The Society of Trust and Estate Practitioners (STEP) is celebrating its thirtieth anniversary. This has prompted us to in this article consider key legislative, regulatory and trust law developments in Bermuda over the past 30 years.
Bermuda remains a preferred jurisdiction in which to establish and maintain trusts (and increasingly, family offices). Bermuda's Courts and regulatory regime carefully balance privacy with the objective of maintaining appropriate regulation to preserve Bermuda's stellar reputation as a premier international financial services jurisdiction.
An important feature of Bermuda trust law is that it contains many provisions that can resolve problems or otherwise address concerns regarding the administration of trusts. This feature is supplemented by Bermuda’s Courts’ willingness to apply these provisions in a constructive manner. These qualities attract many high net worth families to establish trusts under Bermuda law or (indeed) to change the governing law of trusts to that of Bermuda.
Bermuda combines a beautiful island with a strategic and convenient location and extensive direct air connectivity. The island's modern infrastructure and robust legal system provides many of the advantages of an onshore jurisdiction. This, combined with the highest quality of professional services firms, low direct taxation and a high degree of innovation makes Bermuda a particularly attractive jurisdiction to establish trusts and family offices.
Key Trust Legislative Developments Over The Past 30 Years
Trustee Act 1975 amendments:
1999: The Act was amended to provide trustees powers, subject to a contrary intention expressed in the trust instrument, to (1) exercise a broad range of investment powers that may not have been expressly authorised under the trust instrument; (2) delegate investment management and other powers; (3) advance capital on very flexible terms, including on discretionary trusts; and (4) provide for the appointment (if so provided in the trust instrument) of a managing trustee where certain powers may be reserved to a managing trustee with the other (administrative/custodian) trustee(s) not being liable for the managing trustee's acts or omissions in respect of such powers.
2014: The Act was amended to introduce s47A (known as "statutory Hastings Bass"), which essentially overturns the UK Supreme Court decision in Pitt v Holt 2013 and restores the "rule in Hastings Bass". Section 47A provides the Court a statutory power to set aside innocent flawed exercises of fiduciary powers if the fiduciary did not take into account one or more relevant considerations and if the fiduciary had done so would have exercised the powers differently, another time or not at all. To exercise its powers under s47A the Court does not need to find the fiduciary liable for a breach of its duties or negligence.
Trusts Special Provisions Act (1989) amendments:
1998: Non-charitable purpose trusts - Section 12A of the Act was introduced to provide that a non-charitable purpose trust may be created under Bermuda law provided the purposes are (1) sufficiently certain to allow the trust to be carried out; (2) lawful; and (3) not contrary to public policy. A subsequent amendment in 2009 did away with the statutory requirement for an enforcer to be appointed to enforce the purposes of a trust so that, essentially, any person that the Court determines has a "sufficient interest" in the enforcement of the trust may apply to Court to enforce the trust.
2014: Reserved powers legislation - Section 2A of the Act introduced modern and extensive reserved power trust legislation that essentially enables settlors to reserve to themselves or grant to others one or more of a range of powers without invalidating the trust or the property being deemed to form part of the settlor's estate for the purposes of Bermuda's Wills Act 1998. The legislation also provides extensive protection to trustees for complying with the exercise of reserved and granted powers. Generally, subject to the terms of the trust, powers reserved to the settlor are treated as non-fiduciary powers and powers granted to a non-beneficiary are treated as fiduciary powers.
2020: Modernised firewall legislation - Sections 10 and 11 of the Act were restated to broaden the scope and simplify firewall provisions. Bermuda law firewall provisions chiefly require Bermuda law to be applied to Bermuda law trusts and to not recognise foreign laws and orders that give effect to foreign forced heirship, matrimonial property or insolvency rights and are inconsistent with Bermuda's firewall provisions. The amendments also expanded the jurisdiction of the Bermuda Court and facilitated the service of proceedings involving Bermuda trusts outside the jurisdiction of Bermuda without the Court's leave.
2020: Children Act "opt out" - Amendments to the Act and the Children Act 1998 provided draftspersons/settlors the ability to opt out of the default definition of "children" otherwise prescribed by s18A of the Children Act. Subject to the terms of the trust, section 18A of the Children Act defines "children" in a manner to include adopted children or illegitimate children.
Perpetuities and Accumulations 1989:
This Act modified common law rules restricting perpetual trusts and accumulations to enable trusts to be created with trust periods not exceeding 100 years. The impact of this Act was superseded by the Perpetuities and Accumulations Act 2009.
Perpetuities and Accumulations Act 2009:
2009: Section 3 of the Act provides that Bermuda trusts established from 1 August 2009 are not subject to perpetuity period (except for trusts holding Bermuda land: interests in Bermuda land can only be held in trust up to a maximum of 100 years; or the perpetuity period designated by the trust instrument).
2015: Section 4 of the Act was amended to provide the Court a streamlined jurisdiction to dis-apply or extend perpetuity period of existing trusts if it determines it expedient to do so. The test for expediency has been considered In the matter of the C Trusts  (See below). Numerous trusts not governed by Bermuda have had their governing law changed to that of Bermuda to utilise this streamlined jurisdiction.
Regulatory Legislative Developments
The Proceeds of Crime (Money Laundering) Regulations 2008 replaced the 1998 anti-money laundering/terrorist financing (AML/ATF) regulations to broaden the range of entities that are regulated and require AML/ATF regulated financial institutions to adopt "risk-based" AML/ATF systems and controls.
Trust (Regulation of Trust Business) Act 2001 and 2002 Exemption Order:
The Act reiterated the requirement for persons carrying on "trust business" in or from Bermuda to be licensed to do so (and have fit and proper controllers and discharge requirements regarding business policies and procedures etc.), unless they benefit from an exemption.
The Trusts (Regulation of Trust Business) Exemption Order 2002 provides several exemptions to the trustee licensing requirement, including an exemption for "private trust business", which is frequently and readily utilised by "private trust companies".
Introduction of requirements for beneficial ownership registers of certain entities (not trusts):
2018: In response to international initiatives, Bermuda enacted legislation in 2018 (which became operative the following year) requiring certain Bermuda companies, partnerships and limited liability companies to maintain beneficial ownership registers and file beneficial ownership information with the regulator. Beneficial ownership registers are not required to be maintained in respect of Bermuda trusts in Bermuda, nor is the information available to the public. Where a trust forms of the ownership structure, in most scenarios (e.g. discretionary trusts with Bermuda licensed trustees) it is unlikely that settlors, beneficiaries, protectors and other non-trustee power holders would be required to be included in the register. The Bermuda Government has noted that the European Union is due to publish an Implementation Review in January 2022 and has further indicated that, within 12 months of that publication, it will progress proposals to establish public access to beneficial ownership data of companies held on its central register.
Introduction of economic substance requirements for certain entities (not for trusts):
2018: Also in 2018 (again operative the following year), Bermuda introduced legislation requiring companies, limited liability companies and partnerships that carry on one or more "relevant activities" to comply with Bermuda's economic substance requirements. Acting as trustee is not a relevant activity. It is widely regarded that the activities carried on by a company (including a private trust company) in its capacity as trustee is not regarded as a relevant activity, but one must consider what activity the company carries on its own account.
Amendments to the Digital Asset Business Act 2018:
2019: Amendments to the Act includes provisions to regulate businesses that qualify as a "digital asset trust services provider" (e.g. a trustee acting on behalf of another person for the purpose of administration or management of trust assets). Private trust companies and underlying companies that hold digital assets on their own account (or licensed trustees that engage a "qualified custodian") to hold digital assets may not require a licence. Further, the Minister of Finance has considerable discretion to significantly reduce licence fees and requirements for Bermuda licensed trustees that determine they may require a licence.
Key Bermuda Trust Court Judgments Since 1991
30 years is a long time and Bermuda's trust and related regulatory laws have undergone significant development in that period. Bermuda's Courts, staffed with talented internationally recognised judges, have thoughtfully developed Bermuda's trust law to address new and evolving issues. It is hoped that this paper provides a solid introduction to those who wish to consider developments relevant to Bermuda trust law over the past 30 years.
Ashley Fife Ashley Fife TEP is counsel in the trusts and private wealth team of Carey Olsen Bermuda Limited. He provides advice in relation to private and commercial trusts and their underlying entities - including partnerships, companies and limited liability companies. Ashley advises in respect of the formation of family offices and regulatory issues impacting upon trustees, corporate service providers, trusts and underlying entities e.g. FATCA and CRS, beneficial ownership registers, anti-money laundering/terrorist financing and economic substance requirements.
Carey Olsen Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Jersey, Cape Town, Hong Kong, London and Singapore.