26 November 2019

Why Cayman for private clients?

Exhibiting a dynamic attitude to its own development, the Cayman Islands is undoubtedly a jurisdiction of choice for private clients, writes Carey Olsen partner Bernadette Carey.

A long history

Originally focused primarily on banking services, the Cayman Islands has rapidly grown into the wider private client proposition, offering trust business, accountancy, legal, and family office services. The jurisdiction’s status as a British Overseas Territory, imposing no direct taxation on its residents, has also provided the Cayman Islands with the economic, legal and political stability to attract investors and develop its financial services industry.

Structuring options and service providers

For private clients with succession planning, asset protection, forced heirship or philanthropy front of mind, the Cayman Islands offers an impressive number of structuring options in addition to the standard discretionary or fixed interest trusts available elsewhere, including:

• Reserved Powers Trusts that enable the settlor to reserve certain powers to him/herself, including powers of investment or appointment and powers to vary or revoke the trust.

• STAR Trusts, which are purpose trusts unique to the Cayman Islands that can be established for charitable, non-charitable, persons or a combination of purposes. STAR Trusts have no perpetuity period and so are useful for dynastic purposes.

• Private Trust Companies (“PTCs”) that can be established to act as trustees of connected trusts, which may allow a settlor to retain some control over the trust.

• Foundation Companies were introduced in 2017 and are companies incorporated in the Cayman Islands that can function like a civil law foundation.

The financial services industry in the Cayman Islands attracts and retains a wide range of high-calibre professionals to administer these structures, who are employed by a variety of trust, legal, accountancy and investment management firms across the islands.

A robust judiciary

If a higher level of assistance is required, a sophisticated and well-regarded local judiciary is easily available in the Cayman Islands. Presided over locally by the Chief Justice - and comprising several full and part-time judges - the Grand Court regularly hears and determines both contentious and non-contentious applications concerning trusts governed by Cayman Islands law.

Local judgments are highly persuasive and regularly cited with approval in other jurisdictions. From the Grand Court, appeals are made to the Court of Appeal and, in limited circumstances, to the Judicial Committee of the Privy Council in London.

International cooperation

The Cayman Islands now plays a leading global role in the fight against money laundering, tax evasion and other illegal activities. Regulations to give effect to the United States’ Foreign Account Tax Compliance Act (FATCA) and the OECD-approved Common Reporting Standard (CRS) are in effect in the Cayman Islands. A beneficial ownership register regime is in operation in some sectors of the financial services industry, although this is not yet applicable to trusts. Economic substance initiatives are also in place, and under continued development, in order to meet other OECD global requirements.

Confidentiality and privacy

Over time, the jurisdiction has developed statutory protections and guidelines in respect of the protection and disclosure of confidential information brought into the Cayman Islands. It has also established its famed 'firewall' legislation which ensures that, in prescribed circumstances, Cayman Islands law alone will decide questions of the capacity of a settlor to create a Cayman Islands trust and that Cayman Islands law will govern all matters of administration of that trust.

From humble beginnings, the Cayman Islands exists as an integral part of the global economy and its thriving trusts industry is a key component of the local financial services industry.

The Cayman Islands will remain a leading jurisdiction for private clients who seek flexibility, substantiality, and innovation in the organisation of their personal affairs.

 

Bernadette Carey co-authored this article with Amanda Bako of Rawlinson & Hunter. An original version of this article was first published in the 2019-2020 edition of Trust CaymanNovember 2019.