In 2018 the Bermuda courts issued several important decisions in trust cases. The Trust Law Reform Committee of the Bermuda Business Development Agency remains active and has recently proposed further legislative reform.
Among the recent reform initiatives of the committee, the amendment to the Perpetuities and Accumulations Act 2009 by the Perpetuities and Accumulations Amendment Act 2015 has resulted in significant interest among international advisers and local practitioners. It has also seen several high-value trusts redomiciling to Bermuda to take advantage of the Bermuda courts' flexibility to perpetuate trusts which were perhaps settled some time ago. The Supreme Court considered the issues raised by the 2015 amendment act in In the Matter of the G Trusts.(1)
Prior to the 2009 act, the perpetuity period under Bermuda law was 100 years. The 2009 act effectively abolished the rule against perpetuities as a matter of Bermuda law prospectively, except for trusts which held Bermuda land. Thus, in respect of trusts holding assets for ultra-high-wealth international families established on or after 1 August 2009, those trusts could be of indefinite duration, which is appealing to settlors interested in a dynastic settlement. With regard to trusts which had been established prior to 1 August 2009, there was no straightforward method to perpetuate them. The 2015 amendment act addressed this issue with an amendment to Section 4 of the 2009 act.
Section 4 now provides that the courts have clear jurisdiction to grant an order on the application of the trustee extending the duration of Bermuda law trusts which were in existence prior to 1 August 2009 (again excluding trusts of Bermuda land) or trusts governed by a foreign law (whether established prior to or after 1 August 2009). The test to be applied by the courts under Section 4 is a discretionary one.
Section 4 was first considered in Re The C Trust,(2) where Chief Justice Kawaley held that it was appropriate to grant relief under Section 4 on an ex parte application by a trustee provided that the court was comfortable that any adverse impact on beneficiaries had been properly considered. The principles which Kawaley set out in the C Trust were:
- the court should not act as a 'rubber stamp';
- the court should consider the best interests of all interested parties, broadly defined and looked at as a whole; and
- the fact that extending the duration of a trust will dilute the economic interests of existing beneficiaries will ordinarily be an irrelevant consideration.
In G Trusts, the court granted the application to extend the duration of a trust. The factors which Kawaley considered included:
- that the family whose wealth was held in the G Trust genuinely looked on wealth as dynastic; and
- that the distribution of wealth to the generation that happened to be in existence at the conclusion of the existing perpetuity period could be detrimental in a number of respects, including in terms of taxation and the resulting dissipation of the family wealth.
The case is also of considerable interest in two further respects. First, it considered whether the Bermuda Children Act 1998, which abolished the concept from Bermuda law of illegitimacy prospectively from 2004 onwards, would apply to a foreign law trust (eg, the G Trust) or instruments made under such a settlement on a change of governing law to that of Bermuda. The court held that it would not, and thus it follows that a valid restriction of the beneficial class to legitimate issue in a foreign law trust would endure on the trust becoming governed by Bermuda law. The chief justice also considered the practice of the Bermuda courts of anonymising trust cases in uncontentious cases, and held that this practice was constitutional and should continue in appropriate cases.
There have been several recent decisions regarding trust case law, the most recent of which is the important decision in In the Matter of the X Trusts,(3) where it was held that the court did not have jurisdiction to compel the directors of a private trust company to resign. However, Bermuda remains the pre-eminent offshore jurisdiction for confidential and flexible trust restructuring.
For further information on this topic please contact Keith Robinson at Carey Olsen Bermuda by telephone (+1 441 542 4500) or email ([email protected]). The Carey Olsen Bermuda website can be accessed at www.careyolsen.com.
Endnotes
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