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By Donna Brehaut, Associate Director, Saffery Champness

The benefits of Cayman STAR Trusts for family wealth and succession planning

The Cayman Islands has, over many years, continued to reinforce its position as a jurisdiction of choice for families seeking a stable location for the establishment and management of structures for their wealth and assets.

Along with a high-quality legal infrastructure, sophisticated lifestyle, and a globally recognised financial services industry the Cayman Islands also provides unique structuring options which provide significant benefits.

The STAR Trust at a glance

The STAR Trust was introduced in 1997 as a form of non-charitable purpose trust legislation called the Special Trusts (Alternative Regime) Law. Since then, it has become a popular alternative to traditional trust structuring for high-net-worth individuals and families who require robust, flexible and carefully thought out wealth structuring.

  • STAR Trusts can be established without a perpetuity period with the objects (those who benefit from the trust) being persons or purposes or both (charitable or non-charitable).
  • STAR Trusts require an enforcer of the trust, who is appointed with a duty or right to enforce the proper operations of the trust. This is an attractive feature as it facilitates separating the right to benefit from the right to enforce the terms of the trust and restricts rights to information. This enables beneficiaries to enjoy the benefits of the trust fund without the concern of being involved in any challenges or disputes with their trustee.
  • STAR Trusts can be effective for succession planning, particularly for family businesses where the patriarch or matriarch may wish to involve the next generation operationally, whilst providing a platform for them to become actively involved in and benefit from the family businesses. At the same time, the patriarch or matriarch can take comfort that there will not be material family disputes or influence on the trustee with the enforcer having the overriding duty to enforce.
  • Another key benefit of the STAR Trust is how it can work alongside other structures. An example is a private trust company structures where the STAR Trust is established with the sole purpose of holding shares in a Cayman Private Trust Company ("PTC"), ensuring that the PTC carries out its fiduciary duties as trustee of a trust or series of related family trusts. By arranging for the PTC to be owned by a STAR Trust, the problems of succession in relation to the ownership of the PTC are mitigated as it creates a vehicle through which the PTC shares are orphaned.
  • STAR Trusts can help cater for philanthropic planning in circumstances where the settlor wishes to include a non-charitable element to the trust, or where the purposes may not qualify as being wholly charitable under Cayman Islands law.

An alternative - The Cayman Foundation Company at a glance:

Whilst the STAR Trust has increased in popularity with families to enable them to meet their wealth planning objectives and fulfil their needs, the Cayman foundation company, which was introduced in the Cayman Islands in 2017, has also proven to be a popular vehicle. Unlike a STAR Trust, a foundation company has separate legal personality and limited liability. This is popular for families more accustomed to civil law cultures as opposed to common law where the concepts of the trusts are not always clearly understood. This makes them an ideal succession planning and asset protection vehicle.

  • Foundation companies do not normally have a shareholder or member and cannot pay dividends or make distributions as would occur in a corporate context. The economic benefits are provided as distributions to the foundation company's beneficiaries. Day-to-day management of a foundation company is conducted by its board of directors rather like a corporate entity.
  • Duties are owed only to the foundation company itself and rights are enforceable only against the foundation company, meaning that there is no accountability to the beneficiaries, only the foundation itself. By way of example, this can make foundation companies well suited to holding more complex investments with higher risk attributes because beneficiaries do not have direct rights of action or enforcement against trustees as they would in a traditional trust context.
  • As with STAR Trusts, foundation companies can be utilised to hold shares in a PTC, for charitable or philanthropic uses and as a special purpose acquisition company in a commercial context. Furthermore, a foundation company can act as a protector or enforcer of a trust so can have a wider function in more robust structures.

Both STAR Trusts and foundation companies are vehicles unique to the Cayman Islands and have many benefits that can be considered to accommodate the needs of a family who has robust structuring and wealth planning requirements. Enforceability and accountability are key considerations as well as ensuring that the goals and aspirations of the family can be captured correctly where succession, longevity, asset protection, philanthropic and commercial considerations are at the forefront of the wealth planning considerations.

About the author

Donna Brehaut works alongside a fiduciary team specialising in the establishment, management and administration of a diverse portfolio of offshore structures for high net worth individuals across a range of jurisdictions. Donna began her fiduciary career in 2007 and joined Saffery Champness in 2018. She received her STEP Diploma in International Trust Management in 2010, and has since become a member of the Chartered Management Institute. Donna features within ePrivateClient's Top 35 under 35 (CI and Crown Dependencies lists since 2018) and was named as CityWealth’s Boutique Trustee of the year in 2016 having previously been listed as a Future Leader.

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