Frederica Evans, Client Director for OcorianTrust Services, discusses all things Bermuda master trusts and sub-trusts from what they are to how they work and why they're valuable for clients seeking to separate their life insurance policies from personal holdings.
What is a master / sub-trust?
In Bermuda, a master / sub-trust structure allows for the management of sub-trust funds in a segregated manner. This arrangement enables multiple relationships to be grouped under one umbrella while maintaining appropriate ring fencing.
In essence, a master trust oversees severalsub-trusts, each established to hold specific assets or benefit specific beneficiaries. This structure is primarily designed for life insured parties to separate their offshore life insurance policy from personal holdings, aiding in legal separation while maintaining transparency.
What are the main benefits of a master & sub-trust structure for insurance providers?
1. Greater flexibility
Sub-trusts provide insurance providers with flexibility in managing various asset types, including real estate, securities, or businesses. This flexibility allows for more tailored financial and estate planning strategies.
2. Asset protection
Assets held within separate sub-trusts are shielded from the creditors of other sub-trusts, offering a higher level of asset protection.
3. Organisation & ease of management
This structure simplifies asset organisation and trust management, making it easier for the trustee to oversee and manage assets. Insurance providers often act as administrators, liaising with brokers and clients. Clients apply for life insurance under the master trust and establish a sub-trust to hold their policy. The sub-trust ring-fences the policy value for beneficiaries.
4. Tax efficiency
Sub-trusts can be structured to optimise the overall trust's tax efficiency, potentially reducing tax liabilities.
5. Beneficiary protection
Establishing sub-trusts for specific beneficiaries ensures their interests are safeguarded, enabling personalised distribution of assets based on their needs and circumstances.
How can Ocorian assist insurance providers in this regard?
Ocorian in Bermuda can offer insurance providers with a master trust solution. Ocorian Services (Bermuda) Limited together with affiliated entities, can handle Bermuda insurance regulatory compliance requirements, any approval from the Bermuda Monetary Authority (BMA), and produce the trust documents (master trust / sub-trust, administration agreement). Ocorian Services (Bermuda) Limited can also serve as the trustee of the master trust and sub-trusts, assist with the framework and establish sub-trusts for participants, and hold the original policy as the owner. We also facilitate administration as outlined in the administration agreement.
What does the master trust structure entail, and how does it work?
Governance
Ocorian Services (Bermuda) Limited establish the master trust in Bermuda, governed by Bermuda law.
Trustee
Ocorian Services (Bermuda) Limited serves as the trustee of the master trust.
Sub-trusts
Proposed clients seeking life insurance policies under the Master Trust structure also apply to establish a Sub-Trust under the Master Trust.
Trust participant
The individual creating thesub-trustis referred to as the trust participant.
Sub-trust establishment
Ocorian Services (Bermuda) Limited, as trustee, establishes individual sub-trusts for trust participants pursuant to the Master Trust. It signs the insurance application and, upon issuance of coverage, holds the original policy in the sub-trust on behalf of the trust participant.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
