Contributed by O'Neal Webster [www.onealwebster.com]
March 1 2004 marked the beginning of a new era in BVI trust law with the coming into force of the Virgin Islands Trust Act, 2003. The vision for this Act, commonly known as VISTA, came from the BVI trust industry and the need for BVI trust practitioners to meet the changing needs of their clients. The traditional trust structure was often seen as too rigid or as not the right fit for clients. The BVI trust industry therefore sought to create an alternative product that would meet the legitimate needs of the client. VISTA became a reality as a result of proposals put forward to the Government by the BVI Branch of the Society of Trust and Estate Practitioners and is a result of a working partnership between the private sector and the Government.
VISTA was and remains an innovative statute for many reasons but perhaps the one that has had the most effect and interest is its removal of the restriction of the prudent man of business rule. This rule places an obligation on the trustee to monitor the affairs of the underlying company and to take steps as necessary to preserve and, where possible, enhance the assets of the company and by extension the value of the trust assets. This rule not only placed an onerous burden on the trustee but also frequently conflicted with the settlor’s intention for establishing the trust, which was often simply to retain the assets previously owned by the settlor.
By removing the prudent man of business rule, VISTA created a regime under which the trustee was no longer under an obligation to monitor and intervene in the affairs of the underlying company to preserve and enhance the trust assets, unless specifically provided for in the trust instrument or required to do so by the beneficiaries, and now had the less complex duty to simply retain the shares of the underlying company.
Use of VISTA over the past 8 years
Over the past 8 years the VISTA trust has become a popular vehicle to meet both commercial and personal objectives. In particular, it has been widely used over the years in the following scenarios:
The VISTA trust has become an easily acceptable solution for the settlor who is not comfortable with the loss of control of his assets as would be the position under a traditional discretionary trust. This is often true when the settlor is from a civil law jurisdiction and is unfamiliar with the concept and workings of a trust. The idea of transferring control and responsibility over assets that he may have built up over the years was often disconcerting to the settlor. The VISTA trust has proven to be a comfortable fit in such circumstances since, as previously discussed, the trustee of a VISTA trust is not required to intervene in the running of the underlying company and therefore will leave the direction and management of the company to those duly appointed for this purpose, the directors. The settlor can therefore maintain administrative and managerial responsibility over the asset by being appointed a director of or advisor to the BVI underlying company in which the trustee holds shares.
It is important to note that a VISTA trust instrument may provide for circumstances in which a trustee of a BVI trust can be called upon to intervene in the business of the company. The trust instrument may provide for specific grounds of complaints in respect to the affairs of the company for which an interested person may call upon the trustee to intervene and the trustee is obligated to act on such an intervention call.
The VISTA trust has proven to be ideal for a settlor that wants the assets settled on a trust to be retained and not disposed of by the trustee. VISTA places an obligation on the trustee to retain the shares and the trustee is not obligated to dispose of the shares as a mean to enhance or preserve the value of the assets of the trust. The VISTA trust proves to be even more attractive to the settlor by providing that the trustee cannot sell or dispose of shares held under trust without the permission of the directors of the company, unless the trust instrument provides otherwise. The settlor’s intention to keep family land or a family business within the trust for the benefit and use of future generations can therefore be fulfilled through the use of a VISTA trust.
The VISTA trust has been used over the years to hold underlying assets that could be considered as risky investments. Under a traditional trust the holding of certain investments or assets could be considered risky and open up the trustee to potential liability for any loss to the value of the trust as a result of such investments. VISTA removes such a risk to the trustee by removing the trustee’s obligation to intervene and act to preserve the trust assets. The underlying company under a VISTA structure would hold the risky asset or investment and the directors of this company would manage such an investment. A settlor that wishes for a risky investment to be held under trust without the possibility of such an investment being disposed of by a trustee because of the risk factor would opt for such an investment to be held under a VISTA structure.
VISTA has proven to be an option in cases where the proposed trustee does not want to be involved in the business of the company. As previously discussed, VISTA removes the obligation of the trustee to monitor and intervene in the business of the underlying company.
An originally unforeseen but welcomed use of VISTA has been the use of charitable and non-charitable purpose VISTA trusts for off-balance sheet transactions. The VISTA trust has become suitable for such purposes, as the intention is to hold shares in a special purpose vehicle for an extended period with minimum trustee involvement. The VISTA trust trustee’s duty to retain shares without the requirement to intervene in the business of the company has made the VISTA trust a suitable fit in off-balance sheet structures.
VISTA 8 years later remains an attractive vehicle and continues to be used as a solution to meet a variety of client needs. The BVI Branch of STEP remains committed to keeping the BVI trust industry relevant in a dynamic world. The Branch continues to submit proposals and recommendation to the BVI Government on improving the trust regime in the BVI to ensure that it remains modern and relevant for years to come.
Important VISTA facts
VISTA is only applicable where the trust instrument specifically provides for the Act to apply to designated shares held under the trust.
VISTA only applies to shares in a BVI company. It is however often the practice that the BVI company would hold shares in non-BVI companies or own the assets that the settlor wishes to be held under a VISTA trust.
A trustee of a VISTA trust must be a company licensed by the BVI Financial Services Commission under the provisions of the Banks and Trust Companies Act, 1990 to undertake trust business.
The VISTA trust instrument can expressly exclude the rule in Saunders v Vautier from applying to the trust for a maximum of twenty years.
This article is general in scope and is not intended to be comprehensive. It is not a substitute for legal advice.
(Copyright Society of Trust and Estate Practitioners, article first published in STEP Journal Volume20/Issue 2)