A Trust established under the Special Trust (Alternative Regime) Act 1997, is a form of legal trust for the benefit of persons, purposes (charitable and non-charitable) or both.
STAR Trusts have an Enforcer, which executes the STAR Trust, and causes a separation between benefitting from Trust assets and being responsible for the application of the Trust.
As for trustees, it is required to appoint at least one licensed in the Cayman Islands.
STAR Trusts can be established for an unlimited period of time, and are an effective way to create private perpetual family trusts.
They are also commonly used as Trustees of a Private Trust Company. The STAR Trust is established to hold shares in a Cayman Islands Private Trust Company, assuring that it performs its role as trustee of a trust or series of related trusts.
This structure can be used even when the trusts are not all within the same jurisdiction. For instance, a single STAR Trust may own shares in a Private trust company, and it may act as a trustee in the Cayman Islands or in other jurisdictions.
It is also common for a business owner to use a STAR Trust to run a family business, making sure the business continues to operate after the owner’s death. The STAR Trust may be the holder of such shares for the purpose of allowing directors to continue to manage the business for a designated period of time.
STAR Trusts also serve as a vehicle for limiting the information that beneficiaries can access. Unlike ordinary trusts, where beneficiaries may have the right to access a great deal of information in connection with the trust. With a properly drafted STAR trust, those rights may be restricted or even eliminated. The execution of the trust and rights associated with the information are held by the Enforcer.
STAR Trusts are often used as an SPV (Special purpose vehicle) in structured finance and other transactions. They allow the structuring of off-balance/bankrupt transactions, since the STAR Trust entity may not be connected to the original parties of the transaction.
In addition, STAR Trusts provide flexibility to carry out philanthropic donations, where the settlor’s requirements are outside Cayman Islands’ limited definition of what is and is not charitable.
Country code – KY
Legal basis – Common law
Legal framework – Special Trusts (Alternative Regime) Law, 1997, (Part VIII of the Trusts Law)
Formal name – STAR Trust
Restrictions - A STAR trust may not hold land in the Cayman Islands but may hold an interest in a company, partnership or other entity which does.
Settlor – The settlor is the person who establishes and whose assets are put into the trust. The settlor of a STAR Trust in the Cayman Islands, may also be the beneficiary of those assets and may, subject to certain provisions, retain control of the trust. There is no protection from a subsequent settlor’s bankruptcy after assets are gifted to the trust.
Trustee – Trustees are natural or legal persons who hold the title to the assets and manage the trust, but they cannot benefit from it.
At least one trustee of a STAR trust must be a trust company licensed to conduct trust business in the Cayman Islands or a private trust company registered in the Cayman Islands. Corporate Trustees may operate by resolution or through resolutions of the board of directors and may exercise the power to appoint officers to act on its behalf.
Beneficiaries – Beneficiaries are those who get benefit from the trust.
The beneficiaries and/or objects may be persons, purposes or both. There may be any number of beneficiaries and any number of objects, whether charitable or not, provided that such purposes/objects are lawful and not contrary to public policy.
A beneficiary of a STAR trust has no right to information about the trust, nor to bring proceedings against the trustee concerning the administration of the trust. However, there is no restriction on a beneficiary taking on the office of enforcer.
There are specific provisions to prevent beneficiaries from draining the trust of its assets and spending in a thrifty way. International Trusts allows avoiding both probate and forced heirship rules.
Enforcer – STAR trusts must have an Enforcer. The Enforcer is the only person (natural person or corporate entity) with standing to enforce the terms of the STAR trust.
Trust deed – The private document on which the trust is drafted is not needed to be filed with the Registrar.
Disclosure - There is no requirement to register a STAR trust with the regulatory authorities in the Cayman Islands, so confidentiality is preserved. All trust deeds are exempt from registration. Therefore, the details of a STAR trust will remain confidential, subject only to disclosure as may be required by an order of the Cayman Islands courts, or under a Tax Information Exchange Agreement, properly invoked in accordance with its terms.
Protection from foreign judgements – The law is unclear regarding ignoring and not enforcing foreign judgments. The Hague Convention on Trusts does not apply in the Cayman Islands.
Protection from creditors – The Trust law repeals the Statute of Elizabeth, so transfers by the settlor to the trust may not be set aside if the settlor transferred the property before the debt arose. The creditor must prove the fraudulent transfer of assets to the trust, of which its definition is not clear in the law. Creditor claims are separated and cannot be brought jointly. If a fraudulent transfer is proven, trust may be declared invalid. There is a statue of limitations of 6 years on the fraudulent transfer.
Protection for immigrant trusts – Trusts that migrate from other jurisdictions do not benefit from retroactive protection.
Community property – Community properties transferred to a Cayman STAR Trust may not retain its community property character.
Exclusion of foreign law – There are limited specific exclusions in the legislation to be able to exclude foreign law.
Choice of law – The choice of law of Cayman Islands to govern the trust or a particular aspect of that trust, is valid, effective and conclusive regardless of any other circumstances.
Duration - STAR trusts are not subject to the rule against perpetuities, which makes it possible to have a STAR trust which has an unlimited life.
Compliance – The trustee of a STAR trust is also required to keep, in its Cayman Islands office, a documentary record of the terms of the trust, the identity of the trustee and the enforcer(s), all settlements of the property upon trust and the identity of the settlor(s), the property subject to the trust at the end of each of its accounting years, and all distributions or applications of the trust property.
- Settlor as a beneficiary
- Bankruptcy protection
- Ignore foreign judgements
- Hague convention on trusts
- Choice of law is binding
- Protection from immigrant trusts
- Community property provisions
- Custodian trustee permitted
- Rule against perpetuities (years)
- Limited Specific exclusion of foreign law
- Subject to CL rules Settlor can retain control
Protection of Settlor
Protection from foreign judgements
- Avoidance of forced heirship
- Spendthrift provisions
- Exclusion of Statute of Elizabeth laws
- Trust invalid if transfer fraudulent
- Creditor must prove fraudulent transfer
- Clear definition of fraudulent transfers
- Separation of creditor claims
- Statutory limitation on fraudulent transfer
Protection of Beneficiary
A trust established in the Cayman Islands may not be subject to local taxes applicable to the assets and income of the trust.
It must be noted that the choice of law of the trust would not be applicable to tax matters, which would be governed by the respective jurisdiction where the settlor, beneficiaries, assets or trustee are located, as applicable.
You should consult with your tax advisor or accountant to know the tax implications in your jurisdiction of residence when establishing a trust in Cayman Islands, transfer assets to it and receive profits from said assets.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- - Offshore Income Tax Rate
- - Corporate Tax Rate
- 0% Capital Gains Tax Rate
- 0% Dividends Received
- 0% Dividends Withholding Tax Rate
- 0% Interests Withholding Tax Rate
- 0% Royalties Withholding Tax Rate
- 0 Losses carryback (years)
- 0 Losses carryforward (years)
- 0% Personal Income Tax Rate
- 0% VAT Rate
- 0 Tax Treaties
The Cayman Islands is a British Overseas Territory dependent on the United Kingdom and located northwest of Jamaica between the island of Cuba and the coast of Honduras in the waters of the Caribbean Sea. The Cayman Islands is a member of the CARICOM single market.
The 264-square-kilometer (102-square-mile) territory comprises three islands, Grand Cayman, Cayman Brac and Little Cayman, where about 69,000 people live, 55,000 of which live in its capital, George Town (Grand Cayman).
Its official currency is the Cayman Islands Dollar (KYD), pegged to the US dollar at a 1,227:1 ratio.
The Cayman Islands are a British overseas territory, designated by the UN Decolonization Committee as one of the last Non-Self-Governing Territories. The fifteen representatives who compose the Legislative Assembly are elected by the people every four years, they are in charge of managing the internal affairs. Of the elected members of the Legislative Assembly, five are elected to serve as ministers in a Cabinet headed by the Governor. The head of government is the Prime Minister.
The governor is appointed by the King/Queen of the United Kingdom on the advice of the British Government to represent the monarch.
The Cayman Islands has a solid economy, with one of the highest per capita income worldwide. Being also one of the most expensive places to live, since most products are imported and are subject to high tariffs.
Its main sectors are luxury tourism for its pristine beaches, scuba diving and high-end gastronomy, and offshore financial and insurance services, with hundreds of licensed banks, which handle about $500 billion in assets.
The Cayman Islands is one of the 5 largest financial centers in the world by deposits and the world’s largest financial center for investment funds, with the presence of the global largest financial institutions.
Main financial services available in the territory are private banking, hedge fund formation, and investment, trust services, structured finance and securitization, captive insurance, and international business company services.
Please, contact us to request a free, no obligation consultation.