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Trust Law/Level VI · Protection/6.2 Offshore/Lesson 5

Purpose trusts and the VISTA and STAR regimes

Why English law generally refuses non-charitable purpose trusts, and how the Cayman STAR and BVI VISTA statutes created exceptions for holding assets and company shares.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. For a small US purpose, a non-charitable purpose trust under UTC §409 can sit inside a will, enforced by a person the terms name or a court appoints. Catch: property beyond what the purpose needs goes back to the settlor or their successors.
  2. Where public benefit is the aim, a charitable trust is the cheapest purpose trust, enforceable in England by the Attorney General. Catch: English law voids most non-charitable purpose trusts (Re Endacott, 1960).
  3. Cayman STAR trusts suit only large structures: they need a Cayman-licensed trust corporation as trustee and an enforcer with standing. Catch: US persons connected to one still file Forms 3520 and 3520-A and FBAR where they apply.
  4. To keep a family company run by its own directors, BVI VISTA (in force 1 March 2004) removes the Bartlett v Barclays duty to monitor and intervene. Catch: VISTA trusts hold only BVI company shares, and tax reporting continues.

MaterialsLesson 3.2.7, on pet trusts, for the old exceptions to the beneficiary principleA guide to Part VIII of the Cayman Islands Trusts Act (the STAR regime) from a law firm or official sourceA guide to the BVI Virgin Islands Special Trusts Act 2003 (VISTA)Lesson 1.3.4, on the three certainties

Wonder

  1. Why does English law usually insist that a private trust have a person who can enforce it?
  2. Who holds the trustee to account when a trust exists for a purpose rather than for people?
  3. Why would a trustee that holds a family company’s shares want to stay out of running it?

Explore

  1. In English law, a private trust generally needs a beneficiary who can go to court to enforce it; this is the beneficiary principle. Charitable trusts are the main exception, because the Attorney General can enforce them. In Re Endacott [1960] Ch 232, the Court of Appeal held invalid a gift to a parish council ‘for the purpose of providing some useful memorial to myself’, and refused to extend the few old exceptions, such as trusts for particular animals or tombs (lesson 3.2.7). In the US, the Uniform Trust Code allows some non-charitable purpose trusts, with limits.
  2. Several offshore jurisdictions changed the rule by statute. Bermuda allowed non-charitable purpose trusts in its Trusts (Special Provisions) Act 1989. The Cayman Islands introduced the Special Trusts (Alternative Regime) Law in 1997, creating STAR trusts; the rules are now in Part VIII of the Trusts Act. A STAR trust applies only if its trust instrument says so, and its objects may be persons, purposes or both. At least one trustee must be a Cayman-licensed trust corporation.
  3. In a STAR trust, the right to benefit is separated from the right to enforce. Only an enforcer, named in the trust instrument or appointed by the court, has standing to enforce it; beneficiaries do not, unless they are also enforcers. Unless a beneficiary of full capacity is an enforcer with a right to enforce, there must be an enforcer under a duty to enforce. An enforcer is different from a protector, though one person may hold both roles. Practitioner guides note that STAR trusts are not subject to the 150-year limit that applies to other Cayman trusts.
  4. The British Virgin Islands took a different approach with the Virgin Islands Special Trusts Act 2003, in force 1 March 2004. A VISTA trust holds shares in one or more BVI companies, and the trustee’s duty is to keep those shares rather than to maximise their value. VISTA is mainly aimed at the rule in Bartlett v Barclays Bank Trust Co [1980] Ch 515, under which a trustee with a controlling shareholding must monitor the company and intervene when needed. Under VISTA, management is left to the company’s directors, and the trustee intervenes only in circumstances the trust instrument specifies.
  5. A VISTA trust may be for beneficiaries or for purposes; a purpose trust under BVI law needs an enforcer, but a VISTA trust for beneficiaries does not. Uses described in practitioner guides include holding family company shares so that founders’ chosen directors keep running the business, and holding shares in ‘orphan’ companies that no commercial party owns (lesson 6.2.6). Commentators note that these specialised trusts are less often used for their original family purpose than their designers expected.
  6. These regimes are statutory exceptions and work only on their own terms. A trust that fails to meet the statute’s requirements can fall back on the general law, and in England a non-charitable purpose trust would usually fail. Tax and reporting rules still apply to anyone connected to the trust (lesson 6.2.4). Drafting and administration costs vary widely by place and adviser. This lesson explains how the STAR and VISTA regimes work; it does not suggest using one.

Key facts

  • In Re Endacott [1960] Ch 232, the Court of Appeal held a non-charitable purpose trust invalid and refused to extend the old exceptions.
  • Cayman STAR trusts were created by the Special Trusts (Alternative Regime) Law 1997, now Part VIII of the Trusts Act.
  • In a STAR trust, only the enforcer has standing to enforce; beneficiaries do not unless they are also enforcers.
  • The BVI Virgin Islands Special Trusts Act was enacted in 2003 and came into force on 1 March 2004.
  • VISTA trusts hold shares in BVI companies and remove the Bartlett v Barclays duty of a trustee to monitor and intervene in the company.
  • Bermuda allowed non-charitable purpose trusts by statute in its Trusts (Special Provisions) Act 1989.

Exercise nine, six, three, one

9CollectList up to 9 features of a STAR or VISTA trust described in this lesson or a law firm guide you are reading (some lists are shorter), such as what it may hold, who enforces it, who runs the company and how long it may last.
6ClusterSort them into 6 categories: what the trust may hold, objects, enforcement, the trustee’s duties, duration, and facts you are unsure about.
3DistillReduce the 6 categories to 3 groups: features found only in STAR, features found only in VISTA, and features both share.
1CrystallizeWrite 1 sentence explaining, in your own words, why a trust with no beneficiary needs someone like an enforcer.

Fact check

Dates, figures and claims checked against the published sources listed below.

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