Enhancements to Cayman Islands Trust Regime - July 2019
The Cayman Islands recently introduced a number of enhancements to its internationally respected trust regime, through the Trusts (Amendment) Law 2019 (the “Amendment Law”), which came into force on 14 June 2019. The changes, which are summarised below, extend the existing protective firewall provisions in Cayman trust law, enable the Cayman courts to apply more pragmatic tests to decisions relating to trust variations and litigation, and give the courts statutory powers to correct trustee mistakes.
Trustee Mistakes - power to correct
The Amendment Law introduces statutory provisions which confirm that subject to certain exceptions, the Grand Court of the Cayman Islands (the “Grand Court”) can set aside a mistaken exercise of a fiduciary power in whole or in part and, in doing so, may impose any terms or conditions or make any order it considers appropriate. If such an order is made, the exercise of the fiduciary power is treated as never having occurred.
Prior to the Amendment Law, where there was a proposed variation of a Cayman Islands trust, the test applied by the Grand Court, pursuant to the Trusts Law, was whether the proposed variation would be for the benefit of the trust beneficiaries. A difficulty associated with this test was that, in some cases, the variation proposed may be necessary for a number of reasons but will not result in any particular benefit. The Amendment Law addresses this issue and introduces greater flexibility into the process of varying Cayman Islands trusts by providing that the Grand Court now need only be satisfied that the proposed variation will not be to the detriment of the beneficiaries.
Like trust variations, for the settlement or other compromise of trust litigation the Amendment Law replaces the “benefit test” with the “no detriment test”. This enables the Grand Court to approve the settlement of trust litigation on behalf of any beneficiary if the Court is satisfied that the settlement is not to the detriment of any such beneficiary, even where the Court cannot be satisfied that the settlement is for their benefit. As part of this change, the Amendment Law introduces the concept of trust litigation as a defined statutory term – under Cayman law it means “litigation invoking the inherent jurisdiction of the Court in relation to the administration of trusts”.
Extended Firewall Provisions
The existing firewall provisions of Cayman Islands trust law generally operate to protect trusts governed by Cayman Islands law and dispositions of assets into such trusts from attack pursuant to the provisions of foreign laws in relation to forced heirship, matrimonial or other claim. Until now, one key aspect of the firewall operated to protect Cayman Islands trusts from attack by persons claiming rights or interests in the assets subject to the trust by reason of a personal relationship with the settlor of the trust (whether by blood or by marriage). The Amendment Law extends this protection of Cayman Islands trusts from attack by persons claiming such rights or interests through a personal relationship with not only the settlor of the trust, but also any beneficiary of the trust (whether that beneficiary is a discretionary beneficiary or otherwise).
The Amendment Law introduces a single definition of “trust corporation”, so that it includes a registered controlled subsidiary of any licensed trustee company or a private trust company.
For further information please do not hesitate to contact your usual Trident Trust representative or Alistair Dilbert, the head of our Cayman Islands trust services team.