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Knowledge BVI trust legislation enhanced by Trustee (Amendment) Act 2021

The Trustee (Amendment) Act 2021 (the "Amendment") came into force on 9 July 2021 and greatly enhances BVI's trusts legislation.

Powers of BVI court to vary trusts

The Amendment inserts a new section 58B to the Trustee Act, expanding the court's jurisdiction to vary, add to, revoke or replace any provision of a trust. It builds on existing rules that allow the court to approve, on behalf of minor and unborn beneficiaries and other persons who are unable to approve themselves, arrangements that amend trusts.

When deciding whether or not to make an order under s58B, the court must be satisfied that a variation is expedient in the circumstances and it may make an order even where a person or purpose is adversely affected. The court must have regard to the settlor's wishes and to changes in family, fiscal, financial and commercial circumstances since the trust's creation. Where an interest in the trust is being curtailed or having conditions imposed upon it, the court must have regard to how remote the interest is and the protective needs of individual beneficiaries.

Importantly, the court's new power to vary trusts only applies to new trusts or to a trust that changes its governing law to BVI law after the Amendment came into force. In each case it is an "opt in" so the trust deed (for new trusts) or the instrument effecting a change in governing law (or an instrument taking effect at the same time as the change in governing law) must expressly provide that the s58B power applies to the trust.

An application for a variation may be made by the trustee, by any person authorised to apply by the trust deed or by a beneficiary (including a discretionary beneficiary).

The new s58B power is very flexible as, unlike the court's existing power to approve arrangements varying trusts, it does not require beneficiaries' consent nor does an applicant need to demonstrate a benefit or lack of detriment to minor and unborn beneficiaries.

We expect the s58B power to be popular with settlors who want to have flexibility to take into account changes in circumstances (e.g. changes in tax rules) but where it is preferable, for whatever reason, for the court to have the power to make changes to the trust, rather than a trustee or settlor to hold an overriding power of appointment / amendment. The scope of the power is also significantly wider than the statutory variation of trusts rules in other leading offshore jurisdictions and so we anticipate it will be popular with trustees who would like to change the terms of existing trusts established elsewhere.

Trustee mistake/power of BVI court to set aside flawed exercise of fiduciary power

The Amendment inserts a new section 59A of the Trustee Act to clarify the court's power to set aside flawed decisions by trustees. It is a statutory formulation of the rule in Hastings-Bass with the result that the English Supreme Court's decision in Pitt v Holt; Futter v Futter [2013] UKSC 26, [2013] 2 AC 108 will not be followed in BVI. It does not limit the court's jurisdiction under the doctrine of mistake.

Under s59A, the court may set aside the exercise of a fiduciary power (being a power that must be exercised for the benefit of or taking into account the interests of at least one person other than the person who holds the power), wholly or in part, if (1) the person who exercised the power did not take into account a relevant consideration or if he or she took into account an irrelevant consideration, and (2) if he or she had taken into account that relevant consideration or if he or she had disregarded the irrelevant consideration, then he or she would not have exercised the power (or would not have exercised the power at the time or in the manner that he or she did).

An application to the court to set aside the exercise of a power may be made by the person who exercised the power, by the trustee, by a beneficiary (including a discretionary beneficiary) or by the enforcer of a purpose trust. The Attorney General may make an application in relation to a charitable trust and the court may also grant leave for any other person to make an application.

Notably, it does not need to be alleged or proved that the person who exercised the power acted in breach of trust or breach of duty.

The court's jurisdiction under the new s59A may be exercised in respect of powers that have been exercised both before and after the date on which the Amendment came into effect.

Firewall strengthened

The Amendment strengthens and expands the conflict of laws rules for certain trusts and dispositions contained in section 83A of the Trustee Act (the "Firewall"). In other words, the Amendment strengthens the statutory protection offered to BVI law governed trusts against foreign court orders.

Firstly, all questions in regard to a BVI law governed trust (regardless of where the administration is carried out) are to be determined by BVI law. Previously s83A only covered questions arising in regard to the validity, construction, effect or administration of a trust.

Secondly, and very importantly, the definition of personal relationship is expanded and the protection offered by the Firewall is extended to protect BVI law governed trusts against rights, claims or interests conferred by foreign law by reason of a personal relationship to beneficiaries (as well as just settlors). The definition of personal relationship is also expanded to include relationships by adoption, step-relationships, artificial fertilisation and surrogacy.

The effect of these changes is better to protect BVI law governed trusts against decisions of courts in other jurisdictions.

Reserved powers

The Amendment replaces the existing reserved powers rules contained in section 86 of the Trustee Act. The new rules are clearer and more extensive than before.

The reservation of powers to a settlor or the grant of powers to another power holder, such as a protector, does not invalidate the trust, prevent the trust from taking effect according to its terms, or cause trust property to be part of the settlor's estate.

The powers that may be reserved to a settlor or granted to another power holder are the powers of:

The new reserved powers rules apply to all BVI law governed trusts, including trusts established before the Amendment came into force.

Trust records

The existing rules on the retention of trust records is replaced by the insertion of a new section 92A of the Trustee Act.

The new rules apply to all trusts (except implied, constructive and bare trusts), regardless of the trust's proper law, where the trustee is incorporated or resident in BVI or where the trust is administered in BVI. The trustees of such trusts must maintain appropriate trust records and underlying documentation and retain those records and documents for five years.

It is an offence to fail to comply with s92A and, on summary conviction, a trustee is liable to a fine of up to US $10,000.

Option to extend rules on trustees and dealings with third parties to existing trusts

Section 104 of the Trustee Act is amended to provide that trustees of trusts established before 6 November 2003 may elect, by deed, for Part X of the Trustee Act (the rules on trustees and dealings with third parties) to apply. These include rules on transactions deemed to be properly entered into with trustees, protecting third parties dealing with trustees and limited recourse to trustees' personal assets.

If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.

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