Trust Types and Regimes Under Cayman Law

The Act's general framework

The Act uses trust and trustee broadly. Except for duties attached to a mortgage estate, those terms extend to implied and constructive trusts, trusts where a trustee has a beneficial interest, and duties of a personal representative. A trustee may therefore be a personal representative when the context allows.^[1]

The Act's ordinary rules apply unless a trust or power qualifies for the special trust regime in Part VIII. The Act defines an ordinary trust or power as one outside that Part, and states that the law for special trusts is the same as for ordinary trusts except where Part VIII provides otherwise.^[1]

For trusts of land made or coming into operation after the statutory commencement date, the usual trustee number is capped at four. That restriction does not apply to land held for charitable, ecclesiastical or public purposes, or where net sale proceeds are held for like purposes.^[1]

The Act provides a process for replacing a trustee who dies, seeks discharge, refuses or is unfit or unable to act, or is an infant. The person named in the trust instrument may appoint by deed; if no such person can act, continuing trustees or a personal representative of the last continuing trustee may do so. A new trustee receives the same powers and discretions as an original trustee.^[1]

Reserved powers and immediate effect

The statute lists powers a settlor may reserve or grant without invalidating the trust or changing the immediate-effect presumption. They include revocation or amendment, appointment of income or capital, a limited beneficial interest, company director or officer functions, binding directions to trustees, appointments or removals of trustees, protectors or beneficiaries, and changes to governing law or forum.^[1]

The instrument may also require trustee powers or discretions to be exercised only with a specified person's consent. A trustee acting in compliance with, or following a valid exercise of, the listed reserved powers is not acting in breach of trust under this Part.^[1]

Persons, purposes and special trusts

A special trust or power is created by a written instrument, testamentary or inter vivos, that declares Part VIII applies. In certain instruments exercising a special power, the statute presumes Part VIII applies unless there is evidence of contrary intention. Other trusts and powers remain ordinary.^[1]

The objects of a special trust may be persons, purposes or both. The persons may be any number, and purposes may be charitable or non-charitable if lawful and consistent with public policy.^[1]

Standing to enforce may be conferred as a right or a duty. Unless the terms indicate otherwise, an enforcer is presumed to have a fiduciary duty to act responsibly toward proper execution. The Act also gives enforcers, subject to appointment terms, rights to trust information and documents.^[1]

Part VIII generally requires at least one trustee to be a trust corporation. The trustee must keep a documentary record at the corporation's Cayman Islands office covering trust terms, trustee and enforcer identities, settlements and settlors, year-end property, and distributions or applications. The court may authorize noncompliance on terms if execution of the trust will not be prejudiced.^[1]

Charitable and protective arrangements

The statute addresses charitable property through provisions on vesting and qualification. Land acquired for religious groups, education, charitable purposes, or specified institutions may vest in appointed trustees and their successors under the relevant transfer or trust instrument. A trust does not fail to qualify as charitable solely because its purposes may benefit the public or a section of the public outside the Islands.^[1]

The Act also supplies terms for protective trusts. Where income is directed to be held protectively for a principal beneficiary for life or a shorter period, the statutory trust period lasts for that period. If a specified event causes the beneficiary's income trust to fail, the remaining income may be held for maintenance, support or benefit of listed family members or other persons described in the section.^[1]

Duration and accumulation rules

A tax undertaking connected with an exempted trust may run for no more than fifty years from the trust's creation. Registration as an exempted trust is available where the Registrar is satisfied that beneficiaries do not and are not likely to include a person resident or domiciled in the Islands, except an object of a charitable trust or power.^[1]

For a person who is an infant and has an interest in trust property, trustees may apply a reasonable part or all of the income for maintenance, education or benefit, subject to prior interests and charges. If the interest continues during minority, trustees must accumulate the remaining income through investment and compound interest.^[1]

The Act directs how those accumulations are held. If the person reaches eighteen or marries earlier and meets the stated vested-interest conditions, the accumulated fund is held absolutely for that person. In other cases it is added to the capital of the property, though trustees may apply accumulations during minority as if they were current-year income.^[1]

The minority rule applies to a contingent interest only where the trust carries intermediate income. It also covers certain future or contingent legacies from a parent or person standing in that role, for the period during which general law gives the legacy interest for maintenance.^[1]

Cayman Islands trust legislation overview

The Cayman Islands Trusts Act governs trustee powers, trust administration, and several trust regimes.

The Act contains ten parts, followed by a schedule and endnotes. Part I contains preliminary provisions, with section 1 stating the short title and section 2 providing definitions. Section 2 defines "Court" as the Grand Court of the Cayman Islands and "exempted trust" as a trust registered under Part VI. It also defines "property," "income," and "rights." Several other parts contain definitions specific to their subject matter.^[1]

Parts II through IV address trustee appointment and discharge, reserved powers, and general administrative powers. Their subjects include replacement trustees, trustee obligations and maintenance, along with advancement powers, investment of trust funds, and trustee record keeping. The administration provisions also cover sale and insurance powers and the employment of agents. Provisions concerning court orders include vesting orders and orders authorizing dealings with trust property. Other provisions in the Act deal with charitable purposes and the variation of trusts.^[1]

Part VI concerns exempted trusts and includes provisions on registration, documents to be lodged, accounts, information and annual fees. Part VIII establishes the special trusts alternative regime, including provisions concerning objects and enforcers, along with enforcer duties. Parts IX and X contain general and transitional provisions respectively.^[1]

The consolidated publication's schedule contains a form for appointment of new trustees. Endnotes and a legislation history follow the schedule.

Questions and answers

Related resources

Related glossary terms

• Purpose trust: A purpose trust holds property for purposes, not for beneficiaries, and relies on an enforcer. Bermuda and Jersey define it differently, as does Cayman.
• Unit trust: The Jersey Trusts Law defines a unit trust by its purpose or effect of giving investors participation as beneficiaries in profits or income from property.

Related articles and guides

• Trust types and duration under Seychelles law: Seychelles law recognizes beneficiary and purpose trusts, with rules on trustees and settlors and on trust duration, set out by statute for each trust type.
• Trust structures under Bermuda legislation: Bermuda's Trusts (Special Provisions) Act defines trusts and addresses roles, reserved powers, governing law and the duration of non-charitable purpose trusts.

Tools and official documents

• IRS and FinCEN forms: reference pages: Reference pages for 15 IRS and FinCEN forms tied to foreign trusts, foreign accounts and entities, built from the official forms and their instructions.

Related pages

• Cayman Islands: overview: Start page for this jurisdiction.
• Trustee regulation and licensing
• Taxation of trusts
• Reporting and information exchange