Purpose Trusts

STAR Trusts (known in other jurisdictions as purpose trusts) have been available for use in the Cayman Islands since 1997 following the enactment of the Special Trusts (Alternative Regime) Law, 1997, which has since been incorporated into the Trusts Law (revised) (the “Law”).

The introduction of the STAR Trust regime represented a huge shift in the potential uses for Cayman trusts, resulting in a highly adaptable tool for settlers which allows much greater flexibility in structuring possibilities, subject of course to the STAR Trust’s purpose(s) being lawful and not contrary to public policy.

The uses for STAR Trusts will continue to evolve and grow, limited only by the creativity of settlors, lawyers and trustees, but the main benefits of their use will be the flexibility and confidentiality afforded by their use. Examples for uses of STAR Trusts include:

  • a STAR Trust may be created for philanthropic purposes that are charitable in the popular sense without risking that the trust could be held to be invalid because its objectives are not exclusively charitable in the legal sense.
  • in a commercial context, a STAR Trust can allow a transaction to be effected ‘off-balance sheet’ or in a bankruptcy remote ‘Special Purpose Vehicle’ where the beneficial ownership of the shares in a company is not vested in any of the parties to the transaction.
  • funds settled for the relief of victims of a disaster may be established as a STAR Trust such that it may benefit causes not considered to be strictly for the poor or which may not be considered charitable.
  • Dynastic style trusts to hold family businesses or heirlooms, preserving them for future generations.

Enforcer

It is a requirement that STAR Trusts have an ‘Enforcer’, who is the only person with standing to enforce the terms of the STAR Trust (the Law removes that power from the beneficiaries (if the trust has any), as well as the rights of beneficiaries to obtain information relating to the trust and its administration).  The Enforcer is usually a close friend or family member of the settlor or one of the settlor’s legal or other advisers.  Where a professional Enforcer is required, IMS has close working relationships with other service providers in the Cayman Islands who provide Enforcer services at a very reasonable cost.

Trustee

The trustee of a STAR Trust must be or must include a trust company licensed to conduct trust business in the Cayman Islands pursuant to the Banks and Trust Companies Law (Revised).   This provides the settlor with comfort that the administration of the trust is being carried out by a suitably qualified and experienced person or entity.  IMS holds a full trust licence issued by the Cayman Islands Monetary Authority to carry on trust business and can provide comprehensive trust services.  We can also act as Enforcer where we do not act as trustee.

Documentary records of the following must be kept, in the Cayman Islands, at the office of the trust corporation acting as trustee:

  1. the terms of the STAR Trust;
  2. the identity of the trustee(s) and the enforcer(s);
  3. all property settled upon the STAR Trust and the identity of the settlors;
  4. the property subject to the STAR Trust at the end of each of its accounting years; and
  5. all distributions or applications of the trust property.

Contact us at contactus@ims.ky or click on the links on this page to find out more.

Why use a STAR Trust?

The rationale behind the introduction of STAR Trusts was to allow for trusts to be created with specified purposes without a requirement to have specific beneficiaries or even a class of beneficiaries, although a STAR Trust can have both purposes and beneficiaries, adding enormous flexibility to their potential uses.

The STAR provisions (which can be found in part VIII of the Law) also allow:

  • trusts to be created with no perpetuity period (whereas Cayman non-STAR trusts are limited to a maximum duration of 150 years);
  • the avoidance of the rule whereby the beneficiaries of a trust acting as a whole (provided they are not impaired by any incapacity) can vary or terminate a trust if they all agree to do so; and
  • a trust to be constituted such that no beneficiary has the right to bring court proceedings against the trustee or to demand information about the trust property and its administration.

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