Mar 2024
Bermuda is a British Overseas Territory with a parliamentary legislature and has been largely self-governing since 1620. It has economic, legal and political stability which attracts international businesses and ultra-high-net-worth individuals (UHNWI) resulting in a highly developed and sophisticated trust services industry.
Bermuda trust law flexibility and innovation
Bermuda’s trust law is largely based on English common law but it has been enhanced and amended by local legislation. The Trustee Act 1975 (the “1975 Act”) is, for the most part, identical to the England & Wales Trustee Act 1925. There is an emphasis on innovation to trust law in Bermuda to ensure it remains a competitive and modern choice of jurisdiction.
Noteworthy provisions include:
Section 24 which establishes statutory power of advancement which can be widely applied provided it is not specifically excluded by the relevant trust deed. It is generally accepted that Section 24 can allow an incidental benefit to strangers of the trust without resulting in a “fraud on the power”.
Section 47 of the 1975 Act confers upon the court the ability to grant trustees powers to enter into any transaction not authorised under the trust deed provided the court determines that it is expedient to do so. The Bermuda courts have invariably applied Section 47 to grant trustees powers to vary not only administrative provisions, but also beneficial interests under a trust.
Section 47A of the 1975 Act provides the court with the power to set aside a flawed exercise of a fiduciary power if the court decides that the power holder exercised the fiduciary power without properly taking into consideration all materially relevant considerations and would have otherwise exercised the power differently, at another time or not at all.
The Perpetuities and Accumulations Act 2009 (the “2009 Act”) abolished the rule against perpetuities for all trusts settled after 1 August 2009 excluding those which hold land in Bermuda. Section 4 of the 2009 Act provides the court a streamlined jurisdiction to dis-apply or extend the perpetuity period of a trust provided the court determines it expedient to do so. The Perpetuities Amendment Act 2015 enables trustees of pre-2009 Act trusts to make streamlined applications to the court to dis-apply or alter the perpetuity period including trusts which have moved to Bermuda from other jurisdictions.
The Trusts (Special Provisions) Amendment Act 2020 came into force in August 2020 and introduced updated “firewall” provisions (see further below).
Structuring options
There are a variety of structuring options, such as the following.
Discretionary Trusts provide the most flexible and efficient structure. The settlor will normally have divested him-/her-self of any ownership interest in the assets held in the trust. Bermuda also has reserved powers of legislation that enable the settlor to reserve a range of non-fiduciary powers.
Purpose Trusts (established under the Trusts (Special Provisions) Act 1989) can be established for charitable/philanthropic, non-charitable, persons or a combination of purposes and are increasingly used for commercial transactions.
Charitable Trusts can be established to create a charitable fund or to make provision for existing charitable institutions or purposes.
Private Trust Companies can be established to act as trustee of connected trusts, which may allow a settlor to retain some influence over the trustee decision-making processes.
A strong judiciary
Bermuda has an excellent reputation as a first-class international jurisdiction with an efficient court system.
Presided over locally by the Chief Justice and comprising several full and part-time judges, the Supreme Court regularly hears and determines both contentious and non-contentious applications concerning trusts governed by Bermuda law with a willingness to apply the provisions outlined above in a constructive manner.
King’s Counsel appointees are frequently granted rights of audience before the Bermuda courts thereby ensuring that families are able to utilise the best barristers.
Local judgments are highly persuasive and regularly cited with approval in other onshore and offshore jurisdictions. From the Bermuda Supreme Court, appeals are made to the Court of Appeal and, in limited circumstances, to the Judicial Committee of the Privy Council.
International co-operation and regulatory standards
Bermuda plays a global role in the challenges presented by money laundering, tax evasion and other illegal activities and is committed to global compliance and transparency.
Local legislation gives effect to the United States’ Foreign Account Tax Compliance Act (FATCA) and the OECD-approved Common Reporting Standard (CRS).
A Central Beneficial Ownership Register is maintained by the Bermuda Monetary Authority, though it is not publicly available. Bermuda also has economic substance requirements in order to meet other OECD global requirements.
The Corporate Income Tax Act 2023 became operative on 1 January 2024 and the regime will become effective from 1 January 2025 fulfilling a commitment to the Global Minimum Tax initiative. This will only apply to Bermuda entities forming part of a multinational enterprise with annual revenue exceeding €750 million. It is therefore expected that it will only apply to a relatively small proportion of Bermuda entities and is unlikely to impact the trust industry.
Privacy and confidentiality
Bermuda has developed statutory protections and guidance in regards to the protection and disclosure of confidential information brought into Bermuda, and judgments of the Bermuda courts are frequently anonymised.
The Trusts (Special Provisions) Amendment Act 2020 ensures that Bermuda law will govern all matters of administration of that trust and will not recognise foreign laws and orders that give effect to foreign forced heirship, matrimonial property or insolvency rights that are inconsistent with Bermuda’s firewall provisions.
Conclusion and practice trends
Bermuda has a thriving trusts industry and will remain a leading jurisdiction for internationally mobile UHNWI who seek generational planning in the management of their wealth. The authors anticipate the growth in the number of Private Trust Company structures that are established as well as the number of family offices located in Bermuda.
This article was originally published in Chambers Expert Focus.