Legal Framework and Formation Rules and Fees
Trust Management has been a major activity in the Cayman Islands for 30 years or more, and trust assets in Cayman now equal or exceed banking assets.
Cayman Islands trust law is based on the Trust Law 1967, itself very similar to the English Trustee Act 1925. However, there has been considerable subsequent legislation which has distanced Cayman trust law from its English origins. In particular, Cayman has chosen, unlike England, not to adopt the Hague Convention, preferring to maintain the flexibility to set its own path.
Trust Licenses at the time of writing require a minimum net worth of CI$400,000; Restricted Trust Licences and Nominee (Trust) Licences require a minimum net worth of only CI$20,000. The parent of a Nominee Trust company must provide a guarantee of not less than CI$200,000. Licensees do not need to be Cayman companies; but foreign licensees will probably have to provide a head office guarantee. All applications include considerable amounts of administrative and financial information.
Trust companies must pay annual fees which, for a 'Nominee' License amounts to CI$6,000, for a Restricted License, amounts to CI$7,000 and for an Unrestricted Trust Licence amounts to CI$70,000.
There is no taxation in Cayman other than stamp duty and import duties.
Recent important pieces of Cayman trust legislation include:
the Perpetuities Law 1985 introduced a perpetuity period of 150 years, plus a 'wait and see' rule whereby a disposition or power will only fail when it tries to bite outside the perpetuity period.
the Trust (Foreign Element) Law 1987 strengthened the validity of Cayman trust law, established importation and exportation of trusts, provided for the non-enforcement of foreign judgements, and specifically excluded forced heirship provisions (all of this making Cayman trusts more attractive in civil law jurisdictions in particular);
the Fraudulent Dispositions Law 1989 replaced the Statute of Elizabeth, and strengthened the defences of a Cayman trust against creditors, as long as the trust is not bankrupt in Cayman. There is a 6-year limitation period on creditors' claims.
the Special Trust (Alternative Regime) Law 1997 introduced purpose trusts.
the Trust Law 1996 introduced exemption of trusts, whereby in exchange for registration with the Registrar of Trusts they can obtain a 50-year undertaking from the Governor to the Trustees that the trust will not be subject to any future Cayman taxation. Trusts do not otherwise require to be registered in Cayman.
Maples and Calder, the offshore law firm, in January 2007 announced the publication of ‘Drafting Cayman Islands Trusts’, co-authored by Tony Pursall, a Cayman Islands attorney-at-law based in the firm’s London office and James Kessler QC, a leading English Chancery barrister and UK tax adviser.
This is reportedly the first book of its kind on Cayman Islands law and takes a clear, modern approach to legal drafting.
Whilst the Cayman Islands is one of the main jurisdictions for establishing offshore trusts, the drafting of effective Cayman trust instruments can be complex.
The authors have prepared practical precedents in plain English with a detailed explanation of their terms and related drafting issues. As a systematic approach to drafting Cayman Islands trusts, the authors say that this book will be a valuable resource for practitioners and administrators alike.