Traditionally, in order to be valid, a trust either had to have specific beneficiaries or, if the trust was to benefit a purpose, that purpose had to be charitable. For modern use, this limitation on purpose trusts was too restrictive so various jurisdictions have introduced legislation enabling purpose trusts for, typically, any lawful purpose.
In the case of the BVI, that legislation was originally enacted in 1993 as Section 84 of the BVI Trustee Ordinance and then, in 2004, a new regime was created under Section 84A (and both Sections 84 and 84A were thereafter subject to amendment in 2013). Given that BVI purpose trusts are now invariably created under Section 84A (as so amended, "s84A"), this note will focus on s84A trusts.
Purposes and the requirements for creation
Any individual or corporate entity may create a BVI purpose trust for any purpose or purposes (which may include benefitting specified beneficiaries) providing:
- the purposes are specific, reasonable and possible; not immoral, contrary to public policy or unlawful; and not charitable.
- the sole trustee or at least one of the trustees is a licensed BVI trust company, a BVI registered private trust company, a BVI legal practitioner or a certain type of BVI accountant (a "Designated Person");
- the trust instrument appoints an enforcer and provides for the appointment of another enforcer on any occasion in which there is no enforcer or no enforcer able and willing to act;
- the initial enforcer is party to the trust instrument or consents in writing to act as enforcer by a written instrument addressed to the Designated Person trustee; and
- that there is certainty as to intention to create the trust, what its assets are and what the objects of the purpose are.
In order to be valid, a trust must be capable of being enforced (i.e. there must be someone who can require the trustee properly to carry out the trust). With a trust for beneficiaries this is the beneficiaries and with a charitable trust it will ultimately be the Attorney General.
As a purpose trust may not have beneficiaries and will not be a charitable trust, s84A requires a purpose trust to have an enforcer with "both the power and the duty of enforcing it". Ultimately, in the circumstances of the trustee failing in its obligations, this duty would require the enforcer to make an application for the court to intervene in the administration of the trust. Given the role of the enforcer, namely to ensure the proper administration of the trust, the enforcer may not be or become a trustee of the purpose trust. In addition to the power to enforce, the trust instrument will often give the enforcer the sort of powers often reserved to a protector, such as over income and capital, investments, amendments and addition and removal of trustees.
The obligation to enforce necessitates the enforcer having the necessary information and so s84A obliges the trustee to provide the enforcer with:
- the accounts of the trust;
- the trust instrument and any deeds and other written instruments executed pursuant to the trust instrument;
- the legal and other professional advice received by the trustees; and
- any other documents and information the trust instrument requires the trustees to provide.
As a failsafe against the possibility of the trust failing for want of an enforcer, there is an obligation on the Designated Person trustee to notify the Attorney General, as soon as practicable, if the trust has no enforcer able and willing to act and that no enforcer is likely to be appointed in the immediate future. The Attorney General must then, within 90 days, apply to the Court for it to appoint an enforcer.
Other aspects to note
These include that:
- purpose trusts are not subject to the rule against perpetuities so they may exist with unlimited duration;
- if the trustee or enforcer dishonestly appropriate any trust assets or take any steps aimed at defeating the trust they thereby commit a criminal offence; and
- unless the trust instrument provides otherwise, a trustee, enforcer or anyone else nominated may apply to the Court to vary the trust, including the purposes (for example, if the purposes become impossible to perform and the settlor's intentions would thus otherwise be defeated).
Purpose trusts can be particularly useful, for instance, where:
- the settlor wishes the trust to exist indefinitely as a dynasty trust;
- an orphan holding structure (i.e. one where no beneficial ownership exists) is required, such as to hold the shares of a private trust company or the assets need to be held off balance sheet;
- it is desirable to hold assets with restrictions on disposing of them, such as family business empires or other assets which may be perceived as risky (often combined with the trust also being a VISTA trust where the assets are held through a BVI company);
- for purposes which may be philanthropic, such as impact investing, but which would not qualify as strictly charitable; and
- the settlor wishes to provide for a beneficiary but does not wish the beneficiary to have a right to enforce as a beneficiary.
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