The island presents a flexible, cost effective regime for the formation of PTCs, which are companies formed for the sole purpose of acting as trustee for a specific trust or a limited group of related trusts.
The recent changes and others in the regulatory space have been lauded as Bermuda recently received top marks from the Caribbean Financial Action Task Force for its anti-money laundering legislation and enforcement practices.
Bermuda can also be a home for more family offices. The recent Budget Statement highlights this as a growth area with the introduction of a new family office sector aimed at supporting “ultra-high-net-worth individuals who require a different wealth-management model to meet their estate planning objectives”.
A PTC complements a family office where trusts are used in estate planning.
A trust is established when a person transfers assets to a trustee to hold for the benefit of one or more beneficiaries or for purposes pursuant to the terms of a trust instrument. These can be trusts in the private client or family context, philanthropic, charitable, pensions or commercial trusts.
In the private client context PTCs are often utilised in an international family office structure and as part of a family’s global planning. For example, a PTC could be formed to act as the trustee of one or more private trusts that are connected to the same family but that each own shares of a single/common operating company or family business.
There are numerous advantages to using a PTC.
Family members or trusted advisers can become directors or consultants to the PTC. This provides more comfort and allows them to retain a greater level of control over trustee decisions regarding investments, appointment of delegates, distribution of trust assets and management of underlying companies. This also presents the opportunity for the next generation of family members to be involved in the trust structure and become more knowledgeable about the financial affairs of the family and foster greater succession planning.
Settlors from civil law jurisdictions may be unfamiliar with trust concepts. The combination of a trust and a PTC is similar in effect to a corporate or foundation structure.
Using a PTC makes it easier to control access to, and disclosure of, confidential information.
Many institutional trustees are unwilling to hold certain types of high-risk assets or illiquid assets and often have investment limitations and constraints. The PTC does not have similar constraints, and all the assets can be administered by a single trustee.
Succession issues, such as arise upon the death or incapacity of individual trustees, is avoided with the use of a corporate trustee.
Formation of a PTC is straightforward. Corporate, non-resident and sole directors are permitted. There are no minimum share capital requirements for a PTC and typically one can be incorporated in a matter of days.
A PTC is exempt from Bermuda’s trustee licensing requirements under the Trusts (Regulation of Trust Business) Act 2001 (the Act), provided: (a) it is not carrying on the business as a trustee, in essence, it cannot offer its services to the general public; and (b) by the terms of its memorandum of association, it is empowered to act as trustee of only a limited number of identifiable trusts.
The absence of licensing makes it easier, quicker and less expensive to make changes to directors, officers or other structural elements.
Since 2018, a framework for the supervision of relevant PTCs has been in effect under Bermuda’s proceeds of crime legislation. A PTC that does not either utilise the services of a Bermuda licensed corporate service provider or have in its structure a Bermuda licensed trustee, must register with the Bermuda Monetary Authority as a non-licensed “AML/ATF regulated financial institution”, and have appropriate anti-money laundering policies and procedures in place.
Recent changes have been made to the exemption regime for PTCs in Bermuda. Trustees (including PTCs) who are seeking to be exempted from licensing pursuant to the Act must now apply for an exemption, and in the case of PTCs declare on or before March 31 in every year that they continue to qualify for exemption.
Fortunately, the BMA has stated that it does not intend to introduce a full licensing regime or annual fee for PTCs, as is done in other jurisdictions. Instead, the changes simply allow the BMA to monitor the activities of PTCs without introducing unduly burdensome regulation.
This will ensure that Bermuda remains a competitive jurisdiction for the formation of PTCs, trust structures and family offices.
This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer