What can jurisdictions such as the British Virgin Islands and the Cayman Islands do for HNW Asian families? Do these jurisdictions have all the tools that such clients want? This article addresses some of the issues?
The following article is written by Lucy Hickmet, a senior associate in the litigation and restructuring practice group at law firm Harneys, based in Hong Kong. She writes about the use Asian families can make of structures set up in the Cayman Islands and British Virgin Islands. These are common law jurisdictions – something that people living in places such as Singapore and Hong Kong will be familiar with. Of course, firms such as Harneys are keen to encourage clients to examine such options, but the arguments here are nevertheless worth paying attention to. At a time when some jurisdictions are going through political change, or economic stress, clients need options. And even when times are good, a varied menu of jurisdiction-based structures is worth perusing. We have noticed that a number of these jurisdictions have set up offices in locations such as Hong Kong, with a view to promoting their wares.
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Smart succession planning can be used to sustain family prosperity. The Cayman Islands (CIs) and the British Virgin Islands (BVI) provide effective solutions, tailored to meet the needs of Asian clients.
Asian clients often have concerns about unfamiliar common law trust structures relating to relinquishing ownership and control, confidentiality, and costs.
The BVI and CIs offer specific wealth management solutions allowing Asian clients greater flexibility and fact-specific succession planning options which can address these concerns as well as issues relating to the risks of, for example, local forced heirship laws overriding testamentary dispositions.
BVI and Cayman Islands tailor solutions
Wills are simple succession planning tools which do not require individuals to relinquish ownership of their assets prior to death.
The advantages of having a BVI or CIs will is that it aids the transition of BVI and CIs assets following death and streamlines and expedites the probate process allowing BVI or CI’s estates to be distributed in a more timely manner. (1)
Discretionary trusts have commonly been used in Asia with the trustee’s broad powers contained in the trust instrument, and settlors’ focussed intentions for the trust’s purpose conveyed by a letter of wishes.
Trustees are, however, not bound to comply with a letter of wishes where it is in conflict with the terms of the trust. Therefore, a tailored BVI or CIs solution which allows the settlor greater power to retain control over the assets and/or determine how those assets should be dealt with is often the answer.
Share trusts, VISTA and STAR
Assets held in BVI and CIs trusts (and in CIs Foundation Companies (CFCs)), are protected by ‘firewall’ provisions which operate to minimise the threat of foreign laws, e.g. forced heirship laws, against those assets. Asian clients concerned with privacy are often comforted by the confidential nature of a trust instrument, and the absence of any register of trusts in the BVI or CIs.
The trusts legislation in both the BVI and CIs can permit a wide range of powers to be reserved by a settlor (or granted to others, such as a protector) without affecting the trust’s validity. (2) Trusts can be tailored allowing, for example, the settlor to: remain the director, or select the director, of the company held in trust; retain the power to remove and appoint trustees; and receive any income received by way of dividend from the company held in the trust during his lifetime.
The BVI VISTA regime develops these reserved power provisions by disengaging the trustee from the management of the underlying trust assets, and removing the trustee’s fiduciary responsibility in respect of those assets.
CIs’ STAR Trusts allow the right to enforce the trust (i.e. to bring a claim against the trustee) to be given to the enforcer alone, (3) which can provide comfort to Asian clients concerned about disgruntled beneficiaries.