20 December 2019
Bermuda - a stable environment for HNW private clients
The American economist Nouriel Roubini iterates that geopolitical issues are becoming more important: “Because how can you understand the economy if you don’t understand geopolitics?” He believes that those who think economists just deal with spreadsheets and charts are making a narrow minded caricature. Similarly, those that think that private client practitioners simply deal with deeds and legislation may not appreciate how practitioners require a solid grasp of geopolitics in order to effectively advise international families.
The impact of geopolitical factors on estate planning
Sharp economic, political, legal and technological shifts may be the new global norm. Uncertainty over Hong Kong’s future, tensions between U.S. and China, economic stagnation of Europe and the continued equivocation over Brexit, ongoing instability in the Middle East, expropriation of citizens’ assets and kidnappings throughout many Latin American and African jurisdictions and Russia, and a rise in populism across the globe can contribute to movements of capital away from the jurisdictions with which the risks (real or perceived) are associated. High net worth families increasingly seek to establish or re-domicile trusts and structures to politically, economically and socially stable tax neutral jurisdictions that are reputable and geographically well situated. The number of jurisdictions that meet these criteria may be dwindling; however, Bermuda is one of those that can point to a long history of legal, political and social stability.
Bermuda, a sanctuary from geopolitical risk
Bermuda is the oldest self-governing overseas territory of the United Kingdom. Bermuda’s Supreme Court had its first recorded sitting in 1616. Bermuda law remains the law of England (including the doctrines of equity) as extend to Bermuda on 11 July 1612, as amended from time to time thereafter. Bermuda’s parliament is the third oldest continuously sitting parliament in the world having first sat in 1620. Bermuda’s final court of appeal is the Privy Council in London. These qualities and history provide a high degree of confidence to those who have their wealth managed from Bermuda.
Geographically, Bermuda is situated in the North Atlantic Ocean, not in the Caribbean, and has direct flights to London, Toronto, and numerous north east American cities, including New York and Miami. Bermuda is an ideal place for families with members situated in different jurisdictions to converge.
Bermuda has carefully introduced laws to implement the Foreign Account Tax Compliant Act, the Common Reporting Standard, a central private beneficial ownership register and continues to refine its economic substance requirements to provide outcomes that balance addressing international concerns with respecting the privacy of legally compliant families and structures. Bermuda’s trust law also continues to evolve sensibly, providing certainty and flexibility.
Examples of pragmatism in Bermuda’s trust laws
Bermuda’s reserved powers legislation introduced in 2014 by section 2A of the Trusts (Special Provisions) 1989 provides settlors, who wish to reserve to themselves or grant to third parties one or more powers under a Bermuda law trust instrument, the certainty that Bermuda’s Courts will not as a consequence regard the trust as invalid or the trust property as forming part of the settlor’s estate.
‘Hastings Bass’ legislation
Section 47A of the Trustee Act, introduced in 2014, provides Bermuda’s Courts the discretion to set aside flawed exercises of fiduciary powers that resulted in serious fiscal or other adverse consequences provided certain conditions are satisfied. Section 47A thereby preserves the position developed from Re Hastings Bass which in the United Kingdom was overturned in 2013 by Supreme Court decision in Pitt and Holt and Futter and Futter.
Section 47 trust variations
Section 47 of the Trustee Act 1975 is a statutory jurisdiction to grant power to trustees to vary the trusts’ terms. This has proven particularly useful where trusts, often established many years ago, contain rigid provisions with no or limited powers of amendment. In numerous decisions dating back to 2011, the Bermuda Courts have demonstrated that section 47 enables administrative and dispositive powers and provisions of trusts to be modified, without many of the formalities required in other jurisdictions. Section 47 thereby enables the trustees and beneficiaries of Bermuda trusts to adapt efficiently to changing circumstances.
Perpetuities and dynastic trusts
In his book ‘Homo Deus- A brief history of tomorrow’, Yuval Noah Harari remarks upon humanity’s recent success in reining in famine, plague and even war, and the consequent increase in life expectancy. Horari believes that humans will now harness their immense new powers in genetic engineering, regenerative medicine and nanotechnology to make a serious bid for immortality. Such developments may have a huge influence on how estate planning, business succession and structuring.
At common law, trusts cannot exist indefinitely. Bermuda’s Perpetuities and Accumulations Act 2009 abolished perpetuity restrictions for new trusts (except over Bermuda real property). Amendments in 2015 streamlined the Court procedure for dis-applying perpetuity periods of existing trusts. Most jurisdictions trust legislation has retained some form of perpetuity period. As is the experience with section 47, there are numerous instances where trusts’ governing law have been changed to Bermuda law with the intention of applying to extend or dis-apply the trusts’ perpetuity periods.
In the UK, a recent trend towards transparency in trust matters has rendered it difficult to invoke the court’s jurisdiction without sensitive information about the financial affairs of the trust and its beneficiaries being made public. In contrast, Bermuda Courts regularly affirm the continuing importance of privacy of internal trust affairs. As Kawaley CJ reiterated in the Re G Trust case:
“Persons administering, interested in or settling Bermuda trusts should rest assured that this Court’s firmly established practice of making confidentiality orders in appropriate cases, which is merely designed to enable law-abiding citizens to peacefully enjoy their actual and contingent property rights, has a venerable legal basis…”
In addition, Bermuda has a very active STEP membership, as evidenced by the incredibly successful STEP Bermuda Conference ‘Trust in the future- Keeping step with changes’, held in early December at Bermuda’s Underwater Exploration Institute, which explored the impact of geopolitical uncertainty on international families. Elite trust practitioners from around the globe were among those who presented at the conference. STEP Bermuda continues to welcome private client practitioners visiting Bermuda to present at its monthly talks. STEP Bermuda also regularly hosts sessions, known as the ‘Friday Forum’, as a think tank enabling more junior trust practitioners to explore core trust concepts and issues with more senior trust practitioners.
In short, STEP Bermuda has an energetic committee that benefits from the enthusiasm of up and comers who benefit from the guidance shared by its more experienced and internationally highly regarded committee members
An original version of this article was published in the Bermuda Business Review, December 2019.
© Carey Olsen 2019.
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