Cayman Islands *

The Special Trusts (Alternative Regime) Act (commonly known as the STAR Act), enacted in the Cayman Islands in 1997, introduced a distinctive form of trust designed to expand the traditional scope of trust law. Known as STAR trusts, these entities offer a flexible legal framework that accommodates both private and commercial objectives, including those not traditionally recognized under common law trust doctrines.

STAR trusts diverge from conventional trusts primarily in their permitted purposes and their separation of roles. Under the STAR regime, a trust can be established to benefit individuals, fulfill specific purposes (whether charitable, non-charitable, or a combination of both), or do both simultaneously. This wide range of allowable objectives significantly broadens the traditional limits imposed on common law purpose trusts, which often struggled with enforceability when no clear beneficiary was identifiable.

Importantly, STAR trusts are not constrained by the rule against perpetuities and may exist for an indefinite duration. This feature makes them well-suited for long-term structures, such as dynastic wealth arrangements or intergenerational business succession planning.

One of the defining features of a STAR trust is the formal introduction of the Enforcer role. The Enforcer is a central figure under the regime and is responsible for ensuring that the trustee administers the trust in accordance with its terms and purposes. The Enforcer may be an individual or a legal entity, and while they do not benefit from the trust assets, they possess the legal standing to hold trustees accountable through oversight or legal action if necessary.

Unlike traditional beneficiaries, those named in a STAR trust do not possess inherent rights to enforce the trust or demand information. This separation creates a clear distinction between those who benefit from the trust and those tasked with ensuring its execution, thereby reducing the risk of disputes or interference from beneficiaries.

Trustees of STAR trusts must include at least one trustee licensed to operate in the Cayman Islands, in compliance with local regulatory standards. These trustees are bound by fiduciary obligations to act within the parameters defined by the trust instrument and applicable law.

A common application of STAR trusts is in the formation and governance of Private Trust Companies (PTCs). In these structures, a STAR trust is established to hold the shares of a PTC, which in turn acts as trustee for one or more family or commercial trusts.

This model is advantageous for families or entities seeking centralized, long-term management of trust assets while retaining a degree of oversight or involvement. By interposing a STAR trust between the trust assets and the family or business stakeholders, the structure facilitates governance continuity and reduces administrative fragmentation.

Moreover, the use of STAR trusts in such configurations is not confined to a single jurisdiction. A Cayman-incorporated PTC, held by a STAR trust, may act as trustee for trusts established under different legal systems, providing cross-border utility for global families or institutions.

Business owners frequently employ STAR trusts to implement succession strategies, particularly where maintaining operational continuity is a priority. For example, shares in a family-owned company may be transferred to a STAR trust, enabling the directors or managers of the business to continue operations after the founder’s death or incapacity.

This approach allows for the trust’s purposes to focus on long-term business sustainability rather than immediate wealth distribution. The Enforcer, rather than the beneficiaries, holds authority over the trustee’s conduct, thereby reducing the influence of individual family members who may not have the expertise or inclination to manage the business effectively.

A distinctive legal feature of STAR trusts is the ability to limit or eliminate beneficiary access to trust information. In traditional trust arrangements, beneficiaries often have broad rights to review trust documents and accounts. This transparency, while rooted in fiduciary principles, may not align with the objectives of all settlors—particularly those seeking discretion in sensitive family or commercial contexts.

Under a STAR trust, such disclosure rights can be significantly curtailed. Since beneficiaries have no enforcement powers unless specifically granted in the trust instrument, the Enforcer becomes the sole party with standing to demand accountability from the trustee. This mechanism enhances confidentiality and shields the trust’s internal affairs from unwanted scrutiny.

Beyond personal and family uses, STAR trusts are frequently deployed in structured finance and corporate transactions. Their utility in special purpose vehicle (SPV) arrangements stems from their capacity to operate independently of the parties to a transaction, thereby supporting bankruptcy-remote or off-balance-sheet structures.

In such contexts, a STAR trust may hold assets or receivables, issue notes or securities, or fulfill administrative roles in securitizations and other financial products. The absence of direct beneficiary rights ensures operational autonomy and limits the risk of challenge or disruption from interested parties.

The STAR regime also provides a flexible platform for philanthropic or purpose-driven initiatives. While Cayman Islands law contains a traditional definition of “charitable purposes,” this definition may be too narrow for settlors whose objectives include broader social, environmental, or political goals.

Because STAR trusts can be created for non-charitable purposes and do not require designated beneficiaries, they allow for structures that support causes or missions that would otherwise fall outside the scope of classic charitable trusts. This flexibility can be valuable in designing long-term giving strategies that are less constrained by regulatory classifications.

The STAR trust represents a sophisticated and versatile legal tool within the Cayman Islands’ trust law framework. By enabling trusts to serve individuals, defined purposes, or both, and by clearly delineating the roles of beneficiaries, Enforcers, and trustees, the regime offers a balance of structure and flexibility.

Its capacity for perpetual duration, confidentiality, and use across both private wealth and commercial domains makes it well-suited to the demands of modern asset planning and financial structuring. Whether applied in intergenerational family planning, corporate governance, or financial engineering, STAR trusts provide a robust legal mechanism aligned with both private intent and international structuring needs.