The flexibility and benefits of discretionary trusts are well known, but the responsibility of the trustees to manage the assets as a ‘prudent man of business’, with the need to protect the trust assets, can make trustees risk-averse and restrict the type of investments that might be considered. Many assets that potential settlor’s wish to place in trust, such as the shares in a family business or more speculative opportunities, may no longer fall under the conventional asset category that trustees are willing to accept.
In 2003, the British Virgin Islands (BVI) introduced the Virgin Islands Special Trust Act (VISTA). This act created a new type of trust, the VISTA Trust, which seeks to overcome some of the obstacles of traditional trusts in the areas of management of underlying companies and succession planning. In particular, it is designed to meet the growing international need for a satisfactory legal mechanism to facilitate the succession planning of family corporate businesses, without stifling the family investment aspirations.
Section 3 of VISTA enables the trust to directly hold BVI company shares, which may be retained indefinitely. It also allows for management of the company to be carried out by its directors without any power of intervention being exercised by the trustee (save for circumstances where the trustee is expected to act on ‘intervention calls’).
In 2013, VISTA was amended to provide even greater flexibility. VISTA trusts can now have more than one trustee, but at least one must be a BVI licensed trust company or a BVI private trust company. Like all BVI trusts, VISTA trusts are exempt from local registration requirements and all local taxes, as long as the beneficiaries are not resident in the BVI.
It is important to note that in order to benefit from the VISTA Trust, the assets must be held via at least one underlying BVI company. The trustees will not control and manage the underlying BVI company and its assets. This responsibility will rest with the directors of the BVI company, who are often members of the client family or their business management team, and who take full responsibility for the management of the assets without reference to the trustees.
The settlor may wish to place the shares of his family business in trust or other investments that a traditional trustee would view as speculative or high risk. The traditional trustee would naturally look to reduce the risk by diversifying the holdings of the trust, but with a VISTA Trust this would not be the case. Whilst it separates legal and beneficial ownership, the VISTA Trust does allow the settlor far greater influence over the investment of the trust assets without the interference of the trustees. The VISTA Trust may hold investments deemed to be more speculative or high risk by the underlying BVI company and still afford the family succession planning benefits traditionally associated with trusts.
This publication is intended to provide an overview of the subject matter and is not comprehensive in nature or to be construed as legal or tax advice. We recommend that clients seek professional advice on any particular matter.