Introduction
Our Private Capital & Trusts team has enjoyed hosting their ongoing series, Let’s Talk Trusts: Walkers Roundtable Discussions. This series fosters discussions on key principles shaping trust law in the Cayman Islands. These interactive sessions explore recent case law, legislative updates, and best practices that impact trustees, beneficiaries, and advisors alike.
From the flexibility of discretionary trusts to the evolving landscape of beneficiary rights and trustee transitions, each discussion has provided invaluable insights into the complexities of trust structuring and administration.
Below you’ll find key takeaways from some of our best sessions.
Which trust structure is best for you?
Trust structures offer varying levels of flexibility and control, making it essential to choose the right fit for your wealth planning needs. Discretionary trusts provide trustees with broad decision-making powers over beneficiaries, distributions, and timing. Since discretionary beneficiaries do not have absolute entitlements to trust property, these trusts can also offer tax efficiencies in their home jurisdictions. Letters of wishes, while not legally binding, serve as valuable guidance for trustees. A key legal development in Grand View Private Trust Co Ltd v Wong & Ors. confirmed that letters prepared at the time a trust is established play a critical role in determining the trust’s purpose. However, uncertainty remains around the legal standing of conflicting letters that are signed at a later date.
For those seeking certainty, fixed interest trusts guarantee beneficiaries' entitlements, often structuring distributions for long-term family planning—such as life interest trusts, which provide for a spouse during their lifetime and children thereafter.
Traditionally, excessive settlor control would render a trust invalid, but Cayman law takes a different approach. The jurisdiction was the first offshore centre to introduce reserved powers legislation, allowing settlors to retain (or grant to third parties) certain rights without affecting the trust’s validity. While this provides additional flexibility, it remains crucial to seek legal and tax advice in the settlor’s home jurisdiction to avoid unintended consequences.
For unique structuring needs, Cayman’s STAR trusts allow trusts to be created for individuals, specific purposes, or both, with enforcement rights vested solely in an appointed enforcer. These trusts are particularly useful for protecting assets from contentious beneficiaries or ensuring philanthropic goals are met without interference.
Power of information: Who holds the keys in a trust?
Access to trust information depends on the trust structure. Beneficiaries of fixed interest trusts have a clear right to information, as their entitlements are explicitly defined in the trust deed. However, the position for discretionary beneficiaries is less certain, with no statutory framework in the Cayman Islands governing disclosure. The Schmidt v Rosewood Trust Ltd ruling confirmed that trustees have a fiduciary duty to keep beneficiaries informed and that courts can intervene to supervise trust administration.
Before disclosing information, trustees should carefully consider the potential for misuse, competing beneficiary interests, and their obligations under confidentiality laws. To balance transparency with discretion, trustees may seek beneficiary consent, provide redacted documents, or request formal undertakings to prevent misuse. Ultimately, the courts remain an option for trustees seeking legal clarity under section 48 of the Trusts Act. Regardless of the decision, proper documentation of the rationale for disclosure or non-disclosure is essential.
Best practices for trustee transitions
When a change of trustee occurs, following the correct procedure as set out in the trust deed is critical. Ensuring all required notices and consents are obtained is essential to establishing a seamless transition. The outgoing trustee must also transfer all trust assets to the new trustee efficiently. While some assets vest automatically pursuant to the deed of retirement and appointment of new trustee, (commonly known as a ‘DORA’), others, such as shares and real estate, require additional steps to ensure proper transfer.
A comprehensive review of trust records before acceptance is equally important for incoming trustees, allowing them to identify and address any potential issues early on. Negotiating indemnities is another key consideration, as well-structured agreements help protect all parties while avoiding excessive limitations or unnecessary chains of liability. Given the complexity and risks involved, legal guidance is highly recommended to safeguard the transition process and ensure all legal requirements are met.
Conclusion
As the trust landscape continues to evolve, trustees should remain mindful of the importance of proper governance, beneficiaries’ rights, and careful trustee transitions. These roundtable discussions allow attendees to stay ahead of developments, dissect emerging case law, and refine best practices to support our clients effectively.
Our Private Capital & Trusts team is committed to providing practical, commercially sound advice on all aspects of trust structuring and administration.
For further guidance, please reach out to our team.
