Family offices can come in a wide variety of shapes and sizes, but their overarching function is to serve the needs of a wealthy individual or family group. With increasing diversity in the types of “family offices”, there is also more diversity in the locations where they can be found. The Cayman Islands is an increasingly popular place of residence for wealthy individuals and their families, and it is becoming a leading domicile for the establishment and operation of family offices.
In parallel with increased interest from high-net-worth individuals (HNWIs) and their families in having their primary or secondary residence in the Cayman Islands, many HNWIs see benefit in establishing (or relocating) their family office in the Cayman Islands.
The Cayman Islands has long been world-renowned for its highly sophisticated financial sector. Despite the country’s relatively small size, it has an abundance of highly qualified professionals with a breadth of experience in complementary areas suitable for family offices’ needs. As the leading jurisdiction for the establishment of investment funds, the Cayman Islands possesses a financial sector that is well-versed in investment matters, wealth management, trust structuring and philanthropy, as well as aircraft and yacht registrations, which are all key areas of interest to many family offices.
Indeed, this sophisticated financial sector is what sets apart the Cayman Islands from many similar locations, which may be able to offer an island lifestyle but cannot compare with the professional expertise and modern physical infrastructure present in the Cayman Islands.
As a British Overseas Territory, the Cayman Islands has a legal system that is familiar to wealthy families and their advisors from around the globe. The Cayman Islands is a particularly well regarded trusts jurisdiction with legal principles based on English law but modernised to offer the type of innovative and bespoke structures that the world’s wealthy require in order to house assets across multiple jurisdictions.
As high-net-worth families and their advisors look beyond traditional wealth centres, it’s easy to see why the Cayman Islands will be a top contender in attracting families and their family offices. The Cayman Islands can indeed function as a one-stop shop for HNWIs and their families in an idyllic environment.
Relocating To The Cayman Islands
In recent years, and especially in response to the COVID-19 pandemic, the Cayman Islands has evolved into an increasingly popular place of residence for HNWIs from around the world. This appeal has been recognised by the Cayman Island’s private enterprise and government alike, each of which has sought to attract wealthy private investors.
Private enterprise has powered a development boom that has resulted in the high-end real estate options and infrastructure that HNWIs expect. The Cayman Islands Government has also played its part, offering various immigration options to suit the needs and objectives of prospective long-term residents. The various categories of permit provide flexibility so that the prospective resident can align their personal circumstances and investment objectives with the best-suited immigration permit.
Particularly for retired HNWIs, the most common route to residency is via investment in real estate. For example, one option allows persons who invest a minimum of US$2.4 million in developed real estate to apply for a certificate allowing the holder (and their dependants) to reside indefinitely in the Cayman Islands. Applicants must also show evidence of sufficient financial resources to maintain themselves and their dependants during their residency.
Other categories of permit are also available for those wishing to make a more modest real estate investment and/or for persons who may wish to establish or relocate a business in the Cayman Islands. For example, persons can achieve residency by investing at least US$1.2 million in an employment-generating business in the Cayman Islands (subject to certain other requirements).
The Cayman Islands is also a leading jurisdiction for private wealth and succession-planning structures. While these structures traditionally have been for beneficiaries outside the Cayman Islands, there is an increasing need to service the on-island community as the Cayman Islands itself becomes a wealth centre.
In summary, the key private wealth structures in the Cayman Islands are as follows:
Trusts continue to be the primary succession-planning vehicle in the Cayman Islands (and throughout common law jurisdictions). The Cayman Islands has a well-established and highly regarded trusts industry and trusts law regime, and Cayman courts are experienced in dealing with trusts law matters. (There is a wealth of useful jurisprudence regarding the management and administration of trusts in the Cayman Islands.)
Trusts do not have separate legal personality, meaning a trust is not a legal person (which contrasts with a Foundation Company, described further below). Rather, the trustee, who is a legal person, holds assets on behalf of the trust and subject to the rules of the trust and the relevant legal principles.
Cayman trusts law is based on English principles with some important modifications that ordinarily make the Cayman Islands a more attractive trusts jurisdiction. For example, the Cayman Islands provides a unique form of statutory trust (referred to as a STAR trust), which can suit different objectives (for example restricting beneficiaries’ access to information, as these rights are instead vested in an “Enforcer”).
Cayman trusts law is generally very flexible, and there are a wide variety of options for how trusts can be structured.
In 2017, pursuant to the Foundation Companies Law 2017, the Cayman Islands provided for a new form of company incorporated in the same way as a regular company and known as a “Foundation Company”. Foundation Companies broadly operate as a hybrid between a company and a trust. A Foundation Company has many of the same features as an ordinary company (making it a familiar structure); however, unlike a typical company, it can have beneficiaries or purposes (as with a trust). Foundation Companies are therefore an innovative succession-planning structure with significant flexibility to tailor the governing documents to the needs and objectives of the respective family.
Given that the structure is familiar (being a company), a Foundation Company can generally provide an efficient structuring vehicle that will fit seamlessly into the wider family wealth structure. Being a single entity, it may also provide for a more simplified structure than a trust structure (which could potentially involve the trustee, the trust and underlying companies).
Although Foundation Companies are a relatively new structure in the Cayman Islands, an important distinction and advantage of Cayman Foundation Companies (as compared to foundation offerings in other offshore jurisdictions) is that the approach in the Cayman Islands was to build off the existing Companies Law framework. (Other jurisdictions sought to establish an entirely new set of rules to govern foundations.) Thus, because the Cayman Companies Law applies to Foundation Companies, the structure is a familiar one and brings with it existing jurisprudence. This approach provides a greater level of certainty and clarity around the operation, governance and legal treatment of Foundation Companies than may be the case with other offshore foundation offerings.
This article was first published in the IFC Review.