Bermuda is a popular and highly regarded jurisdiction for managing the offshore family assets of wealthy, international families due to several favourable characteristics. As a high-quality international financial centre, Bermuda is well-versed in investment matters, wealth management, trust structuring and philanthropy. Despite its relatively small size, it has an abundance of highly qualified professionals with a breadth of experience and expertise in complementary areas which makes it a suitable jurisdiction for family offices.
Bermuda also offers specialised services of interest to many high net worth families, such as aircraft and yacht registrations. As the world's largest offshore insurance and reinsurance market, Bermuda has particular expertise in risk management, which is a significant part of the wealth management equation for families with substantial assets. Additionally, its legal system is based on that of England, with final appeal to the Judicial Committee of the Privy Council in the UK, which is favourably regarded by wealthy families and their advisors from around the globe.
Bermuda is a particularly well-regarded trusts jurisdiction that offers innovative and bespoke trust structures suitable for a wide range of situations and purposes. Bermuda-based trusts are ideal for wealth management and estate planning and can allow the international family to hold various assets across multiple jurisdictions.
Bermuda was the first offshore jurisdiction to introduce legislation to provide for non-charitable purpose trusts. The legislation allows for the creation of a trust for specific purposes, whether charitable or not, rather than for specific persons (but otherwise generally has the usual elements of a trust). The purposes must be sufficiently certain to be carried out, lawful and not against public policy. Bermuda purpose trusts are a popular vehicle for those looking to promote philanthropic purposes or to perform a specific activity, such as owning the shares of a private trust company (PTC).
A Bermuda PTC is established specifically to act as trustee for one trust or a group of related trusts. A PTC is often used for trusts established for the benefit of a particular family, as the PTC structure offers a host of benefits. Such benefits include the ability for family members or trusted advisers to be involved in the decision-making process by being on the board of the PTC, integration with a family office and the streamlining of administration.
Bermuda legislation has had strong 'firewall' provisions in place for trusts for many years. In 2020, Bermuda amended its legislation − the Trusts (Special Provisions) Act 1989 − to modernise its firewall provisions. Firewall provisions are a key feature of trust law because they protect trust assets from attacks based on orders of a foreign court under foreign law. The amendments to the legislation included clarifying the jurisdiction of the Supreme Court of Bermuda in respect of Bermuda trusts and foreign trusts with a connection to Bermuda and enhancing and modernising provisions relating to the application of foreign laws and foreign orders to Bermuda trusts.
Other key features of Bermuda's trust law are those providing for settlor-reserved powers and for a statutory 'Hastings-Bass' rule. As regards the former, the legislation provides statutory confirmation of the settlor's right to reserve or grant powers without compromising the validity of the trust structure or causing the trust property to become part of the settlor's estate. Some examples of such powers include a power to vary or amend the terms of a trust in whole or in part, a power to appoint or remove trustees and a power to give directions in connection with investments. The legislation makes it clear that trustees will not be in breach of their fiduciary duties for complying with the valid exercise of the powers specified in the legislation and no person, unless formally appointed as a trustee, will be deemed to be a trustee by virtue only of the reservation or grant of any of the powers specified in the legislation. As regards the latter, Bermuda legislation gives the court statutory jurisdiction, in certain defined circumstances, to remedy the negative effects or unintended consequences of acts or omissions made by settlors, trustees or other fiduciaries (most commonly known as the 'Rule in Hastings-Bass'). The effect of an order under the legislation is to set aside the exercise of the power and treat it as never having occurred. It is not necessary to show a breach of trust or duty in order for the Bermuda court to exercise its jurisdiction. Those who can make these types of application include the power-holder, trustees, beneficiaries, the Attorney General (where there is a charitable element) and any other person with leave of the court.
Another example of Bermuda's flexible trust laws is its unique provision that gives the Bermuda court jurisdiction to approve re-organisations of Bermuda law trusts. Section 47 (of the Trustee Act 1975) provides wide powers to restructure trusts by empowering the Bermuda court to vary beneficial interests and trustees' administrative powers under a trust where it is 'expedient' and for the benefit of the trust as a whole to do so. This is a flexible and broad power, with the unique element being that beneficiary consent is not required. Section 47 applications are typically heard 'in camera', meaning that the privacy of the parties and confidentiality of the proceedings are maintained, as the Court records are sealed.
All these elements of Bermuda's trust laws highlight that Bermuda retains its position as a global leader in the international private client and trusts sector. These, combined with Bermuda's proximity to the US and the UK, makes it an ideal location for family wealth management.
This article was originally published in the 2023-2024 edition of the Bermuda Business Review.
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