Harneys

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-5 J

Into Perpetuity: The Grand Court Charts New Territory Under the Cayman Islands' Reformed Trust Regime

The Perpetuities Act (2025 Revision) marks an important moment for Cayman Islands trust law. For settlors of new trusts, the legislation offers the power to opt out of any perpetuity limitation at inception. For those who administer existing structures, it creates a streamlined, court-supervised route to convert a fixed-term trust into one of unlimited duration. In March 2026, in what is understood to be the first successful application of its kind under the new statutory jurisdiction conferred by section 20 of the Perpetuities Act (2025 Revision), Harneys successfully obtained an order from the Grand Court, disapplying the rule against perpetuities for a discretionary family trust. The order empowered the trustee to execute a deed of variation replacing the trust's fixed-term period with an indefinite duration. The Reforms to the Perpetuities Act in Brief Prior to the amendment effected by Act 7 of 2024 (which came into force on 22 August 2024), Cayman Islands discretionary trusts were subject to a statutory perpetuity period of 150 years from the effective date of the relevant instrument. Part 3 of the 2025 Revision, which consolidates the 2024 amendment, changes the landscape in three material ways. First, for new trusts created on or after 22 August 2024, the instrument itself may simply provide that the rule against perpetuities does not apply (provided the trust does not hold Cayman land or any interest in Cayman land). The land carve-out is narrow in that it does not extend to income from Cayman land or to the proceeds of sale of Cayman land, and a trust that has opted out of the rule may still hold an interest in an entity that owns Cayman land for the purposes of its business. Second, for existing trusts (whenever created), section 20 permits a trustee, settlor, enforcer, power-holder, or beneficiary to apply to the Grand Court for an order declaring that the rule does not apply. The Court may grant the order where it is satisfied that doing so would not be to the detriment of the beneficiaries. Third, trusts of unlimited duration governed by a foreign law that has no perpetuity rule may change their governing law to Cayman without re-introducing any duration limit. The Application to disapply Harneys acted for a professional trustee of a discretionary family trust seeking to give effect to the dynastic objectives of the settlor through the grant of a court order. In the absence of Cayman authority on the exercise of the section 20 jurisdiction, the Court was invited to approach its discretion by reference to persuasive Bermudian case law under section 4 of Bermuda's Perpetuities and Accumulations Act 2009, a materially analogous provision to section 20 of the Perpetuities Act (2025 Revision). Principles The application before the Grand Court drew on judicial guidance from the Supreme Court of Bermuda that establish clear principles guiding the exercise of the statutory power to disapply the rule against perpetuities. The Bermudian authorities establish that: The Court must not function as a "rubber stamp": disapplication will only be granted where it facilitates the continued efficient administration of a family trust, where no beneficiary is materially prejudiced, and where the relief accords with the best interests of the trust as a whole. A forced distribution at the end of a perpetuity period could give rise to significant tax liabilities and premature dissipation of assets to the detriment of future generations—this is a strong justification for disapplication. The potential dilution of existing beneficiaries' economic interests as a result of extending the duration of a trust will ordinarily be an irrelevant consideration. Distilling and drawing from these Bermudian principles, the Cayman Islands Grand Court will therefore likely exercise its discretion in favour of granting relief where disapplication would: (a) accord with the settlor's wishes and the objectives of the trusts; (b) serve the best interests ...

-5 j

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6 min
11 MAI

Statutory Hastings-Bass in the Cayman Islands: the Grand Court sets aside a deed of exclusion

In the recent decision of The Trustees v AB and Ors (Re the D Trust) the Cayman Grand Court granted relief under section 64A of the Trusts Act (2021 Revision) (the Act) to set aside a deed of exclusion (Deed of Exclusion) executed by previous trustees in reliance on erroneous UK tax advice. The decision adds to the growing body of authority on the statutory Hastings-Bass jurisdiction in the Cayman Islands, and includes guidance on the good faith requirement, standing by successor trustees, notification to tax authorities, and whether section 64A applications should be dealt with on the papers. Background The D Trust is a Cayman Islands discretionary trust with a broad class of beneficiaries. It was originally governed by New Zealand law, but its proper law and forum were changed to the Cayman Islands in November 2019. The trust formed part of a wider estate planning structure. When the D Trust was settled in 2011, the Settlor transferred non-UK situs property into it. A connected trust (the H Trust, governed by Guernsey law) borrowed those funds to purchase a residential property in England. The arrangement was designed to ensure the loan owed by the H Trust to the D Trust remained "excluded property" for UK inheritance tax (IHT) purposes, shielding the value of the UK property from any charge on the Settlor's death. In early 2017, proposed changes to the IHT regime threatened to undermine that planning. The previous trustees instructed a specialist London firm, which recommended (among other options) executing a deed of exclusion to declare the Settlor an "Excluded Person" under the trust deed. The Deed of Exclusion was executed on 30 March 2017, shortly before the new rules took effect on 6 April 2017. In January 2025, a different London firm reviewed the arrangements and concluded that the original advice had been incomplete and in places erroneous. It had failed to consider: (i) the risk that section 102 of the UK Finance Act 1986 would treat the Settlor as having incurred the H Trust's liabilities; (ii) whether the charge over the UK property was an "incumbrance created by a disposition made by [the Settlor]" within section 103 of that Act; and (iii) how the General Anti-Abuse Rule might apply to the 2017 arrangements. The D Trust faced the very IHT exposure the Deed of Exclusion was supposed to prevent. The issues The current trustee applied by originating summons for a declaration that the Deed of Exclusion was void ab initio under section 64A of the Act. The application was dealt with on the papers. The principal issues were: (i) whether the current trustee had standing; (ii) whether the statutory conditions in section 64A(2) were satisfied; (iii) the scope of the court's residual discretion (including the good faith requirement and notification of HMRC); and (iv) whether it was appropriate to determine a section 64A application without an oral hearing. The judgment The applicable law Justice Segal adopted the analysis of Justice Kawaley in Maples Trustee Services v AB (In Re Settlements), describing it as "a clear and authoritative summary of the applicable law". Justice Kawaley had identified three strands of the statutory language: 1. the power must be a fiduciary power; 2. but for the mistake the power would not have been exercised in the same way, at the same time, or at all; and 3. the person exercising the power must have failed to take into account relevant considerations, or taken into account irrelevant ones. Justice Segal adopted Justice Kawaley's tentative view (that section 64A contains an implied good faith requirement), reasoning that such a qualification is necessary to keep the jurisdiction within proper bounds and avoid what Lord Neuberger extrajudicially described as giving trustees a "get out of jail free card". He disagreed, however, with Justice Kawaley's observation that the circumstances required for section 64A relief are "likely in many (if not most) cases to be indistinguishable (legal lab...

11 mai

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10 min
16 MARS

Introduction to automatic exchange of information for Cayman Islands investment funds Background and legislative framework How are investment funds classified for AEOI purposes? What are the notification obligations? What are the due diligence, reportin

This guide provides a high level summary of the main obligations for Cayman Islands investment funds under Cayman Islands automatic exchange of information (AEOI) legislation. Over recent years governments around the world have agreed international standards for the automatic sharing of financial account information between global fiscal authorities, with the aim of reducing tax evasion. As part of its commitment to international transparency standards, the Cayman Islands Government is a signatory to: A Model 1B intergovernmental agreement with the United States (US IGA) which provides the framework for the implementation of the United States (US)Foreign Account Tax Compliance Act (FATCA) in the Cayman IslandsThe Organisation for Economic Co-operation and Development sponsored multilateral competent authority agreement and certain bilateral agreements or tax treaties regarding the common reporting standard on automatic exchange of information (CRS, together with the US IGA, AEOI Agreements) As Cayman Islands entities are not directly subject to the AEOI Agreements, the Cayman Islands has introduced legislation to implement the AEOI Agreements under the Tax Information Authority Act (TIA Act) including the Tax Information Authority (International Tax Compliance) (United States of America) Regulations (FATCA Regulations) and the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, as amended (CRS Regulations), together AEOI Legislation). Definitions used in this guide are as set out in the AEOI Legislation unless otherwise indicated. The Department of International Tax Co-operation (DITC) is the Cayman Islands government department responsible for tax affairs and the Tax Information Authority (TIA), created by the TIA Act, is the Cayman Islands competent authority for tax co-operation and is housed within the DITC. The DITC has issued guidance notes (Guidance Notes) on the AEOI Legislation, which can be found here and here, which provide details of the notification, reporting and ongoing obligations that apply, as well as a useful reminder of the differences between FATCA and CRS. In practice, the vast majority of Cayman Islands investment funds fall within the definition of an Investment Entity (one of the types of Financial Institution under AEOI Legislation) and will be classified as Cayman Islands Reporting Financial Institutions (Reporting FIs). Reporting FIs are required to report on financial accounts held by specific US persons or individuals or entities resident in certain jurisdictions (Reportable Accounts). There are certain differences between the definitions in each of the FATCA Regulations and the CRS Regulations, with the term Foreign Financial Institution being used under FATCA. In this guide we will be discussing 'FIs' or 'Financial Institutions'. The most notable notification obligations are: To register with the Internal Revenue Service of the US (IRS): to obtain a global intermediary identification number (GIIN) (even if a Reporting FI has no US Reportable Accounts) either through the IRS FATCA Portal or through a paper submission. 'Registered Deemed Compliant FIs' (which are specific low risk FIs that are exempt from full FATCA reporting obligations) are also obliged to register with the IRS.A Cayman Islands investment fund which is a Reporting FI is required by the FATCA Regulations to register with the IRS within 30 days of 'starting business'. While a fund is not technically operating until it starts to accept subscription payments from investors (for the purposes, at least, of the Mutual Funds Act), in reality, all funds have to provide their GIIN numbers to banking and other counterparties at a very early stage of their creation in order to open accounts. It is therefore important to get this registration done as soon as possible after the vehicle has been formed. When registering for a GIIN, the IRS FATCA Portal requires the name of a natural person to be...

16 mars

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21 min
16/06/2020

Luxembourg: an Investment Funds giant

In the fourth episode of our Funds Download podcast series our host and global head of Funds and Regulatory, Philip Graham, is joined by the head of our Luxembourg Investment Funds team, Vanessa Molloy, to take a closer look at the reasons why Luxembourg is such a successful investment funds jurisdiction, and the main factors to consider if you are thinking of establishing a Luxembourg structure.

16/06/2020

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12 min
07/06/2024

Horizons Global

In this episode of Piano Lessons, Phil and Marc discuss Marc’s transition into his new role as a director and consultant at Horizons Global, one of H3’s verified service providers.

07/06/2024

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15 min
17/01/2025

Adaptability, leadership, and law: Lishi Fong’s legal journey

In this episode, William and Lishi explore her legal career path, highlighting her decision to study in London, which shaped her adaptability and professional growth. They discuss the challenges and nuances of being a managing partner, including balancing approachability with authority, handling responsibilities beyond legal work, and the daily realities of leadership.

17/01/2025

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10 min
21/07/2025

Carolynn Vivian reflects on a year as our Cayman OMP

In this episode of Chat OMP, William Peake chats with Carolynn Vivian, our Cayman Islands Office Managing Partner, about her experiences in the role over the past year. They discuss the challenges of transitioning from legal micromanagement to broader leadership, the unique dynamics of managing a diverse workforce in Cayman, and the highlights of fostering a welcoming and culturally vibrant office environment.

21/07/2025

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9 min
10/10/2019

The Rules

Classify, Classify, Classify In the tenth instalment of Harneys’ Substance on Substance series, Philip Graham and Josh Mangeot discuss the release of the final version of the guidance formerly known as the “Code”, which was published by the ITA on 9 October 2019 as its newly-titled Rules and explanatory notes (the Rules). Key Takeaways • With the certainty provided by the final Rules, it is vital that all directors and operators of BVI entities classify their entities as a matter of priority, if they have not already done so. There is an ongoing legal obligation on BVI entities under the Beneficial Ownership (Secure Search System) Act 2017, as amended with effect from 1 October 2019, to determine whether they are carrying on a relevant activity and the first compliance periods have started for all companies and other relevant legal entities. •Harneys online economic substance classification solution remains available for use at https://economicsubstance.vg and provides formal legal advice for a fixed fee – the solution reflects the final Rules and classifications received by users who have previously classified their entities using the solution are unaffected, subject to some minor cross-references to the numbering used in the final Rules. • the ITA released a useful summary document of the relatively minor amendments made to the last public published by the ITA. The key changes include: o where an entity wishes to be treated as provisionally “non-resident” due to its tax status under foreign laws, the “reasonable period” in which to provide the ITA with evidence of such status will be two “financial periods” o BVI entities in liquidation are still generally expected to comply with the substance requirements o the presumptions of non-compliance for BVI entities that are carrying on IP business have been made more difficult to rebut (ie disprove) and are subject to expanded reporting and evidentiary requirements • Economic substance reporting for each BVI entity will generally begin in 2020 at the end of the current financial period, so all BVI entities should determine any economic substance compliance requirements for the current period. This episode was recorded on 10 October 2019.

10/10/2019

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7 min
11/02/2025

Growth, action, and innovation: Insights from Henry Tucker our Bermuda Managing Partner

William and Henry explore Bermuda’s growing success, fuelled by its balanced regulatory framework, easy access to New York, and a local environment that fosters opportunity. Henry introduces his "pick up a shovel" philosophy, championing decisive action and practical problem-solving to deliver the best results. They also highlight the importance of questioning conventional wisdom in law firms, advocating for fresh, innovative approaches to tackle complex challenges.

11/02/2025

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9 min
31/07/2023

Sanctions on Russia: At 18 months following the invasion (part 2)

In this episode, Global Head of Regulatory & Tax Aki Corsoni-Husain and guest expert Rachel Barnes KC of Three Raymond Buildings go into more detail about the state of play as of June 2023 regarding sanctions on Russia after the invasion of Ukraine, with a specific focus on professional services in the trust sectors. Key Takeaways: Outlining and reflecting on, the new UK sanctions on Russia impacting professional and financial services, trust industry restrictions and exemptions and the Overseas Territories’ inclusion to those sanctions.Providing an overview of new prohibitions in providing business services and their updates.Comparing sanctions imposed by EU, UK, and US on the professional services industry, legal advisory services and trust industry (as at June 2023).Examining the impact of sanctions on transactional lawyers, particularly in relation to the provision of legal advisory services on related matters (as at June 2023).Discussing the rule of law concerning sanctions and their application to asset movement of designated individuals.

31/07/2023

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26 min

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