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The Cayman Islands STAR Trust (STAR trusts have a number of different uses…
The Cayman Islands STAR Trust
The Special Trusts (Alternative Regime) Law 1997 introduced STAR trusts into the law of the Cayman Islands
A STAR trust is a form of statutory trust which can be established for persons, purposes (charitable and non-charitable) or both. The STAR Laws only apply where the trust instrument expressly states that they are to apply.
STAR trusts are established for the benefit of persons, purposes or both. The purposes can be of any kind or number (provided that they are not contrary to public policy, or illegal). They can be established without a perpetuity period (and so escape the general perpetuity period of 150 years that applies to other non-charitable Cayman Islands trusts).
STAR trusts were introduced into Cayman Islands law to overcome some of the difficulties arising with the use of more conventional offshore trusts.
The most significant innovation of the STAR trust is the introduction of the role of an ‘enforcer’. The enforcer is tasked with enforcing the STAR trust, bringing about a separation between enjoying the benefit of the trust assets, and being responsible for the trust’s enforcement. It is only the enforcer (or the Court) who has the power or the duty to enforce the STAR trust.
As far as trustees are concerned, it is a requirement that a STAR trust has amongst its trustees a trust corporation. This is a company which is licensed to conduct trust business in the Cayman Islands.
The ordinary trust law applies to STAR trusts, except where there is a provision of the STAR Law to the contrary.
STAR trusts have a number of different uses and the list of ways in which these trusts can be used is growing all of the time. The most common uses are
Family or dynasty trusts
As STAR trusts are not limited to the 150 year perpetuity period that applies to other Cayman trusts, they can be an effective way of establishing perpetual private/family trusts
Acting as the trustee of a private trust company
One of the most common uses is as the head entity of a series of trusts (which can be established in different jurisdictions around the world)
The STAR trust is established with a view to holding the shares in a Cayman Islands PTC. The purpose of the STAR trust is to establish a PTC and to ensure that the PTC carries out its role as trustee of a trust or series or relating trusts
The issues of succession in relation to the ownership of the PTC are avoided
Running the family business
It is common for an entrepreneur to use a STAR trust to ensure that the business continues to run after their death
The STAR trust can be the holder of those shares in life or after death, with the purpose of allowing the directors to continue to run the business for a designated period of time
Limiting the information that beneficiaries can access
In some cases, the reason for using as STAR trust is the ability to restrict or limit the information to which a beneficiary of the trust would otherwise be able to access. Case law has made it clear that beneficiaries of ordinary trusts have the right to access lots of information in relation to the trust. With a properly drafted STAR trust those rights can be restricted, or even eliminated, the enforcement of the trust (and the associated rights to information) then being held by the enforcer.
Special purpose vehicles
STAR trusts are often used as SPVs in structured finance and other transactions. They allow the structuring of ‘off balance sheet’/bankruptcy remote transactions, as the STAR trust entity can be unconnected with the original parties to the transaction.
Philanthropic purposes
A STAR trust provides an appropriate (and flexible) mechanism for philanthropic giving, where the settlor’s requirements fall outside of the limited Cayman definition of what is and is not charitable.
A concern that was voiced when the STAR Law was first introduced was that the rest of the world simply would not recognise the validity of STAR trusts. Thankfully that concern has not materialised. In fact, there do not appear to be any reported cases challenging the validity of STAR trusts elsewhere in the world.