Under most jurisdictions, unless a trust is established for charitable purposes, the assets require to be held for a specific beneficiary or class of beneficiaries. However, it is possible in the BVI to establish a trust for non-charitable purposes. Such trusts are commonly referred to as 'purpose trusts'.
In order for a non-charitable purpose trust to be valid, the following conditions must be satisfied:
- the purpose(s) must be specific, reasonable and possible
- the purpose(s) cannot be immoral, unlawful or contrary to public policy
- at least one trustee must be a 'Designated Person'
- the trust instrument must appoint an 'Enforcer' who cannot also be a trustee
At least one of the trustees must be a 'Designated Person'. Broadly, a designated person is a barrister/solicitor/account practicing in the BVI, a licensee (ie a BVI trust company) or a BVI Private Trust Company (PTC). Click here for more information on PTCs.
The designated person must keep a documentary record of the following in the BVI:
- the terms of the trust
- the identity of the Enforcer and any other trustees
- all settlements of property on the trust and the identity of the settlor
- the trust accounts
- all distributions or applications of trust property
The Enforcer has both the duty and the power to enforce that the trustees administer the trust properly in furtherance of the purposes set out in the trust deed.
The Enforcer can be an individual or corporate entity and there is no requirement that the Enforcer be located in the BVI. The Enforcer cannot, however, also be a trustee.
The Enforcer is entitled to see the following documents:
- the trust accounts
- the trust deeds
- legal and professional advice received by the trustees
Purpose trusts are exempt from the rules against perpetuities and so can endure indefinitely (provided the purposes remain valid as set out above). However, the trust deed may specify a date or event on which the trust will cease, and set out how the trust assets will be disposed of on that date or event.
Purpose trusts are frequently used:
- to further purposes, which, although generally accepted as philanthropic are not charitable in strict terms (for example, promoting a political agenda)
- in commercial transactions, for example to isolate assets from a larger transaction, or as a special purpose vehicle for conducting an off balance sheet transaction
- to hold shares in a PTC. This avoids the need to obtain a grant of probate from the BVI court (which can be time consuming and is a public court process) which would be necessary on the death of a shareholder. Purpose trusts are often drafted to meet the criteria to fall within the VISTA regime. Click here for more information on VISTA Trusts.
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.