Family Offices and Estate Planning in the Cayman Islands | Conyers

Family offices can come in a wide variety of shapes and sizes, but their primary function is to serve the needs of a wealthy individual or family group. With increasing diversity in the types of family offices, there is also more diversity in the places where they can be found. The Cayman Islands is an increasingly popular place of residence for wealthy individuals and their families, and it is becoming a leading home for the establishment and operation of family offices.

Along with increased interest from high net worth individuals (HNWIs) and their families to have their primary or secondary residence in the Cayman Islands, many HNWIs see an advantage in establishing (or moving) their family office to the Cayman Islands.

The Cayman Islands have long been renowned around the world for their highly sophisticated financial sector. Despite the relatively small size of the country, it is full of highly qualified professionals with extensive experience in complementary fields suited to the needs of family offices. As the premier jurisdiction for the creation of investment funds, the Cayman Islands has a financial industry well versed in investment matters, wealth management, trust structuring and philanthropy, as well as aircraft registrations and yachts, all of which are key areas of interest. at many family offices.

Indeed, this sophisticated financial sector is what sets the Cayman Islands apart from many similar places, which may be able to offer an island lifestyle but cannot compare to the professional expertise and modern physical infrastructure present in the Cayman Islands.

As a British Overseas Territory, the Cayman Islands has a legal system familiar to wealthy families and their advisers from around the world. The Cayman Islands is a particularly popular trust jurisdiction with legal principles based on English law but modernized to provide the kind of innovative and bespoke structures the world’s wealthy need to house assets in multiple jurisdictions.

As affluent families and their advisors look beyond traditional wealth centers, it’s easy to see why the Cayman Islands will be prime candidates for attracting families and their family offices. The Cayman Islands can indeed function as a one stop shop for HNWIs and their families in an idyllic environment.

Moving to the Cayman Islands

In recent years, and particularly in response to the COVID-19 pandemic, the Cayman Islands has become an increasingly popular place of residence for HNWIs from around the world. This attraction has been recognized by both private enterprise and the Cayman Islands government, each seeking to attract wealthy private investors.

Private enterprise fueled a development boom that resulted in the high-end real estate options and infrastructure expected by HNWIs. The Cayman Islands government has also played its part, offering various immigration options to meet the needs and goals of potential long-term residents. The different permit categories provide flexibility for the potential resident to align their personal circumstances and investment goals with the most suitable immigration permit.

Particularly for retired HNWIs, the most common route to residency is through investment in real estate. For example, one option allows people who invest a minimum of US$2.4 million in developed real estate to apply for a certificate allowing the holder (and their dependents) to reside in the Cayman Islands indefinitely. Applicants must also demonstrate that they have sufficient financial resources to support themselves and their dependents during their residency.

Other categories of permits are also available for those wishing to make a smaller real estate investment and/or for individuals wishing to establish or relocate a business to the Cayman Islands. For example, individuals can obtain residency by investing at least US$1.2 million in an employment-generating business in the Cayman Islands (subject to certain other requirements).

Succession planning structures

The Cayman Islands is also a leading jurisdiction for private wealth structures and estate planning. While these structures have traditionally been aimed at beneficiaries outside of the Cayman Islands, there is an increasing need to serve the community on the island as the Cayman Islands itself becomes a center of wealth.

In summary, the main private wealth structures in the Cayman Islands are as follows:

Trusts

Trusts continue to be the primary vehicle for estate planning in the Cayman Islands (and in all common law jurisdictions). The Cayman Islands has a well-established and highly regarded trusts industry and trust law regime, and the Cayman courts are experienced in dealing with trust law matters. (There is a wealth of useful case law regarding the management and administration of trusts in the Cayman Islands.)

Trusts do not have separate legal personality, which means that a trust is not a legal entity (contrast with a foundation corporation, described later). On the contrary, the trustee, which is a legal entity, holds assets on behalf of the trust and subject to the rules of the trust and relevant legal principles.

Cayman trusts law is based on English principles with some significant modifications that generally make the Cayman Islands a more attractive trust jurisdiction. For example, the Cayman Islands offers a unique form of statutory trust (called a STAR trust), which can serve different purposes (for example, restricting beneficiaries’ access to information, as these rights are instead vested in an “Enforcer”) .

Trust law in Cayman is generally very flexible and there are a wide variety of options for structuring trusts.

Founding companies

In 2017, in accordance with the Foundation Companies Law 2017, the Cayman Islands provided for a new form of company incorporated in the same way as an ordinary company and known as “Foundation Company”. Foundation corporations generally operate as a hybrid between a corporation and a trust. A foundation corporation has many of the same characteristics as a regular corporation (making it a familiar structure); however, unlike a typical corporation, it can have beneficiaries or purposes (as with a trust). The founding companies are therefore an innovative succession planning structure with great flexibility to adapt the incorporation documents to the needs and objectives of the respective family.

Because the structure is familiar (being a corporation), a foundation corporation can usually provide an effective structuring vehicle that will fit seamlessly into the larger family estate structure. Being a single entity, it may also provide for a more simplified structure than a trust structure (which could possibly involve the trustee, the trust and the underlying companies).

Although foundation companies are a relatively new structure in the Cayman Islands, an important distinction and advantage of Cayman foundation companies (compared to foundation offerings in other offshore jurisdictions) is that the approach in the Cayman Islands was build on the existing company law framework. . (Other jurisdictions have sought to establish an entirely new set of rules to govern foundations.) So, because Cayman Corporations Law applies to foundation corporations, the structure is familiar and brings with it case law. existing. This approach provides a greater level of certainty and clarity regarding the operation, governance and legal treatment of foundation companies than can be the case with other offshore foundation offerings.

This article was first published in the IFC review.

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About Charles D. Goolsby

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