The British Virgin Islands are a popular jurisdiction to base an offshore company but also to set up a trust. The trust is a vehicle used for asset protection and planning and the BVI legislation offers a flexible and convenient regime to establish such a legal instrument.
The trust is based on the cooperation and the relationship between three distinct parties:
the settlor: is the one who establishes the trust and whose assets will be managed and distributed in due time through this instrument; he can maintain a certain degree of control over the assets and has the power to appoint and dismiss trustees as well as to revoke the trust altogether; the trust may also be established by a legal person;
the trustee: is the one entrusted to legally hold the assets and manage them and is the one responsible for the administration of the trust; the relationship between the settlor and the trustee is a fiduciary one and the trustee shall only act in the best interest of the beneficiaries; the regime in BVI is a convenient one in as that there is no requirement for the trustee to be a resident;
the beneficiaries: are the ones who will enjoy the assets of the trust; they are family members or other individuals; a trust can be set up in such a manner that it will include more than one class of beneficiaries; moreover, the instrument allows the settlor to decide if the beneficiaries will be treated equally or preferentially; the one creating the trust also has the power to intervene and exclude beneficiaries from certain benefits or from future ones.
In some cases, a fourth party can take place in the management of a trust. This is the protector who presides over the trustees and can also have powers related to the appointment of new trustees or the exclusion of the beneficiaries. In a sense, the protector is an extension of the settlor and these two parties are also bound by a fiduciary duty.
The trustees in BVI
The BVI Trustee Act limits the number of trustees where a settlement of land is concerned to four individuals. This restriction only applies to settlements concerning land and the limited number does not apply in instances such as, for example, the case of land vested in trustees for charitable purposes. The Court has the right to appoint a new trustee or trustees and may also make an order for appointing a new trustee in substitution of a trustee convicted of felony, who is bankrupt or is deemed of unsound mind, or in case of corporate trustees, of the company is in liquidation or has been dissolved.
The trustee has an important role, and they are required to observe certain duties, including statutory and fiduciary ones. Some of the most important duties of a trustee include the following:
- act in good faith and in the best interests of the beneficiaries or the trust purposes, according to the terms of the trust;
- control and manage the trust property;
- observe the terms of the trust deed; an exemption may take place when the beneficiaries are all of full capacity and they agree to the actions of the trustee that may be against the terms of the trust deed;
- refrain from delegating their powers to another trustee or third party unless expressly stated in the trust deed or unless authorized by a statute;
- exercise due diligence and act prudently when administering the trust;
- disclose any conflicts that may arise in relation to the trust;
- not profit from the trust assets or property and not purchase trust property for personal use;
- keep the needed records and accounts, in an accurate manner and as directed.
Some of the general powers of the trustee, under the BVI Trustee Act, include the following:
- sell all or any part of the property of a trust, when the power of sale is awarded to the trustee; in order to accomplish this, the trustee may engage in the sale by himself or concur with another person;
- sell or dispose of land, in part or in whole, whether the said division of land is horizontal, vertical or of another type;
- postpone a sale, in certain cases;
Our team can give you more information on the general powers listed above.
Trustees may recommend the use of a professional investment advisor when the trust assets are re-invested regularly. Professional advise is recommended in these cases and our BVI company formation agents can give you more information on this particular issue concerning the management of assets for re-investment purposes.
A trustee can be an individual or a company authorized to act in this capacity by the Banks and Trust Companies Act 1990 (BTCA) or a private trust company (subject to the Regulations in force). The trust deed may include completions or additions to the duties mentioned above. Please keep in mind that the ones listed by our agents are the most important ones, applicable in most cases.
For the purpose of the duties of the trustees described above, a trust company is a private company incorporated in BVI with a limited business purpose to act as the trustee of a single trust or, alternatively, a limited class or group of trusts that are related. The same principles for the fiduciary duty and statutory or equitable duties apply as in the case of individual trustees.
Our team of BVI company formation agents can give you complete details about the types of fiduciary services available to foreign investors upon request.
The use of a trust in BVI
A trust is an instrument that can be used for a number of purposes related to asset protection and planning. What’s more, the trust can also be used for tax minimization purposes.
These types of investment and asset protection vehicles can have a charitable or non-charitable purposes, as defined below by our BVI company incorporation specialists. Regardless, their scope will be defined in the incorporation documents.
Our agents summarize the main purposes of a trust in BVI below:
-Asset protection and management: a settlor can choose to use the trust as an instrument to hold assets in a jurisdiction such as the British Virgin Islands that has political stability;
-Preservation: the trust may be used to guarantee the continuity of certain types of assets and for this purpose, the settlor may use the vehicle to guarantee that a business remains within the family;
-Succession planning: similar to the previous point, a trust is an instrument that can be used for dividing the assets of the settlor once he passes away;
-Heirship: as the assets can be distributed as specified by the settlor, the trust may be used for forced heirship purposes (if the laws in the settlor’s country of origin are rigid, the trust in BVI can be used for this purpose);
-Commercial: the trust can also be used for commercial purposes that include asset securitization schemes for receivables.
Trusts in the British Virgin Islands are exempt from taxation provided that the beneficiaries are not residents and that the trust does not engage in operations within the BVI. Our British Virgin Islands company formation agents can provide more details on the taxation principles as well as the payable duty for trusts.
The trust is a legal instrument that has multiple applications and it is easily and successfully used primarily for the holding, management, and distribution of assets. It is a widely used instrument for financial planning.
In general, the BVI law concerning trusts will apply, unless expressly stated in the trust deed. In those cases, in which the law is not implied in the trust instrument or it cannot be easily determined, the applicable law will be the one in the jurisdiction to which the trust is most closely connected. This is done in accordance with part of the Hague Convention, owing to the fact that some of the governing laws concerning trusts in the UK have been expended to the British Virgin Islands, a British Overseas Territory.
There are certain exceptions from the rule which states that all questions concerning property and trust administration are to be settled according to the BVI laws. These can include the situation in which there is a need to determine the foreign law applicable in terms of the settlor’s ownership of the property when the trust was created before the Trustee Act in BVI came into effect. When the settlor is a legal person, the capacity to sell property is governed by the laws applicable in the jurisdiction where the company is incorporated.
For testamentary trusts, the ability of a testator to create a BVI trust of this type is governed by the laws applicable in the testator’s domicile, at his time of death.
The Trustee Act contains numerous provisions that bring clarifications to the manner in which the types of BVI trusts are to be protected from forced heirship claims (a provision that restricts the individual’s ability to decide how his or her property is divided after their death and, instead, offer automatic entitlement to part if the estate to certain individuals).
The types of trusts in BVI
The table below highlights the main characteristics of the two types of trusts in the British Virgin Islands. One of our BVI company formation agents can answer your questions in case you need more specific information and advice about these two types of trusts.
The discretionary trust is a more flexible option for investors because there are no pre-defined beneficial interests.
The Vista trust is less flexible because it is purposely used solely for company shares.
The discretionary trust is preferred for confidentiality purposes because there are no special accounting or reporting requirements and no mandatory regulations to disclose details about the trustees.
The Vista trust is less appropriate for purposes that involve a high degree of confidentiality because of its nature (it is a special form of trust).
The discretionary trust is formed as per the directions of the trustee and for the specified purposes.
In the Vista trust, the trustee has limited powers that can be decided by the settlor.
The discretionary trust has a sufficient duration to fulfill its asset protection purposes (approximately 100 years).
The Vista trust has an outstanding longevity compared to other types of trusts (~ 360 years).
A trust can also be described as a charitable or a non-charitable one. For the first category, a fixed or discretionary trust may be used for a benevolent purpose such as poverty relief, education advancement, religious purposes, or any other purpose that would bring benefit to the public. Non-charitable trusts are those that are not set up for benevolent activities and strictly related to the protection of assets. However, a trust in BVI should not be set up for a purpose that is immoral, unlawful, or contrary to public policy. Investors also have the option to create trusts that are part charitable and part non-charitable (provided that they comply with the conditions for lawfulness). In other cases, the purpose of the trust may be philanthropic although not charitable, such as a trust that promotes a certain political agenda.
The flexibility in the set up of trusts in the BVI, the fact that this is an instrument that may be used for multiple purposes, is one of the core features that make it attractive to foreign investors.
The Financial Services industry is a developed one in the British Virgin Islands and, as seen in this article, investors have noteworthy advantages when choosing to set up a trust. The BVI Financial Services Commission, in its publication known as the Quarterly Statistical Bulletin, monitors incorporations as well as the general state of the industry. Below, our BVI company formation agents highlight the most important data presented in the most recent publication:
-Incorporations: in the first quarter of 2020 there have been 5,275 total incorporations in the British Virgin Islands;
-Private trust companies: the first part of 2020 saw the registration of 16 private trust companies; the total number of registrations for these was of 1,129 at the end of March 2019;
-Class I trust licenses: at the end of March 2020 there were 59 licenses for these types of trusts;
-Class II and III trust licenses: also at the end of March 2020 there were 30 licenses for the Class II and 22 for the Class III trusts; our BVI company incorporation agents can provide you with more details on the Banks and Trust Companies Act and the classes of trust licenses.
Contact us for more details about fiduciary services and trusts in BVI.
Call us now at +230 5252 6703 to set up an appointment with our business consultants in the British Virgin Islands. Alternatively you can incorporate your company without traveling to the British Virgin Islands.
As a BridgeWest client, you will beneficiate from the joint expertize of local lawyers and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in the British Virgin Islands.