Much has already been said about the shocking changes brought about by the Covid-19 pandemic with, understandably, a tendency to analyze the widespread negative consequences that many of us have suffered in large part due to the immense restrictions placed on our people. lives. However, against this trend, the growth of private client work abroad appears in some ways (and at least to this day) to have continued unaffected in a profoundly negative sense by this recent turmoil.
In fact, the impact of the pandemic on private customers has been the opposite: many have experienced increases in their personal wealth that have been nothing short of surprising. According to the Global Wealth Report published by Credit Suisse in June 2021, more than five million people became millionaires around the world in 2020 despite the economic damage caused by the Covid-19 pandemic. In addition, the report notes that the number of very high net worth individuals, generally defined as those with investable assets of more than $ 30 million, increased by 24% globally in 2020, the fastest rate of increase. fast since 2003.
Experience shows that generating immense personal wealth leads to increased demand for professional services such as fiduciary appointments, and the private client sector in the Cayman Islands has seen this demand increase significantly. Official statistics released by the Cayman Islands General Register in January 2021 showed that the number of new trusts registered in the jurisdiction increased in 2020. With the boom in the trust business, it is interesting to take a closer look at the number of trusts registered in the jurisdiction. types of trusts being formed. jurisdiction, and who trains them.
Trusts in the Cayman Islands
Interestingly, tax mitigation is no longer the only (or in many cases the main) reason for the creation of Cayman Islands trusts, and the reality is that the circumstances and needs of modern clients vary widely. Here are some examples of the types of trusts established in the Cayman Islands:
- Jurisdictional advisers continue to establish, on a regular basis, traditional discretionary family trusts designed primarily to help high net worth individuals structure their family wealth across generations and protect it in the future. On this front, it is very common to see a family scenario involving a matriarch or a patriarch who has formed a significant private company wishing to protect these business interests for future generations. Often times, the individual may be content to manage their own investments over the course of their life, but may be concerned about the ability of the heirs to do so after they pass away. A discretionary trust is therefore established by reserving the investment powers to the settlor during his lifetime, but on the condition that upon the death of the settlor, either a person appointed by the settlor or the trustees can assume responsibility for the investment of the fund. fiduciary and protect well in the future for the next generation.
- Asset protection trusts also remain popular in the Cayman Islands, especially for the very wealthy who consider themselves at high risk of hostile and unfounded attacks within their home jurisdiction solely because of their considerable wealth. Settlement of assets on a Cayman Islands trust serves an important asset protection function for many settlers, as long as the trust is not established with the intent to defraud creditors and the settlor does not reserve powers. unlimited to revoke the trust. Structured with care and within statutory disposition rules, a Cayman Islands discretionary family trust can be used to ensure that a settlor’s assets are not accessible to strangers and that the assets are protected in the event of family breakdown.
- Creator of the Cayman Islands statute, the STAR trust continues to be popular both in the scenarios explained above, but also for owning operating companies so as to limit the involvement of trustees in the sub-company. underlying. Discretionary trusts and STAR trusts continue to be popular in the business context, as a mechanism for conferring benefits and incentives on employees (for example, employee benefit trusts and employee stock option plans. ‘actions for employees), as a vehicle for the administration of pension funds; as a platform for investment funds allowing investors to spread risk by acquiring limited holdings in a large portfolio of investments (e.g. a mutual fund) and as an ‘orphan’ mechanism for hold assets “off balance sheet”, and in the creation of “bankruptcy” remote structures.
- Similarly, the use of âpre-IPOâ trusts, particularly for clients outside of Asia, has exploded. According to the business data platform Statista, in 2020 there were 407 initial public offerings (IPOs) in the United States – a figure almost double that of 2019. This record figure was largely influenced by the significant increase in the number of special objectives. acquisition companies (SPAC) formed during the last twelve months. Generally speaking, PSPCs can be used to raise funds through an IPO, with the proceeds then invested in a target company through a merger or acquisition. In some circumstances, STAR trusts (of which investors can be beneficiaries) have been used to hold the net proceeds of the IPO until the target company is found in order to reassure investors that their funds are sufficiently protected. and appropriately managed by a professional trustee. for the moment.
- Perhaps stemming in part from the IPO work described above, Cayman Islands structuring scholars are also seeing a significant increase in demand for trusts to hold ânew wealthâ; on this front, there is a greater need for careful, thoughtful advice on how best to manage and protect newly generated wealth so that it is not immediately wasted or lost through inexperience or mismanagement. Advisors within the jurisdiction have seen a marked increase in the number of newly created clients, many of whom did not previously require the assistance of private client advisers, now in a vulnerable position and in need of urgent assistance on this front. . It is in this scenario that the flexibility of the Cayman Islands structures is highlighted: starting with a basic discretionary trust will offer immediate protection to a new client’s estate, while allowing the ability to grow and evolve. structure as the client becomes more comfortable and better informed about their options.
- Privacy remains an important consideration for Cayman Islands clientele for a variety of reasons, including security concerns, and a large number of clients seek to establish family trusts to ensure that the true extent of their wealth is protected from harm. public disclosure. Cayman Islands trusts are usually created by a private document to which the settlor, trustees and any protector (if applicable) are the only parties. It is important to note that the trust deed does not have to be filed with a public body in the Cayman Islands and that information relating to the trust is not available to the general public. Of course, as part of global initiatives to improve tax compliance, the Cayman Islands are party to international agreements providing for both automatic exchange and exchange upon request of information from competent authorities and still is. taken into account as part of the structuring exercise.
- Finally, with many clients grappling with their mortality, Cayman Islands trusts are also increasingly being established as part of an estate planning exercise. New clients who have moved to the islands and bought real estate, boats and other valuable assets to support their new life here find it helpful to have these new assets collected in a Cayman Islands trust in order to move on. the need to pull out formalities for approval in the event of death. The assets settled in the trust are then held for the benefit of subsequent generations in accordance with the terms of the trust deed, and the death of the individual should not be detrimental to the continued operation of the trust.
As can be seen above, the variety of modern forms of trusts available in the Cayman Islands, the protections they offer, and the flexibility with which they operate, ensure that the jurisdiction continues to attract a constant flow of working trusts. in the whole world. world.
So, what future for the private wealth space in the Cayman Islands? As noted in the Global Wealth Report, the short-term consequences of the COVID-19 pandemic for wealth “have confused expectations” with personal wealth and macroeconomic indicators of wealth appearing to be “on different trajectories.” The report predicts a continued trend of growth in personal wealth, and this appears to be the trend reflected in the circumstances of the clientele attracted to the Cayman Islands. Here, the first signs indicate that growth will continue and at a steady pace, especially with immigration to the Cayman Islands becoming so popular among all of the ultra-high net worth. As a result, the trustees of Cayman Islands trusts can expect that the administration of these trusts will become more and more convenient and their mandates will expand significantly to include new lines of service. In line with these developments, the need for wealth managers, relocation specialists, private bankers, commercial and residential real estate agents, among other qualified service providers, is significant and growing sharply.
In terms of challenges, the regulatory burden on clients and trustees will undoubtedly continue to increase and trustees in particular will need to pay close attention to the ever-changing requirements associated with, for example, anti-money laundering initiatives and regulations. money relating to economic substance and beneficial ownership. An increase in customer attraction and investment in new forms of assets such as digital assets can also introduce greater volatility into traditional structures and expose everyone involved to more risk. And, as clients and their businesses recalibrate to operate in a dramatically changed global environment, Private Client Advisors can expect new, interesting and perhaps very sensitive situations to arise that require careful management. , good communication and careful thinking.
As the old saying goes, change might be the only constant in the years to come. But, having already established a culture of flexibility and robustness, the Cayman Islands private client sector continues to face a strong and vibrant future.
An original version of this article was first published by IFC Review, September 2021