The BVI Trust

The Trust is a legal creation of English Law and dates back to the time of the Crusades when knights left their landed estates to fight in the Holy Land - being absent from their estates for many years and possibly not returning.

The development of the Law of Trusts has more than 500 years of case law precedent. All Common Law Jurisdictions (for instance the United States of America, the UK and Canada) and several Civil Jurisdictions (for instance Liechtenstein and Monaco) recognize the legal concept of a Trust.

A Trust can be briefly described as a relationship among the following three parties:

Settlor	The person or corporation who establishes the Trust.
Trustee	The person or corporation appointed by the Settlor to hold legal ownership of assets in the Trust for the benefit of the Beneficiaries.
Beneficiaries	Either the person(s), corporation(s), charities who have the beneficial right to enjoy the assets in the Trust when the Trustee determines to make a distribution in their favor as discretionary beneficiaries. Or the person(s), corporations(s), charities who have the beneficial right to enjoy the assets in the Trust: the defined interest beneficiaries. For instance a Life Tenant who is entitled to receive for life all net income earned by the assets of the Trust.

A Trust, which is usually a written document executed under seal ("the Trust Deed") between the Settlor and the Trustee, creates a separation of Legal Ownership held by the Trustee, from Beneficial Ownership, the right to enjoy, held by the Beneficiaries.

This legal separation between legal and beneficial ownership enables considerable flexibility in succession planning, asset protection planning, tax and financial planning.

Trusts have been used for generations to protect and preserve some of the largest family fortunes. The most common objectives for establishing a Trust include:


1. Asset Protection and Wealth Preservation

When correctly drafted in consultation with legal advice a Trust can provide a legal entity to shield assets from future political risk, such as government sequestration, war and civil disorder and asset protection from future creditors and litigants of the Settlor. A Trust can accumulate family wealth for a maximum perpetuity period usually of up to one hundred years, which is the legal perpetuity period for a BVI Trust.This could be relevant for a family to maintain control of a family run business.

2. Family Succession Planning

A Trust can provide for very flexible and long term succession, for instance education and financial support of grandchildren; remoter issues can include the exclusion of spendthrift or bankrupt relatives.

3. Will Substitute and Avoidance of Probate

When correctly drafted, assets under a Trust do not usually fall into an estate on the death of the Settlor and be subject to probate or rules of an intestacy. Probate or intestacy are public administrations and can be very expensive and delay transmission of family property to the next of kin, in some cases, for many years .

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4. Avoidance of Forced Heir Principles

Most Trust Laws, including in the BVI, provide for exclusion of principles of a forced heir despite the personal law of the Settlor. Thereby the Settlor may have freedom of choice in the individuals who are to benefit.

5. Confidentiality and Privacy Protection

A Trust is a private agreement and is not publicly filed unless requested. Details of beneficial ownership would not be publicly disclosed or available. Publicly, the Trustee is the legal owner of the assets in the Trust and no beneficial interest is known.

6. Benefit of Charities & Purpose Objectives

A Trust can be a Charitable Trust or have a Purpose Object which is not recognized as charitable and as such certain Trust Laws have no limitation on perpetuity. For example, the creation of a Trust can be for educational purposes or to maintain a family residence.

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7. Tax Planning & Avoidance of Estate Duty

Subject to legal advice and depending on the personal law of the Settlor, a Trust can completely avoid estate duty being levied on the assets in the Trust on the demise of the Settlor. A Trust may also have certain inter vivo income and capital gains tax advantages depending on the tax residency of the Settlor and the Trust itself. For instance, the BVI levies no income or capital taxes on offshore trusts domiciled in the BVI.

8. Contingency Planning

A Trust may be structured under a proper Law of the Trust which enables the Trust to be migrated to another jurisdiction, as provided for under BVI Trust Law. A Trust may also be structured with a Successor Trustee in another jurisdiction already appointed and with a flee clause pre-determining the circumstances when the Trust is to move). Subsequently, a Trust may be migrated more quickly than a corporate structure. Substantial family and estate planning usually requires effective exit strategies for the structure to be adopted in the first place.


The Trustee has a fiduciary duty to the Beneficiaries which requires that the Trustee act in good faith and in the best interests of the Beneficiaries. The Trustee's fiduciary responsibility to the Beneficiaries is much more demanding than, for instance, that of a Director to the Shareholders of the Company.

From the Beneficiaries' and the Settlor's point of view the role of a Trustee should not be considered lightly. The Trustee legally holds the assets of the Trust and is liable for any breach of trust. Therefore, the possibility of recourse to the Trustee has to be a material consideration when establishing a Trust.

The Trustee's fiduciary responsibilities require that the Trustee manage the assets of the Trust according to the terms of the Trust Deed, maintain records for the assets of the Trust and periodically account for the assets in the Trust to the Settlor and the Beneficiaries. The Trustee legally controls the assets in the Trust but is not allowed to secretly profit in any way from its position and may only recover fees and disbursements as previously agreed under the terms of the Trust Deed.

The usual Trust Deed employed for family and estate planning is the Discretionary Trust, wherein the Trustee determines the actual benefits for nominated beneficiaries or a class of beneficiaries (i.e. all the blood relatives of the Settlor).

Under a Discretionary Trust, no beneficiaries have defined beneficial interests, which may be attractive for tax and asset protection reasons as well as ensuring great flexibility as the circumstances of the discretionary beneficiaries change in the future.

How the Trustee's discretion is exercised can be periodically influenced by the Settlor or his/her nominee through a Letter of Wishes . Provided such Letters of Wishes are in accordance with the terms of the Trust Deed, they are usually followed by the Trustee. A mechanism to protect the Settlor's interests is to have the Trust Deed appoint a Protector, usually a nominee of the Settlor, with the power to serve notice to dismiss the Trustee and appoint a new Trustee. The Settlor and the Beneficiaries thereby retain indirect power to replace the trustee if they are not satisfied by the exercise of the trustee's discretion.

The process to set up a Trust usually involves an interview of the client with a private banker or attorney and then some correspondence: completion of a trust questionnaire and review of the draft Trust Deed by the attorney. The Trust is usually established with a nominal settled sum of US$100 at the time of execution of the Trust Deed. The process to set up the Trust and any underlying investment holding company and bank/brokerage accounts can be accomplished in a matter of a few weeks.

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