In today’s complex financial environment, protecting and preserving wealth is a priority for a lot of individuals and families. It’s therefore no surprise that Cayman Island trusts are becoming increasingly popular. For decades now, the Cayman Islands have been regarded as a premier financial jurisdiction. The use of Cayman trusts can be a very effective strategy when it comes to safeguarding one’s assets and distributing them to future generations.
A leading financial jurisdiction
A cornerstone of global finance, the Cayman Islands have a lot to offer those seeking sophisticated financial solutions.
For a start, the region is home to a large network of banks, wealth managers, investment firms, and trust companies. This means that high-net-worth individuals and families have access to a comprehensive suite of wealth management solutions, as well as the expertise of a deep pool of qualified professionals.
Next, there’s a very attractive tax landscape. Offering no income tax, capital gains tax, or inheritance tax, it’s a prime location for those seeking manage their taxation profile and transfer wealth tax-efficiently to the next generation.
The Cayman Islands also have a long history of political and economic stability. A British Overseas Territory, its legal system is based on English common law, ensuring a familiar and respected framework. Its main regulatory body is the Cayman Islands Monetary Authority, which enforces anti-money laundering , counter proliferation financing and counter-terrorist financing regulations, ensuring that financial institutions comply with international best practices.
Another appealing feature is client confidentiality. In the Cayman Islands, a strong legal framework protects client information. This is a major draw for high-net-worth individuals and families seeking privacy for their financial affairs.
Types of Cayman Islands trusts
When it comes to trusts, the Cayman Islands can offer structures to suit a wide range of wealth management needs. Trusts available today include:
- Discretionary trusts – One of the most common forms of trust, these grant the trustee the power to decide who will receive the trust’s assets
- Fixed interest trusts – A powerful estate planning tool, these specify the trust’s beneficiaries and their exact share of the trust’s assets, offering predictability and transparency
- STAR (Special Trusts Alternative Regime) trusts – A unique Cayman Islands structure, these can be used for family wealth management, non-charitable purposes, and other objectives
- Charitable trusts – These can be established for the benefit of a charitable institution
It’s worth noting that Cayman Islands trusts can be revocable or irrevocable. The former allow the settlor (the individual that created the trust) to modify or revoke the trust during their lifetime while the latter offer greater asset protection as the settlor relinquishes control after creation.
A powerful wealth management tool
One of the big misconceptions of Cayman Islands trusts is that they are just for managing tax liabilities. This couldn’t be further from the truth.
A major benefit of trusts is that they can be used to preserve ownership of assets. By putting assets into a trust where a trustee is the legal owner, individuals and families can continue to benefit from the assets while simultaneously avoiding the fragmentation of capital that typically comes with intergenerational wealth transfer.
Trusts can also help transfer wealth to future generations smoothly. When the trust settlor passes away, the assets in the structure typically avoid probate, saving time and potential complications.
Another attraction of trusts is that they can hold assets that are located in various jurisdictions under one central structure. Given that in today’s interconnected world individuals and families often have wealth spread across multiple different countries, trusts can help in the facilitation of global asset mobility, simplifying asset management, reducing administration, and potentially bypassing complex inheritance laws.
Ultimately, trusts can be seen as an advanced long-term financial planning tool. Whether you’re looking to preserve your wealth, protect assets, minimise tax liabilities, or pass wealth on effectively, they can play a valuable role in global financial planning strategies.
Legal protections offered by Cayman Islands trusts
Looking beyond their various use cases, one reason wealth managers often recommended the use of Cayman Island trusts is the legal protection they afford.
Trusts in the Cayman Islands benefit from the Fraudulent Dispositions Act, which is designed to help protect against illegitimate claims on trust assets. This can help safeguard trust owners against unfair challenges to their assets.
The Cayman Islands also have strong ‘firewall’ provisions in place that protect trusts from being challenged by foreign laws that don’t recognise trusts or have forced heirship rules. This helps to ensure that designated beneficiaries receive the assets as per the settlor’s wishes.
Navigating challenges
Navigating the intricacies of Cayman Island trusts requires expertise. So, working with a qualified adviser that specialises in Cayman trust structures is essential to ensure that everything is set up correctly and complies with regulations. It’s a good idea to find an adviser you can form a long-term relationship with. This will help in the ongoing management of your trusts.
Additionally, it’s important to consider tax implications in your home country before establishing a trust. While the Cayman Islands offer tax planning benefits, your home country’s tax laws may still apply to the trust and its beneficiaries. Again, it’s essential to seek advice from an expert to understand the potential tax consequences in your home jurisdiction.
How IQ-EQ can help
At IQ-EQ, we specialise in crafting unique solutions tailored to the specific needs of individuals and families. Leveraging decades of experience, we help clients establish structures that can preserve and grow wealth across generations. If you would like to learn more about the benefits of setting up a Cayman Islands trust, get in touch.
About the author
Cory is IQ-EQ’s Head of Caribbean, Cayman Islands. With over 30 years’ experience in the industry, Cory is a seasoned professional with particular expertise in risk management, securities, digital assets, asset management, hedge funds, middle office operations, regulatory reporting and tax.
