Since 1998, the Cayman Islands have had enacted trust law provision, as now contained in Part III of the Trusts Law (2020 Revision), which avoid the risks of a trust being declared an "invalid testamentary disposition" or otherwise invalid as a result of the settlor retaining too much control.
What powers may be reserved?
The provisions create a rebuttable presumption, in construing any trust instrument which is not expressed to be a will, testament or codicil, that such trust instrument has immediate effect. The provisions then list a number of specific powers, the reservation or grant of any or all of which will not invalidate the trust or affect the presumption of lifetime effect. These include:
- Power to revoke, vary or amend the trust instrument;
- Power of appointment of income or capital or both;
- Any limited beneficial interest in the trust property;
- Power to act as a director of officer of any company owned by the trust;
- Power to give the trustee binding directions in relation to the investment of the trust property;
- Power to appoint, add or remove any trustee, protector or beneficiary;
- Power to change the governing law and forum for administration; and
- Power to require the trustee to obtain consent before exercising a power.
The provisions further provide a statutory exculpation such that a trustee who complies with a valid exercise of any of the reserved powers will not be in breach of trust.
Trusts covered by the provisions
The provisions apply to all trusts created after 11 May 1998 and it is also possible for the trustee of a trust existing prior to that date to extend the application of the provisions to such trust by deed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.