Cayman trust practitioners have again highlighted their concerns over a “flight to Bermuda”, according to Cayman Finance.
The organisation said practitioners in the area say statutory Cayman trust law has failed to evolve.
In front of a largely international audience at the Mourant Ozannes International Trusts and Private Client (ITPC) conference, lawyers bemoaned the “perennial problem” of dealing with US beneficiaries when restructuring a trust, while looking at key market trends over the past year, according to Cayman Finance.
Attendees at the said the issue is gaining greater significance and should now be a focus for Cayman legislators because in order to provide a complete solution for US clients, the trust may need to be redomiciled to Bermuda, where the law is more accommodating.
“It has really been a case of wrestling with how to cater for the special requirements of US beneficiaries because of the accumulated distribution rules, or throwback tax as it sometimes called, which has the potential to eliminate completely the interests of US beneficiaries when capital is being distributed,” said Shân Warnock-Smith, quality control of ICT Chambers (Cayman) and 5 Stone Buildings – London.
“It’s a real problem for trustees to determine the best course of action.”
In order to make the required changes to the trust, Warnock-Smith explained how Cayman law allows an application to be made to court to seek additional powers for the management of a trust, but Bermuda goes a stage further and enables the variation of beneficial interests to some degree.
“The point is that in Bermuda you don’t need a full variation of trust application, and although in Cayman we can seek power to partition the trust fund between various beneficiaries and perhaps create a sub-trust for US beneficiaries, perhaps with a different trustee, it doesn’t allow you to vary the beneficial interests,” she said.
“So if you want to do a complete job and change the trust for US clients then you have to go to Bermuda, unless you want to do a full scale Variation of Trust in Cayman, which would require the consent of adult beneficiaries and you don’t want your American clients consenting to a variation because of the tax implications.”
Jude Scott, chief executive of Cayman Finance added: “In order to meet the needs of our clients and remain the jurisdiction of choice we must innovate, evolve and move forward.”
Cayman Finance, Jude Scott, Cayman