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BVI Trust

18 June, 2018 By Dhruti Thakkar

The British Virgin Island, a jurisdiction that has flourished trusts sector for over 50 years since 1961. From the year of inception till today, BVI laws have twice been significantly modified by legislation designed to enhance the flexibility and utility of the trust entity as wealth management vehicle.Consisting above mentioned factors, with the feature of the low cost of establishing and maintaining BVI trust structure, have made BVI a popular choice as an offshore trust structure. This article will outline the advantages of trust, the purpose of trust and type of trusts.

What is BVI trust?

BVI trust is a legal relationship incorporated when a settlor places its assets under control of trustee to available benefits of beneficiaries or a specific purpose. Below are some of the reasons behind establishing a BVI trust:

  • In the event of death or incapacity, it can be used as an instrument of succession planning
  • To avoid tax liabilities
  • For asset protection (Example: from government interference or from exchange controls)
  • As a confidential way to hold assets
  • To hold shares in a family company
  • To circumvent forced heirship rules
  • As a vehicle for philanthropic giving
  • For the beneficiaries identity protection

Purpose of Trust

Rather than requiring identifiable beneficiaries, BVI enables trustees to hold properties on trust to carry out the purpose. Moreover, this activity cannot be classed as charitable. A trust that is incorporated must have a specific, reasonable and dedicated purpose, considering that it should not be immoral or contrary to BVI laws.

This company should have at least one trustee who is assigned as a ‘designated person’, and the trust instrument must appoint an enforcer. This enforcer should not be a trustee and must be provided with information about the trust accounts and copies of all trust deeds.

Usually, the trusts may exist up to 360 years while others, who have opted a Charitable purpose can have an infinite life The finest advantage of BVI is Office of Director rule. This rule qualifies the settlor to determine the directors of the underlying company. This provides settlor an assurance for management of the BVI entity when the director is no longer available to involve – this leads to a primary benefit for the long-term future of family businesses. The Office of Director rule also allows settlor to create a procedure for the appointment, remuneration, renewal and provide reserved director’s name (nomination of an alternative director), so that the trust company can be managed even after the death of the appointed director.

The shares of BVI trust establishment may be held at trustee level like VISTRA trust as hiring the same brings no risk, any asset located in any jurisdiction can be ultimately owned by holding BVI company (the one which is allowing for the centralization of international assets).

The Private Trust Company (PTC)

For some reason, clients don’t find it comfortable gifting their assets to an institutional trustee, despite of safeguard regulations set by BVI Financial Services Commission. These reasons include: confidentiality, trust and hiring the specialized commercial knowledgeable individual. As PTC does not require a BVI Based director, clients can consider incorporating PTC as an alternative by having known person or family member as directors of PTC, the Ultimate beneficial owner (UBO) can control of the assets whilst separating the legal ownership.

The board of the PTC makes the decision as the trustee of the trust. This Board usually comprises of mix family members and institutional director, so that family members can provide expertise and institutional director can provide administrative support.

In this way, a balance of corporate governance is maintained, and the purpose is fulfilled. The PTC -BVI company’s shares will be subjected to probate in BVI. Therefore, the beneficial owner of the shares should consider settling the shares into a trust (these shares will not have any financial value as the assets will be held in the name of trustee).

The Life Trust

If the client doesn’t require a separate and independent existence of the trust, and wishes to avoid forced heirship, they will have an option of Life Trust.

Basically, life trust is a single generation trust where the settlor is entitled to the income of the entity during its life. The assets of this type of trust will be shares of the BVI Company, therefore, the income received is from the dividend. On the settlor’s death, the assets automatically gets transferred to beneficiaries. This is a recoverable trust, so settlors can have the share back to the UBO. Also, the reminder (nominee) beneficiaries can be changed at any point of time.

This trust is an affordable and inflexible solution that is used when there is no concern with the assets passing through generations. Either because they are of sufficient financial maturity or the value of the assets does not warrant a substantial trust.

The discretionary trust

For those who didn’t want to use trust provider legislation (like VISTRA) or a PTC, can set up a standard BVI trust with discretionary dispositive powers. As this type of trust holders would not like to go for VISTRA services, its responsibilities increase along with its cost. This type of trust is suitable for settlor who wants the professional trustee to hold and manage the assets for the lifetime duration of the trust. This leads to providing the beneficiaries financial benefit as the settlor originally intended.

Such type of trusts on one side are the most flexible but on the other side can be the most complex, however, can provide tax benefits and succession planning.

 

This is just a small introduction to the various type of trusts and associated structure in BVI with some of the advantages. However, the best type can only be suggested by N. R. Doshi and Partners according to client’s requirements. If you like to obtain further information or recommendation, feel free to contact N. R. Doshi and Partners at incorporate@nrdoshi.ae .

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