Responses for Bermuda – Helen Cooper, Brigit Morrison and Amy Murray, Conyers Dill & Pearman
1. Is there any specific legislation which legitimizes the retention of any powers by the settlor?
Section 2(3) of the Trusts (Special Provisions) Act 1989 states that the reservation by the settlor of certain rights and powers is not necessarily inconsistent with the existence of a trust.
2. What limits are there on the legitimacy of a Letter of Wishes and how are such instruments properly created and used?
Letters of wishes are commonly provided by settlors to the trustees of Bermuda law trusts. They are generally stated to be confidential and for the purposes of guidance rather than imposing legally-binding obligations. Ordinarily, a letter of wishes would not be disclosed to beneficiaries, although the Court may order disclosure if there are good grounds to do so. For example, if a letter of wishes were to be overly prescriptive (or purport to have legally binding status), it is likely that it would be regarded as forming part of the terms of the trust itself and, therefore, properly disclosable to beneficiaries.
3. What have been the latest developments in trust law and regulation in the jurisdiction and what changes are planned or expected?
The Bermuda Immigration and Protection Amendment Act 2007 affects trusts whose assets include interests in Bermuda land, particularly where the beneficiaries or possible beneficiaries include non-Bermudians. Land is a very scarce resource in Bermuda and the legislation is aimed at regulating trusts which purport to hold any Bermuda-situated land interests for the benefit of non-Bermudians.
The Perpetuities and Accumulations Act 2009 became operative on 1 August 2009. It disapplies the English common law rule against perpetuities for any trusts created after that date except for trusts of Bermuda real estate interests.
With regard to trusts created before 1 August 2009, the perpetuity rule does apply but with an option for a trust to choose a fixed period not to exceed 100 years as the perpetuity period. Accumulations of income under a trust may continue for the duration of the perpetuity period (ie either 100 years or the common law perpetuity period of a life in being plus twenty-one years).
The new perpetuities law enables the court to disapply the rule against perpetuities for trusts in existence before 1 August 2009 (other than where Bermuda land interests are involved).
4. Are private trust companies a feature of trust in the jurisdiction and are there firms or organisations who could host such a private trust company?
Yes.
5. Are there any particular laws relating to the setting up of a private trust company? If so, are there any precautions which should be taken to ensure that the trust remains valid?
In Bermuda, a private trust company can be incorporated as either a company limited by shares or as a company limited by guarantee pursuant to the provisions of the Companies Act 1981.
The Bermuda Monetary Authority (the "BMA") must approve the incorporation of all Bermuda exempted companies. It is a requirement that the identity of the ultimate beneficial owners must always be disclosed and all ultimate beneficial owners holding 5% or more of the shares of the proposed private trust company must sign a personal declaration attesting to his or her good standing in any other Bermuda operations and generally. Where, as is common, the company is owned by a purpose trust, the settlor of the underlying trusts should make the declaration.
A private trust company must, within three months of its incorporation, file a letter with the BMA certifying it qualifies for exemption and giving particulars of the nature and scope of its trust business.
6. If the majority of trustees are resident outside the jurisdiction, is it necessary to have one of them, or an agent, resident in the jurisdiction?
There is no requirement for any trustee of a Bermuda law trust to be resident in Bermuda.
7. Once a trust is set up, what access can the public or government, local or foreign, have to details of the parties involved in the trust or trust assets under OECD Exchange of Information agreements, double taxation treaties or mutual assistance agreement?
In keeping with the principles of transparency and exchange of information for tax purposes developed by the OECD’s Global Forum on Taxation, the International Cooperation (Tax Information Exchange Agreements) Act 2005 was enacted in order to enable the government of Bermuda to enter into tax information exchange agreements as authorized by the government of the United Kingdom. Presently such agreements exist with Australia, Denmark, Faroes, Germany, Greeland, Iceland, the Netherlands, New Zealand, Norway, Sweden, and the United Kingdom and negotiations have been concluded with Canada, Japan, and Mexico. Additionally, Bermuda has signed a separate agreement for the exchange of tax information with the USA and ratified this through enactment of the USA-Bermuda Tax Convention Act 1986. Bermuda also entered into a treaty relating to mutual legal assistance in criminal matters with the USA in January 2009.
8. What are the main types of trusts and their particular uses (for example, interest in possession, discretionary or accumulation and maintenance trusts)?
Discretionary Trust
The discretionary form of trust often provides the most flexible and efficient structure for the settlor and the beneficiaries. After establishing the trust, the settlor will normally have divested himself of any ownership interest in the assets held in the trust (unless he retains certain powers). Under the terms of a discretionary trust, the trustee is generally given wide discretionary powers over the trust fund and decides (according to the beneficiaries' best interests as a whole) when and to which beneficiary he should distribute capital and or income of the trust, and in what proportions. For this reason, the beneficiaries are regarded as not having a specific interest in the trust but only a right to be considered when the trustee exercises his discretions.
Fixed Interest Trust
Under a fixed interest trust, primary beneficiaries will normally be granted a right to receive the income and capital of the trust fund and the trustees will have little or any discretion over the nature and extent of distributions from the trust fund. The fixed interest form of trust is used for estate planning purposes or to ensure that certain property passes on stipulated terms and at stipulated times for the benefit of relevant family members in an orderly manner. It is often specially drafted to suit the particular planning goals contemplated by the settlor (e.g. the settlor of a fixed interest trust can provide that the beneficiaries will not be able to sell off or otherwise dispose of their inheritance in a hasty manner). Many modern pension trusts take the form of fixed interest trusts where the trustee holds fixed share for the member (beneficiary) of the pension scheme.
Charitable Trusts
A charitable trust may be established under Bermuda law to create a charitable fund or to make provision for existing charitable institutions or purposes. A trust under Bermuda law, which follows English law, is charitable if all its purposes fall exclusively within one or more of the categories of charitable purposes recognized by law listed below:
the relief of poverty;
the advancement of education;
the advancement of religion;
other purposes beneficial to the community at large; and
there is an element of public benefit.
If a trust is established for purposes which are not exclusively charitable, it may be treated as a private non‑charitable trust. Accordingly, such a trust will be held invalid unless the trust is for the benefit of certain persons and limited to a specified perpetuity period within the rule against perpetuities or unless it is properly constituted as a purpose trust in accordance with the 1989 Act (see following paragraph). A charitable trust may continue indefinitely.
Purpose Trusts
The concept of a non-charitable purpose trust was first introduced into Bermuda law under the Trusts (Special Provisions) Act 1989. Bermuda was the first offshore jurisdiction to provide for these trusts by statute. The 1989 Act permits the creation of a trust for the benefit of purposes (whether charitable or not), as opposed to specific persons. A purpose trust may continue indefinitely, however, the rule against the remoteness of vesting, as modified by the Perpetuities Act, will apply to a purpose trust.
The 1998 Amending Act introduced a number of refinements to non-charitable purpose trusts aimed at enhancing their reputation as effective offshore vehicles in a variety of applications, particularly commercial transactions. Essentially, the 1998 Amending Act provides that a trust may be established for non-charitable purposes, provided that such purposes are sufficiently certain for the trust to be carried out, lawful, and not contrary to public policy. It is no longer required for a trustee to be a "designated person" (i.e. a local licensed trust company or other local professional not required) and the 1989 Amending Act now provides expressly who has standing before the courts.
9. Can any type of assets be placed in a trust (examples should be given of types of assets which may be included which are in addition to the normal range of cash, securities and land?)
Any property may be held upon trust, such as the legal estate in land, the legal property in chattels, a chose in action including for example the benefit of a contract, an equity of redemption and a beneficial interest under another trust.
Generally assets means any investments, money and property of any kind (tangible or intangible, movable or immovable, and including land and buildings, securities, interests in or under any corporation, partnership, trust, association or other entity or concern, chattels and intellectual property).
10. What are the formal requirements which are required such as certainty of intention of subject matter and of objects?
The requirements of certainty of intention, subject matter and object are the same in Bermuda law as in English law.
11. Following the previous question, are shams a danger in the jurisdiction and what are the consequences of an arrangement being declared a sham?
No Bermuda legislation or jurisprudence currently exists on sham trusts. However, the consequence of a declaration that a trust is a sham would depend on the facts of each case. The extent of the trust’s validity and the rights of the parties will have to be determined by the court. It is possible that the settlor will be the owner of the purported “trust assets”. If the whole trust is declared void, funds previously distributed to a beneficiary or paid to the whole trust is declared void, fund previously distributed to a beneficiary or paid to the trustee for fees may have to be returned, failing which the trustee may be held liable.
12. What is necessary to make a trust properly constituted, i.e., to make it active after the trust instrument has been signed, that is, to make the trust properly constituted? What are the consequences if this is not fulfilled?
The requirements as to constitution and the consequences of failing to meet them are the same as in English law.
13. Can trusts be set up by a declaration by the settlor that he henceforth hold assets which he already owns on trust for someone else, hence becoming the trustee, or is it necessary that there should be a transfer of the settlors’ assets to the trustee accompanied by a written instrument by which the trustee undertakes to hold the assets for the beneficiaries?
No movement of legal title is strictly required although clearly there must be movement of equitable interest.
14. What powers are implied under the trust legislation to trustees and what powers need to be, and usually are, expressed in the trust instrument?
Section 17 of the Trusts (Special Provisions) Act 1989 allows any instrument creating any trust to incorporate by reference any of the provisions set out in the Schedule to section 17.
15. Can a settlor be appointed a trustee?
See answer to question 16.
16. Can a settlor be made a beneficiary?
The settlor may also be a beneficiary and, in certain circumstances, can act as a co‑trustee. The settlor cannot be a sole trustee and a sole beneficiary of his trust. A company may act as settlor if it has the corporate capacity to make a gift of its assets or otherwise to dispose of them for the purpose of establishing a trust.
17. Are Protectors/Guardians usually incorporated into trusts in the jurisdiction; if so, what are the specific rules relating to them and, if none, how does the general law treat them?
There are no specific rules relating to protectors. The general law treats them in accordance with their function and duties stipulated in the trust document itself. Care must be taken not to give a protector too many powers otherwise he or she risks being regarded as a de facto trustee. The nature of a protector’s powers will determine hoe the court treats them. For example, a protector’s power to appoint and remove trustees has been determined by the Bermuda courts to be fiduciary in nature.
18. Do protectors/guardians have fiduciary responsibilities?
Whether the protector is deemed as having fiduciary obligations may well depend upon the type of powers that he holds under the trust. Dicta in the Bermuda case Von Knieriem v Bermuda Trust Co. Ltd. indicated that the power to remove and appoint trustees is a fiduciary one so that the exercise of the power can potentially be reviewed by a court of law. However, the case-law involving protectors has not determined the question of whether a protector owes fiduciary obligations directly to the beneficiaries (or the settlor). Most trust deeds attempt to limit the fiduciary nature of the responsibilities of the protector since he or she is usually not a professional trustee, but rather a close friend or advisor of the settlor.
A protector is not a trustee and every effort should be used to ensure he does not appear to be one. If the protector is conferred too many powers under the terms of the trust deed, he could be considered to be a de facto trustee and subject to all of the stringent fiduciary duties of trustees. Accordingly, careful drafting of the trust deed is important to ensure that the protector is independent of the trustee (as a general rule).
19. To what extent do beneficiaries have any control over the trustees or over their appointment or dismissal?
This will be stipulated in the provisions of the trust deed.
20. Can beneficiaries indicate to the trustees how they wish the trust to be managed or may they terminate the trust when the law relating to such termination is fulfilled (such as under Saunders v Vautier)?
Unless provided in the terms of the trust deed the beneficiaries would not be expected to be involved in management. The rule in Saunders v Vautier would apply under Bermuda law.
21. What is the standard of care required under the law for trustees and what measures exist to ensure an appropriate level of performance?
Very clear fiduciary duties are laid down in both case law and statute and these include a duty to act honestly and in good faith for the best interests of the beneficiaries in accordance with the terms of the trust. Subject to the terms of the trust document, trustees are under a duty to exercise reasonable care, skill, and caution in the administration of the trust and the investment of trust assets.
Unpaid trustees are bound only to use such diligence and care in the management of a trust as a man of ordinary prudence, diligence and vigilance would use in the management of his own affairs. A higher standard of care and diligence is expected from professional trustees who receive remuneration for their services, unless the trust document provides otherwise. The courts determine what is reasonable depending on the extent of the knowledge and experience of the relevant trustee.
22. If a trustee fails to take an appropriate measure, what powers are there to correct the error which may be taken by the trustees, (e.g. by agreement with the beneficiaries) or with the consent of the court?
Recourse to the courts is allowed in relation to the administration of a trust and the English Hastings-Bass doctrine would apply in Bermuda. To date, there is no specific Bermuda jurisprudence applying or referencing this doctrine although it is expected that the Hastings-Bass doctrine would be applied in appropriate circumstances.
23. If the trustees fail to fulfill the general terms of their duties or the particular requirements in the trust instrument, what action may be taken by the settlor or by the trustees particularly with regard to the possible need for cross-frontier negotiation or litigation?
Unless the settlor is a beneficiary or has certain powers reserved under the terms of the trust deed, he has little recourse; it is the beneficiaries who may make a claim for breach of trust. Section 49 of the Trustee Act 1975 entitles any person beneficially interested in the land, stock, or thing in action, whether under disability or not to apply for an order for the appointment of a new trustee.
24. What are the limits that trustees may claim indemnity for costs and expenses of running the trust and opposing outside claims and is any procedure advisable before engaging in litigation.
Section 22 of the Trustee Act 1975 stipulates that:
A trustee shall be chargeable only for money and securities actually received by him notwithstanding his signing any receipt for the sake of conformity, and shall be answerable and accountable only for his own acts, receipts, neglects, or defaults, and not for those of any other trustee, nor for those of any bank, broker, or other person with whom any trust money or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other loss, unless the same happens through his own deliberate, reckless or negligent breach of an equitable duty.
A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts or powers.
Industry practice allows a trustee to be entitled to a full indemnity out of the capital and income of the trust fund in respect of any costs, expenses or any other liabilities of whatsoever nature (including any taxes for which they are personally liable and any liability which may be payable to an outgoing trustee incurred by the trustee in or about the professed execution of the trusts and powers of the trust, but not in respect of any costs, expenses or any other liabilities incurred by any trustee in acting or omitting to act in a manner in which the trustee is not entitled to the protection of the exclusion of liability provisions contained in the trust.
Before bringing or defending, or continuing to bring or defend proceedings, a Beddoe application may be made to the court for an order that will indemnify the trustee out of the trust fund in respect of the costs incurred in the proceedings to which the application relates. A Beddoe application operates to indemnify and protect the trustee as between himself and the beneficiaries, provided that the trustee has made full and proper disclosure to the court in the Beddoe application.
25. Are the assets of a trust held by trustees considered in law to be separate from the trustee’s personal assets and thereby insulating from claims against the trustees’ personal creditors?
Yes.
26. On transfer of assets to the trustees, the settlor must arrange for the legal title of the assets to be transferred and undertake whatever transfer procedures are required by the place in which the assets are situated; if this transfer does not take place entirely as proposed when the trust is set up, does this affect the validity of the trust?
Assuming that the trust is already validly constituted, if a subsequent transfer of assets is not perfected this will not affect validity of trust.
27. What duty of care and other criteria are applied to the investment of trust funds? Can this duty be delegated by the trustees?
Subject to the terms of the trust document, trustees have the power by statute to invest the trust fund in property of any kind in the context of modern portfolio theory. The investment powers must be exercised ‘as a prudent investor would…exercising reasonable care, skill and caution’, any investment decision is to be evaluated ‘in the context of the property as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the trust’. The trust document may expand or restrict such powers of investment in accordance with its particular terms. Generally professional trustees are held to a higher standard of care than unpaid trustees. The provisions of the trust document may limit the extent and scope of the standard of care and liability.
28. Can trusts migrate into or out of the jurisdiction and may they change their proper law?
Yes.
29. Is the jurisdiction governed by the Hague Convention on the Recognition and Enforcement of Trusts and, if not, to what extent are foreign trusts recognized?
By Order in Council, the 1987 UK Act has been made applicable to Bermuda as of 1st June 1989.
The 1987 UK Act incorporates the major provisions of The Hague Convention into the law of the United Kingdom. Essentially, the 1987 UK Act confirms and clarifies common law conflict of law principles applicable to trusts (e.g. as to jurisdiction and the applicable proper law of the trust) and provides a general descriptive definition of the characteristics of a trust (also confirming the common law position). The 1989 Act also adopts certain of these provisions of the Convention verbatim.
30. What powers are there for beneficiaries to seek replacement trustees?
A statutory power exists under Trustee Act.
31. How are vacancies as trustees filled and what is the normal number of trustees who are appointed to a fixed interest or discretionary trust?
If this is not specified in the trust deed then the statutory provisions under the Trustee Act apply.
32. Under the law, what criteria are applied to persons licensed to deal with international trusts to determine whether they are ‘fit and proper’ persons to undertake this work according to the law.
Section 5 of the Trusts (Regulation of Trust Business) Act 2001 sets out the minimum criteria for a licensed trustee, including:
(a) the employment of fit and proper persons;
(b) the conduct of business in a prudent manner through compliance with the Act and any code of practice issued under it;
(c) in the case of a company, maintaining minimum net assets; and
(d) through the maintenance of adequate accounting and other records and of adequate systems of control.
A licensed trustee must:
(a) provide annually to the BMA a certificate of compliance certifying that he has complied with the minimum criteria, with the code of practice, and, in the case of a limited licence holder, with the financial limitation imposed under s 11(3);
(b) prepare and file annual accounts in the form prescribed; and
(c) in the case of a company, appoint an auditor.
Bermuda Trust Legislation
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| Trusts (Regulation of Trust Business) Act 2001 |
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| Trust (Regulation of Trust Business) Exemption Order 2002 |
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| Trusts (Regulation of Trust Business) Order 2003 |
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| Trust Business Appeal Tribunal Regulations 2004 |
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| Trusts (Regulation of Trust Business)(Reporting Accountants)(Facts and Matters of Material Significance) Regulations 2006 |
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