Bermuda regards itself as one of the most highly developed and sophisticated jurisdictions in which to conduct trust business.
This is due in part to the various pieces of legislation impacting trustees, such as the Trustee Act 1975, the Trusts (Special Provisions) Act 1989, the Perpetuities and Accumulations Act 2009, the Trusts (Regulation of Trust Business) Act 2001 ("Trust Regulations") and the Trusts (Regulation of Trust Business) Exemption Order 2002.
It is also due to the expertise of the individuals who operate trust businesses in Bermuda – and the fact that Bermuda's trust business, defined as "the provision of the services of a trustee as a business, trade, profession or vocation", is regulated by the Bermuda Monetary Authority (BMA), which vets trustee licence applications and sets the ongoing standards of trust administration.
The BMA has set out in very clear terms that before a trust company can offer trusteeship services to the public in Bermuda it must ensure that it has the expertise, infrastructure and requisite capital, together with an acceptable business plan.
Provided the trust company meets the above mentioned requirements (amongst others), it must also ensure that it continues to comply with the policies set in place by the BMA when conducting its trusteeship services.
As such, it must ensure that it keeps proper records of account, has adequate insurance to cover claims made against it and conducts itself as a reputable trust business, just to name a few.
In fact, the Trust Regulations, together with The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 (AML/ATF Regulations) both set out what information/documentation a trust company should request and retain when conducting its trust business.
As a result of the rules set out in the Trust Regulations and the AML/ATF Regulations, trust companies should always have full knowledge of the individuals involved in the trust structures that they administer.
Not only should a trust company have full compliance details and information about the settlor and the beneficiaries of the trust, it should also have the same level of knowledge about the protector or enforcer (if any), and the legal, investment and other advisors connected to the trust.
The trust company should also have full details regarding the assets that comprise the trust fund (i.e. cash, land, investments, artwork, etc.) and the purpose(s) for the creation and/or continuance of the trust (i.e. estate planning, asset protection, etc.).
Before a trust company accepts a new trusteeship it should, subject to the meeting with the relevant parties involved, also consider the following points to ensure that its ongoing standards of trust administration meet the requirements set by the BMA, those being to know:
- the source of funds/wealth of the settlor;
- whether or not the parties involved are politically exposed persons;
- whether or not the parties involved are deemed domiciled in forced heirship jurisdictions or civil law jurisdictions;
- whether or not the beneficiaries/purposes of the trust are identifiable;
- whether or not the settlor has a letter of wishes;
- if it is foreseen that the trustee will need to obtain tax advice in making decisions pertaining to particular beneficiaries of the trust; and
- whether the proposed structure involves an enhanced level of monitoring of the transactions involved.
Once the trust company is confident that the parties involved have satisfied the enquiries made during a proper due diligence process, it can then consider whether the proposed structure is something that it can administer.
Knowing the settlor(s) of the trust, the beneficiaries benefiting from the trust and the assets of the trust are all equally important in determining the potential liabilities attached to the trust.
Additionally, the trust company should also pay particular attention to the clauses in the trust deed that are to govern it; in particular, it should tread carefully where there are unusual or non-standard clauses in the trust deed.
In light of the AML/ATF Regulations and the recent implementation of the Foreign Account Tax Compliance Act in the United States and the United Kingdom, it is advisable that trust companies review their internal policies and procedures on an ongoing basis to ensure that they are in compliance, as the BMA has the power to investigate trust companies to ensure that its standards of trust administration meet the prescribed requirements.
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.