Cayman Islands

The Cayman Islands has established itself as one of the leading international jurisdictions for the establishment and administration of offshore trusts. The jurisdiction’s trust law, based on English common law principles and augmented by local statutes, provides a modern and flexible legal environment for both personal and commercial trust arrangements. Cayman trusts are widely used for wealth preservation, estate planning, asset protection, philanthropy, and investment structuring.

The primary legislation governing trusts in the Cayman Islands includes the Trusts Act (2021 Revision) and the Fraudulent Dispositions Act (1996 Revision). These laws are interpreted in the context of the jurisdiction’s strong common law tradition, ensuring consistency with international trust law standards while allowing for statutory innovations that enhance their practical utility.

A trust in the Cayman Islands arises when a settlor transfers legal ownership of assets to a trustee, who holds and administers the assets for the benefit of beneficiaries or for a defined purpose, in accordance with the terms of a trust deed or declaration. The settlor may be an individual or a legal entity, and the trust property can consist of various asset classes, including real property, securities, cash, or intellectual property.

A Cayman trust must involve the following elements:

• A Settlor – the individual or entity who creates the trust and transfers property into it.
• Trust Property – the assets held by the trustee under the terms of the trust.
• A Trustee – the party with legal title to the trust assets, responsible for their administration.
• Beneficiaries – individuals or entities entitled to benefit under the trust, unless it is a non-charitable purpose trust.
• A Trust Deed – a legal document outlining the terms and conditions of the trust.

While the settlor may retain limited powers (e.g., the power to appoint or remove trustees), excessive control could risk the trust being deemed a sham or lead to tax or legal consequences in the settlor’s home jurisdiction. The trustee must act in accordance with fiduciary duties, including duties of loyalty, prudence, and impartiality.

Several categories of trusts can be established under Cayman law:

Discretionary Trusts: These give trustees the discretion to determine which beneficiaries receive trust assets, how much they receive, and when. This flexibility is often desirable for asset protection and succession planning, particularly where family dynamics or future circumstances are uncertain.

Fixed Trusts: In contrast to discretionary trusts, fixed trusts provide beneficiaries with specific entitlements to income or capital.

Charitable Trusts: Cayman law recognizes charitable trusts that benefit purposes considered charitable under common law—such as relief of poverty, education, religion, or other public benefits. These trusts may benefit from certain regulatory and tax exemptions.

Non-charitable Purpose Trusts: Although not as commonly used as other structures, Cayman law allows for non-charitable purpose trusts under certain conditions, provided that a valid enforcer is appointed to ensure the trust’s purposes are carried out.

Reserved Powers Trusts: These are trusts in which the settlor reserves certain powers—such as investment decision-making or the ability to amend the trust deed—without invalidating the trust.

A key reason for establishing a trust in the Cayman Islands is asset protection. Cayman’s Fraudulent Dispositions Act sets out the rules under which transfers to a trust can be challenged by creditors. In general, a disposition made with the intention to defraud creditors may be set aside by a court, but only if the creditor’s cause of action existed at the time of the transfer and legal proceedings are initiated within six years.

Importantly, this statute limits the ability of foreign judgments to affect trusts established under Cayman law, thereby reinforcing the jurisdiction’s role as a robust venue for long-term asset protection, subject to proper planning and compliance with anti-avoidance laws.

Trusts in the Cayman Islands benefit from a high level of confidentiality. There is no public register of trusts or trustees, and trust instruments are not required to be filed with any government body (unless the trust is regulated for another reason, such as being part of an investment fund structure).

The Cayman Islands does not impose any income, capital gains, inheritance, or estate taxes on trusts. Trusts may apply for a tax exemption certificate under the Tax Concessions Law, guaranteeing no change to the tax status of the trust for up to 20 years. This neutrality makes Cayman an appealing jurisdiction for international clients seeking to avoid exposure to double taxation, provided all relevant tax obligations in the settlor’s or beneficiaries’ home countries are satisfied.

Cayman trusts are commonly used in estate and succession planning, especially in jurisdictions with forced heirship regimes that limit testamentary freedom. Cayman trust law explicitly provides that a trust will not be invalidated by foreign laws that would otherwise mandate distributions contrary to the terms of the trust. This allows settlors greater flexibility in determining how their estate should be managed and distributed across generations.

At least one trustee of a Cayman trust must either be a Cayman-resident individual or a licensed trust company authorized under the Banks and Trust Companies Act or a private trust company registered with the Cayman Islands Monetary Authority (CIMA).

Cayman Islands offshore trusts offer a sophisticated and flexible legal structure for a range of legitimate personal and commercial purposes. Whether used for estate planning, asset protection, charitable giving, or wealth preservation, these trusts are supported by a stable legal system, robust fiduciary framework, and a tax-neutral environment.

However, their effectiveness depends on careful planning, proper structuring, and adherence to both local and international compliance standards. Professional legal and fiduciary advice is essential when establishing and managing a Cayman trust to ensure it meets the settlor’s objectives and withstands potential legal scrutiny across jurisdictions.