US economist Nouriel Roubini iterates that geopolitical issues are becoming more important "because how can you understand the economy if you don't understand geopolitics?" He believes that those who think that economists deal solely with spreadsheets and charts are making a narrow-minded caricature. Similarly, those who think that private client practitioners simply deal with deeds and legislation may not appreciate how practitioners require a solid grasp of geopolitics in order to effectively advise international families.
Impact of geopolitical factors on estate planning
Sharp economic, political, legal and technological shifts may be the new global norm. Uncertainty over Hong Kong's future, tensions between the United States and China, the economic stagnation of Europe and the continued equivocation over Brexit, ongoing instability in the Middle East, the expropriation of citizens' assets and kidnappings throughout many Latin American and African jurisdictions and Russia and a rise in populism worldwide can contribute to movements of capital away from the jurisdictions with which the risks (real or perceived) are associated. High-net-worth families are increasingly seeking to establish or redomicile trusts and structures to politically, economically and socially stable tax neutral jurisdictions that are reputable and geographically well situated. Although the number of jurisdictions that meet these criteria may be dwindling, Bermuda has a long history of legal, political and social stability.
Sanctuary from geopolitical risk
Bermuda is the United Kingdom's oldest self-governing overseas territory. The Bermuda Supreme Court had its first recorded sitting in 1616. Bermuda law remains the law of England (including the doctrines of equity), which was extended to Bermuda on 11 July 1612, as amended from time to time. Bermuda's Parliament is the third-oldest continuously sitting parliament in the world, having first sat in 1620. Bermuda's final court of appeal is the Privy Council in London. These qualities and history provide a high degree of confidence to those who have their wealth managed from Bermuda.
Geographically, Bermuda is situated in the North Atlantic Ocean, not in the Caribbean, and has direct flights to London, Toronto and numerous northeast US cities, including New York and Miami. Bermuda is an ideal place for families with members situated in different jurisdictions to converge.
Bermuda has carefully introduced laws to implement the Foreign Account Tax Compliant Act, the Common Reporting Standard and a central private beneficial ownership register and continues to refine its economic substance requirements to provide outcomes that balance addressing international concerns with respecting the privacy of legally compliant families and structures. Bermuda trust law also continues to evolve sensibly, providing certainty and flexibility.
Examples of pragmatism in Bermuda trust law
Reserved powers Bermuda's reserved powers legislation, introduced in 2014 by Section 2A of the Trusts (Special Provisions) 1989, provides settlors who wish to reserve for themselves or grant to third parties one or more powers under a Bermuda law trust instrument the certainty that the Bermuda courts will not as a consequence regard the trust as invalid or the trust property as forming part of the settlor's estate.
Hastings Bass legislation Section 47A of the Trustee Act 1975, introduced in 2014, provides the Bermuda courts the discretion to set aside flawed exercises of fiduciary powers that resulted in serious fiscal or other adverse consequences provided that certain conditions are satisfied. Section 47A thereby preserves the position developed from Re Hastings Bass, which was overturned in the United Kingdom in 2013 by the Supreme Court's decisions in Pitt v Holt and Futter v Futter.
Section 47 trust variations Section 47 of the Trustee Act is a statutory jurisdiction to grant power to trustees to vary a trust's terms. This has proven particularly useful where trusts, often established many years ago, contain rigid provisions with no or limited powers of amendment. In numerous decisions dating back to 2011, the Bermuda courts have demonstrated that Section 47 enables administrative and dispositive powers and provisions of trusts to be modified, without many of the formalities required in other jurisdictions. Section 47 thereby enables the trustees and beneficiaries of Bermuda trusts to adapt efficiently to changing circumstances.
Perpetuities and dynastic trusts In his book Homo Deus: A Brief History of Tomorrow, Yuval Noah Harari remarks on humanity's recent success in reining in famine, plague and even war, and the consequent increase in life expectancy. Harari believes that humans will now harness their immense new powers in genetic engineering, regenerative medicine and nanotechnology to make a serious bid for immortality. Such developments may have a huge influence on estate planning, business succession and structuring.
At common law, trusts cannot exist indefinitely. Bermuda's Perpetuities and Accumulations Act 2009 abolished perpetuity restrictions for new trusts (except over Bermuda real property). Amendments in 2015 streamlined the court procedure for disapplying perpetuity periods of existing trusts. Most jurisdictions' trust legislation has retained some form of perpetuity period. As is the experience with Section 47 of the Trustee Act, there are numerous instances where a trust's governing law has been changed to Bermuda law with the intention of applying to extend or disapply the trust's perpetuity periods.
Confidentiality In the United Kingdom, a recent trend towards transparency in trust matters has rendered it difficult to invoke the courts' jurisdiction without sensitive information about the financial affairs of a trust and its beneficiaries being made public. In contrast, the Bermuda courts regularly affirm the continuing importance of privacy of internal trust affairs. As Kawaley CJ reiterated in Re G Trust:
Persons administering, interested in or settling Bermuda trusts should rest assured that this Court's firmly established practice of making confidentiality orders in appropriate cases, which is merely designed to enable law-abiding citizens to peacefully enjoy their actual and contingent property rights, has a venerable legal basis.
STEP Bermuda In addition, Bermuda has an active Society of Trust and Estate Practitioners (STEP) membership, as evidenced by the successful STEP Bermuda Conference Trust in the Future: Keeping Step with Changes, which was held in December 2019 and explored the impact of geopolitical uncertainty on international families. STEP Bermuda regularly hosts sessions and acts as a think tank which enables more junior trust practitioners to explore core trust concepts and issues with more senior trust practitioners.
An earlier version of this article was published in the Bermuda Business Review in December 2019.
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