Bermuda's Trusts (Special Provisions) Amendment Act 2014 (Amendment Act 2014), now operative, provides clarity and certainty to the powers which can be reserved by settlors or granted to third parties over a trust.
Whereas section 2(3) of the Trusts (Special Provisions) Act 1989 (1989 Act) includes a general provision which allows settlors to reserve a wide variety of powers over a trust, the Amendment Act 2014 adds certainty by including specific provisions which enable settlors to reserve or grant an extensive range of powers while retaining the legal validity of the trust.
Reserved or Granted Powers
The 1989 Act is amended by (i) clarifying that the general provision on the reservation of settlors' rights and powers pursuant to section 2(3) also extends to the grant by the Settlor of such rights and powers to other persons and by (ii) inserting a new section 2A which provides that the reservation by the Settlor to himself or grant to any other person in a Bermuda trust of any limited beneficial interests and/or any of the powers listed in the Amendment Act 2014, shall not invalidate the trust or prevent the trust taking effect according to its terms, or cause the trust assets to form part of the Settlor's estate for probate purposes.
The powers that can be reserved or granted as listed in the Amendment Act 2014 include the following:
(a) (in the case of a reservation to the settlor or other donor of trust property) a power to revoke the trust in whole or in part;
(b) a power to vary or amend the terms of a trust instrument or any of the trusts, purposes or powers arising thereunder in whole or in part;
(c) a power to decide on or give directions to advance, appoint, pay, apply, distribute or transfer the trust property;
(d) a power to act as, or give directions as to the appointment or removal of directors or officers of companies owned by the trust, or to direct the trustees how to exercise voting rights with respect to the shares of such companies;
(e) a power to give directions in connection with investments or the exercise of any powers or rights arising from such trust property;
(f) a power to appoint, add, remove or replace any trustee, protector, enforcer or other office holder or advisor;
(g) a power to add, remove or exclude any beneficiary, class of beneficiaries or purpose;
(h) a power to change the governing law and the forum for administration of the trust; and
(i) a power to restrict the exercise of any powers, discretions or functions of a trustee by requiring that they shall only be exercisable with the consent, or at the direction, of a person or the persons specified in the trust instrument.
The Amendment Act 2014 should be welcome news to settlors and trustees alike. It absolves a trustee who has acted or refrained from acting in compliance with or as a result of a valid exercise of any of the powers referred to above, from any liability for breach of trust or other fiduciary or equitable duty.
Further, in the event that a trustee has been prevented from acting in accordance with the powers referred to above, or any exercise of those powers by reason of applicable law or insufficient rights or powers in relation to the trust property, the Amendment Act 2014 provides that the trustee shall not by reason alone of such non-compliance or failure to act, commit a breach of trust or other fiduciary or equitable duty.
Personal and Non-Fiduciary Powers
The Amendment Act 2014 provides that the grant or reservation of the powers listed above do not make the power holder a trustee unless they are formally appointed as such. In addition, a unique provision of the Amendment Act 2014 is that it includes statutory default provisions addressing the fiduciary or non-fiduciary nature of certain powers where the trust instrument is silent. In the absence of any contrary provision in a trust instrument created after the commencement date of the Amendment Act 2014, all such powers granted (or reserved) are presumed to be personal and non-fiduciary in nature, unless the power holder is the sole trustee.
Another unique feature of the Amendment Act 2014 is that where a power holder who is not the sole trustee has a general power of appointment, revocation, or has a present beneficial interest in all or part of the trust property, the trust instrument may provide that the trustee only owes duties to that power holder and to no other person. This provision will undoubtedly have interesting and useful implications where it may be desirable to restrict the disclosure of certain sensitive information to parties the trustee owes no duties to.
Meaning of Settlor
For the purposes of the Amendment Act 2014, "settlor" means and includes:
(a) a testator who grants powers under a testamentary trust; and
(b) a person who by a declaration of trust declares that assets held by him beneficially shall be held by him in trust.
Application of the Amendment Act 2014
The Amendment Act 2014 has application for any trusts governed by the laws of Bermuda, whether created before or after the commencement date of the Amendment Act 2014, and to acts and omissions occurring while the trust was governed by the laws of Bermuda.
The passing of the Amendment Act 2014 follows the culmination of extensive consultation with top industry experts in the trust field. These welcome amendments to the 1989 Act reflect Bermuda's commitment to providing clarity and certainty to its trust laws and to encouraging new business which is critical to Bermuda's economy.
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.