Important Trust Law Changes

The British Virgin Islands introduced changes to its trust law effective March 1, 2004. Below is a summary of the changes:

• Trustees will be allowed to hold shares in a company without fiduciary responsibility for the management or success of the company.
• Third parties dealing with trusts will be able to enforce claims directly against the assets of a trust.
• Existing protections for trusts against forced heirship claims are strengthened.
• Settlors can prevent beneficiaries from unanimously agreeing to terminate a trust for a period of up to 20 years.
• Existing rules governing purpose trusts are expanded .

The Virgin Islands Special Trusts Act, 2003 (commonly known as the VISTA legislation) is the most significant of the trust law changes. The VISTA legislation allows for the release from the rule of English trust law known as the “prudent man of business rule”.

Special features of the VISTA legislation:

• Authorizing the entire removal of the trustees' monitoring and intervention obligations (except to the extent that the settler otherwise requires).
• Permitting the settler to confer on the trustee a role more suited to a trustee's ability (example, a duty to intervene to resolve problems like a deadlocked board).
• Allowing trust instruments to lay down rules for the appointment and removal of directors (in so doing, reducing the trustee's ability to intervene in management by appointing directors of own choice).
• Giving beneficiaries and directors the right to apply to the courts if the trustee fails to comply with the requirement for non-intervention or the requirements for director appointment and removal .
• Giving the trustee, if required, the power to sell the shares with the consent of the directors.

The new Act does not apply to BVI trusts generally; it only applies where there is a provision in the trust instrument directing the Act to apply. Existing BVI trusts can apply the VISTA legislation; however the trust instrument must contain enough broad powers of amendment. Foreign trusts can elect to be governed by the VISTA legislation and to do this; their proper law must be changed to that of the BVI providing that the trust instrument contains appropriate powers to amend. The legislation further requires that the shares held by the trust must be shares in a BVI Company and that the trustee of a VISTA trust must be a licensed trustee under the BVI Banks and Trust Companies Act, 1990.

Trustee (Amendment) Act, 2003

A number of substantial changes have been made to the Trust Act with the objective of enhancing the attractiveness of trusts governed by BVI laws. Among the changes are:

• Variation of Trusts – The new legislation states that where a trust instrument includes a straightforward power to amend a trust, in the absence of any contrary provisions in the trust instruments, this will be construed widely as a power to vary all or any of the terms of the trust. The purpose of this change is to circumvent difficulties of construction which in practice arise in interpreting expressed powers of variation.
• Third Party Approval for Trust Changes – There are provisions which allow a trust deed to provide for the appointment of a person, such as a protector, to approve variations on behalf of those parties who are incapable of giving their consent. This provision will avoid the cost and delay of making an application to court to approve a variation of a trust deed. However, this provision will not apply unless there is an express direction to this effect in the trust deed.
• Flee Clauses – The law now provides that a flee clause will not be capable of being activated by a court order, the institution of criminal proceedings or investigations by the Financial Services Commission in relation to the settler, the trustees, the beneficiaries or the trust property.
• Increase in Trust Duty – There is a comprehensive new section which makes it clear what documents are subject to trust due and how this must be paid. Trust duty has been increased from US$50 to US$100.

For further information, please contact our offices.