Cayman Enhances its Trusts Regime

Trustees will also benefit from a new definition of 'trust corporation', which brings the entity into line with Special Trusts (Alternative Regime) (STAR) definitions, while the legislation also includes additional protection for Cayman trusts from foreign heirship rules. The legislation bringing these changes into force, is the Trusts (Amendment) Law 2019 (the Amendment), which took effect on 14 June 2019. It amends Cayman's existing legislation, the Trusts Law (2018 Revision) (Trust Law).

Statutory Hastings- Bass Provisions

By far the most radical change brought forward in the amendment is the incorporation into statute of a common law power of the Grand Court to correct mistaken exercises of a trustee's power; the so-called 'Hastings-Bass' principle. Based on the England and Wales case of Hastings-Bass, in Re, Hastings v Inland Rev. Commissioners [1975] Ch. 25,  the Hastings-Bass principle allows the courts to interfere with trustees' exercise of a discretion if it is clear that the effect of such exercise was different from that intended; for example, where the trustees failed to take into account relevant considerations or took into account considerations which were irrelevant. The Hastings-Bass principle is recognised in common law in the courts of the Cayman Islands, but the Amendment puts its provisions on the statute book, effectively removing any doubt that the Court will continue to be able to make ‘Hastings-Bass’ type orders in future.

The power of the Amendment is a wide-ranging and allows the Grand Court to set aside the exercise of any ‘fiduciary power’, where it is satisfied that the person who has the right to exercise that power (or any person delegated to exercise it) (the Holder), did so mistakenly. The Amendment defines a 'power' as including a discretion as to how an obligation is performed; and a ‘fiduciary power’ as a power which the Holder must exercise for the benefit of someone other than themselves. The Holder does not have to be a trustee for the Grand Court to consider rectifying the mistaken exercise of the fiduciary power and it does not matter for the purpose of the Amendment whether the Holder is able to exercise their fiduciary power alone or jointly with others.

An application to the Grand Court for an Order to set aside a mistake can be made by: The Holder; a beneficiary of the trust; the enforcer of a purpose trust; or, where the trust is a charity, the Cayman Attorney General. The Grand Court also has the power to give leave to let any other person apply, if it considers it appropriate to do so.

The applicant does not need to either allege or prove that anyone acted in breach of trust or in breach of duty regarding the mistake that they are applying to have rectified. The only requirement is that the Grand Court needs to find that, if the Holder had taken into account a consideration which was relevant to the decision to exercise the power, or, if they had not taken into account considerations which were not relevant, they would not have exercised their power, or would have done so at a different time or in a different way.

The effect of the Grand Court setting aside a mistaken exercise is that the exercise is treated as having never happened. The Order to set aside the mistake does not have to set aside the whole exercise of the fiduciary power; it is open to the Grand Court to order only part of the exercise be set aside. Further, the Grand Court is able to impose whatever terms or conditions, or make any order, it considers appropriate.

The restriction which does apply is that the Grand Court cannot make an order or impose terms or conditions that would prejudice a bona fide purchaser for value (BFP) of any trust property, who did not have notice of the circumstances behind the mistaken exercise of the fiduciary power.

Varying a Trust with Minor or Unborn Beneficiaries

The Amendment introduces a new standard, which will make it easier to vary a trust whilst still protecting the interests of minor beneficiaries and potential beneficiaries who have yet to be born. There were existing powers for the Grand Court to approve the variation of a trust in these circumstances, but the provisions for varying such trusts under the Trust Law, restricted the Grand Court from doing so unless it was satisfied that “the carrying out [of the variation] would be for the benefit of that person”. The Amendment changes the standard so that the Grand Court need only consider that the variation “would not be to the detriment of that person”. This gives the Grand Court much more flexibility in deciding whether to approve variations and will save costs in such applications, which would be otherwise have required additional expenditure to identify and establish a definite 'benefit' to a beneficiary – even where the variation would be in the beneficiary's interest.

Changes Make It Easier to Compromise Trust Litigation

The Amendment adds a new section 64B to the Trust Law, introducing a standard that the Grand Court has to meet when approving the settlement of any trust litigation in its jurisdiction. The Amendment defines “trust litigation” as litigation which invokes the inherent jurisdiction of the Court in relation to the administration of trusts, which includes applications such as the sanction of a trustee's decision. The new section provides that, where trustees are proposing to settle trust litigation and need the Grand Court to approve the proposed settlement (for example because it affects the interests of a minor or unborn beneficiary), the Grand Court is able to approve the compromise when it is satisfied that the compromise is not to the beneficiary's detriment. Thus, a compromise may be approved even where the Grand Court is not satisfied that the settlement agreed is to a beneficiary's actual benefit. This will make it easier and less costly for all parties to reach a settlement, without identifying and establishing that the compromise would provide a beneficiary with a definite 'benefit'.

Foreign Forced Heirship and Family Provision

Under the Trusts Law there were existing provisions which create a ‘firewall’ protection to prevent the operation of any foreign law which might apply to a Cayman trust because that person had had a relationship to the original settlor of the trust. These provisions were to prevent rules which might apply in foreign jurisdictions on death or divorce, such as forced heirship (where certain percentages of a deceased person's property must go to beneficiaries decided by the state rather than by the settlor/deceased) or family provision (in states where there are laws which allow claims to be made on an estate by relatives or those maintained by the settlor/deceased). The existing provisions are extended in the Amendment to provide that the relationship need not be only to the settlor, but to “…any beneficiary (whether discretionary or otherwise)”. This will benefit the settlor in giving greater protection to their wishes, under the trust, as to the allocation of their assets as well as protecting the beneficiaries defined in the trust from claims from related individuals, such as spouses.

Wider Definition of ‘Trust Corporation’

The Amendment widens the definition of a trust corporation to include not only licensed trust companies, but also controlled subsidiaries. This helps address the issue of when a trustee is able to retire from a trust, thereby widening the scope for trustees to retire, and bringing the definition into line with the definition under the Special Trusts (Alternative Regime) ('STAR') provisions.

 Improved Trust Regime

The provisions included in the Amendment have been put forward several times in various, recent reviews of the existing Cayman Islands trust regime, and, having finally been enacted, have improved the regime in several ways. The Amendment gives the Grand Court additional powers, as well as flexibility in how it exercises those powers, in important areas such as variations and compromise of trust litigation that might affect the interests of minors or the unborn. That flexibility will benefit all beneficiaries by saving any costs involved in trying to establish a direct 'benefit'. The additional protection to prevent foreign laws upsetting the provisions of a Cayman Islands trust will also be welcomed by settlors and their beneficiaries, whilst Trustees will benefit from the new definition of 'trust corporation'.

Andrew Miller
Partner. Andrew specialises in all aspects of Cayman Islands and British Virgin Islands international wealth structuring for individuals and financial institutions. He is well recognised with awards and distinctions, including a STEP Founder's Award and being named in the 2023 Private Client Global Elite; a "Leading Individual" in Who's Who Legal 2023; as "highly praised" in Chambers High Net Worth 2023; as "a seasoned professional. He is a wealth of knowledge and highly respected" in the IFLR1000 2023. He is past chairman of STEP Cayman; the co-chairman of the STEP Cayman Legislative Committee, and a founding board member of the STEP LatAm Conference and the STEP Cayman International Wealth Structuring Forum. He is also the editor of the STEP Directory Cayman section. Prior to joining Bedell Cristin, Andrew was a partner and head of the global wealth structuring group at another major Cayman Islands firm.