the settlement of the initial property, which can be supplemented later.
TBA can assist with the preparation of all the necessary documentation.
Services Offered by TBA
In the context of setting up trusts, our team can provide the following services:
- Advising and coordinating with professional advisers in other jurisdictions to recommend the most effective structure to achieve the settlor’s objectives.
- Preparing the trust instrument, letters of wishes, and forming underlying companies to hold trust assets.
- Preparing and reviewing documentation related to commercial transactions underlying the trust.
- Assisting the settlor in selecting a trustee for a British Virgin Islands trust and preparing and reviewing all necessary documentation for the proper administration and operation of the trust and underlying companies.
If you wish to proceed with establishing a British Virgin Islands trust, please contact any member of the team listed at the end of this client briefing.
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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.