In this interview, our consultants Graham Blyth and Will Koutney will explore the current state of the Cayman Islands’ trust industry. Commentary will be provided by leading local trust practitioners with over 20 years combined legal and accounting experience who offer a valuable mix of insight into historical trends, current developments, and predictions of things to come.
This blog is a snippet of the fully published article; read the article in its original and full format here.
Trust Industry Interviewees
Esmond is a Senior Associate attorney in Appleby’s Private Client and Trusts team in the Cayman Islands with over 6 years’ of experience onshore and offshore in England, Guernsey and the Cayman Islands. He has been in Cayman for over three and a half years and has worked on a wide variety of complex trust and estate matters. His practice encompasses both non-contentious advisory work as well as contentious instructions and his client base consists of HNW and UHNW clients from all over the world as well as institutional clients in Cayman and elsewhere and international law firms.
Lee is a Senior Manager at Genesis Trust & Corporate Services Ltd. with over 14 years’ experience in the financial services industry. Starting in the restructuring department of a Big 4 firm in the UK, he has been working in the Cayman Islands for the last 9 years involved with complex cross-border insolvencies, trust disputes, fraud investigation and regulatory compliance cases across a wide range of industries and structures, before focusing on private client, trusts and related corporate services. He is a member of the Institute of Chartered Accountants of Scotland, the Society of Trust and Estate Practitioners, completing the STEP Diploma in International Trust Management, and a Fellow of Insol International.
What role do you play in the Cayman financial services industry?
Esmond: As a private client attorney in Cayman, my role is varied and wide-ranging. Given that trust teams tend to be smaller in Cayman, I can have as many as forty or fifty matters going on at any one time, with instructions ranging from advice to trust companies on structures under their administration, to setting up trust structures for UHNW/HNW individuals, to working with onshore lawyers on transactions involving Cayman trusts or other private wealth structures or attending the Grand Court for a litigious trust matter. The work is very varied, and no one day is the same and can quite often be technical and challenging because there is very rarely a black-and-white answer where equity and trusts are involved. As a private client lawyer you need to have a broad skill set on which to draw upon! Trust work quite often spans the corporate and commercial, and litigation worlds, and therefore, I frequently find myself working alongside lawyers and colleagues from different departments in Cayman or in our other offices. With the introduction of new foundation company legislation in the jurisdiction, more and more I am finding myself working on corporate constitutional documents alongside trust deeds.
Beyond the office, my role involves regular business travel, where I spread the word about the fantastic work and developments that are going on in Cayman on the private wealth side. Whether this is by attending and speaking at conferences and seminars or by knocking on the doors of law firms, trust companies or investment managers at the various financial centres, it is not only important to stay relevant but also to educate and remind people about all of Cayman’s advantages. My job is made easier because Cayman has a very active and healthy STEP branch that does a fantastic job of uniting the industry and connecting us with regular seminars and the now well-established and excellently organised STEP Cayman conference, which has been featuring at the end of January (the scheduling is, I expect, entirely deliberate!) for the last three years and welcomes hundreds of trust professionals from all over the world.
Lee: As a licensed Cayman Islands trust company, we fulfil the role of trustee acting in a fiduciary capacity to manage the trust property for the benefit of those persons beneficially entitled or for its specific purposes. As trustee we will seek to carefully administer and distribute the trust assets in accordance with the terms of the trust and considering the Settlor’s wishes, which may be of a highly sensitive nature, engaging local and international experts and consulting the Court where appropriate.
The day-to-day work in administering a trust will vary depending on the nature of the underlying assets and the terms of the trust. The core duties of the trustee will however remain to carefully manage, oversee and account for the trust to ensure it is operating as intended while thoroughly considering and documenting decisions made in good faith with due skill and care; and ensuring global regulatory requirements are satisfied.
The strength of the Cayman Islands trust industry assists in attracting a wide range of private clients and their advisors to the jurisdiction whilst generally helping to enhance the jurisdiction’s global reputation and appeal, with the potential for wider benefits to the Cayman Islands financial services industry.
What are some of the advantages of establishing a Cayman Islands trust over those in competing jurisdictions?
Esmond: Cayman is a first-class trust jurisdiction; not only is the legal framework as strong and reliable as you will find anywhere offshore but the quality and independence of the judiciary alongside the well-developed and respected court system as well as the advisers, managers and trustees who practice here make it a very robust and market-leading trust jurisdiction.
It is perhaps the Special Trusts (Alternative Regime) Law (commonly referred to as the STAR Law) that is the structuring jewel in Cayman’s crown. A construct of statute, the STAR Law provides for a non-charitable purpose trust that can be established to hold assets to benefit beneficiaries or further purposes or both. The provisions of the STAR Law that enable such a trust to have objects which are individuals and/or purposes is unique to Cayman. STAR trusts may be created for an unlimited duration and are used in many commercial transactions where the ownership of the shares in an underlying company is held by a STAR trust. STAR trusts are favoured by clients all over the world for the flexibility they provide and are used by settlers for asset protection purposes for multiple generations. This is due to the fact that a STAR trust may be created for an unlimited duration and in many commercial transactions where the ownership of the shares in an underlying company is held by a STAR trust.
With the de-risking of some of the larger bank-owned trust companies about five or six years ago, there was something of a market contraction in the number of recognisable names providing trust services. Whilst at the time this was seen as something of a concern for the trust industry, it has meant that in recent years truly independent trustees have been able to come to the fore and prove that deep pockets and reputation is no longer a prerequisite for quality. The independent ownership model, coupled with smaller scale organisations has led to a greater degree of flexibility and commerciality with those companies providing trust services and has led to a fleet of foot where decisions are being made much more quickly. I would argue this has meant that the range and diversity of trustees on the Island is as good as it has ever been.
Without competition amongst lawyers, trustees and investment advisers our industry would undoubtedly become complacent and not adapt and develop with the changing tides. In the private wealth industry, the institutions in Cayman, both private and public have proven themselves time and again to be willing to embrace the changing regulatory landscape and tackle new challenges which is why it has remained at the forefront of the offshore world.
Lee: The Cayman Islands has established itself as a leading jurisdiction for the establishment and management of trusts. Cayman has a sophisticated professional trust sector with modern trust legislation and regulations, along with an effective and highly competent regulatory and judicial system; overseen by the Cayman Islands Monetary Authority and the Grand Court of the Cayman Islands.
The Cayman Islands legislature has also shown it is willing to adapt in order to strengthen the jurisdiction’s offering and meet client needs. Legislation developments such as reserved powers and firewall provisions, private trust companies, STAR Trusts and Foundation Companies have all complemented the existing trust and corporate framework to provide true flexibility to potential clients and their advisors from a wide range of jurisdictions. This flexibility, combined with the location and stability of the jurisdiction and effectiveness for asset protection, estate planning, confidentiality and tax benefits within global parameters, have contributed to making the Cayman Islands one of the most desirable locations for offshore trusts.
Is your client base truly global, or do Cayman trust structures appeal to UHNW and HNW individuals from specific locations?
Lee: The Cayman Islands, as a British Overseas Territory with a legal system rooted in English common law, has historically been most appealing to those jurisdictions with a similar legal framework and where potential clients are familiar with the types of structures on offer. This is in contrast to civil law countries, where the separation of legal and beneficial ownership and the idea of giving up control of assets can be a somewhat foreign concept.
The developments mentioned in the previous answer have provided a platform to create structures more familiar to those clients, which has proved to be very attractive and widened the geographic reach of our client base. This global application and appeal is a further strength of the Cayman Islands financial services industry as a whole.
Esmond: In short, yes, I never know where in the world the next instruction or telephone call is going to come from. Cayman trusts and foundation companies are attractive to clients and advisers in the Far East, the Middle East, Russia, Europe, North and South America and Canada. Whilst there has undoubtedly been a change of focus for clients in localities like the US and Europe, where trust creation no longer has the same practical advantages, I still find myself providing advice to trustees, law firms and beneficiaries from these places on existing structures, but new trust establishments now come from countries like the PRC, Hong Kong or right here in Cayman. There are many sophisticated clients in Cayman who have chosen to base themselves here full-time or for part of the year. The work I assist our on-Island clients with can be as pervasive as a complete structuring or re-structuring of their whole wealth plan or as simple as drafting their Cayman Will.
Whilst the trust is not necessarily the right structure for every client, I quite often find that if I am asked to assist settlors from civil law countries, if they cannot get comfortable with the principles and concepts of a common law trust, an alternative such as the relatively new foundation company or long-established exempted company is likely to have a great deal of benefit as part of their overall wealth planning objectives.
As mentioned at the start of this blog, this is only a snippet of the full interview. Feel free to download a copy of the full interview here.