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BVI companies remain attractive particularly in Latin America and Asia

19 Nov 2019

One wealth planning vehicle remains constant through the many developments and challenges taking place in the last few years - the British Virgin Islands (BVI) company. There remain around 600,000 active BVI companies worldwide, and although some client groups diversify away, others from Latin America and Asia, for example, continue to incorporate new BVI companies in great numbers.

This is particularly so in the private client space. We’ve seen economic substance have little effect on BVI companies held for wealth planning purposes because the requirements for holding companies are minimal.

The ubiquity of the BVI company means that professionals from other international finance centres may actively promote their own jurisdiction but will still have a number of BVI companies in their private client portfolios.

With private individuals comes estate planning. At this point, professional eyes often glaze over because we are all familiar with the concepts. However, because the BVI is a relatively young jurisdiction and so has had the ‘succession question’ only a short time, its version contains some particular quirks. What should you look out for?

The BVI probate process

In our experience, most practitioners understand that a BVI Grant must be obtained before the deceased’s shares in the company - and hence their voting rights - can be passed down to their beneficiaries.

This is true even if:

  • A Grant has already been obtained in the deceased’s home jurisdiction. Like most countries, the BVI retains jurisdiction over assets based in that jurisdiction, and all BVI companies are deemed BVI-based.
  • The BVI company is held through a nomineeship or bare trust. These can be misleading because they are often entitled ‘Declaration of Trust’, but they are very different to a substantive trust which would indeed avoid the need for probate.

However, it sometimes comes as a surprise that the BVI’s probate process is very different to that in the UK and is nowadays more like that of its Caribbean counterparts. This drive for Caribbean consistency has meant that there has not been the same emphasis on simplification as there has been in, say, trust law. It essentially involves a bundle of affidavits and documents submitted to the BVI Probate Registry. Although no inheritance tax is payable, court fees are based on estate value. Searches must be made, and adverts placed in local newspapers. Much of BVI probate practice is unwritten and based on informal agreement with the registrars, so I recommend instructing an experienced firm based in the BVI itself who will know the personnel. Once the application is submitted, the Registry takes on average three to four months to make a Grant, depending on the complexity of the case and in particular whether there is a BVI Will, although this is very variable.

Reseal or ab initio?

Grants from several countries can be ‘resealed’ or confirmed in the BVI, an easier process than a full application. The present list includes the UK, CDOTs, and somewhat archaically, only those Commonwealth countries which have kept the UK monarch as head of state. The process is easier, although the current rules require the resealed Grant to be posted back from the BVI Court to the original court (in the UK, Jersey etc) which can take a long time.

Although for most applicable clients a reseal will be most suitable, that is not always so and it may be worth having a BVI Will in the back pocket for an ab initio application. It may be quicker to begin both processes simultaneously on death, rather than waiting for one then resealing it. Meanwhile a ‘limited’ Grant (for example, one obtained for the use and benefit of a minor or a mentally incapable person) cannot be resealed without a full BVI Court order, negating the point.

BVI Probate: accept, mitigate or avoid?

The probate process is never exactly ‘welcomed’. As well as the cost, until the probate process is complete, the executor cannot:

  • transfer the shares to the beneficiaries; or
  • exercise the voting rights attached to the holding, potentially causing quorum and majority deadlock in regard to major corporate issues.

There are a variety of techniques to mitigate or even avoid this process

To mitigate:

  • BVI Will: Although a BVI Grant can be obtained with a foreign Will or no Will at all, a BVI Will speeds the Probate process substantially because the BVI Probate Registry trusts BVI Wills and so tends to deal with them more quickly than Wills from the UK or other jurisdictions, and asks fewer questions. We note that this does notallow a client to avoid laws such as forced heirship, because a BVI Will must comply with the succession laws of the client’s domicile.

To avoid:

  • Joint tenancies: the assets will be transmitted by operation of law on the death of the first to die. However, it obviously does not resolve the issue of the survivor’s death.
  • Trusts: as opposed to the bare trusts mentioned above which do not work. Trusts are increasingly recognised worldwide, and although some are complex and expensive, others are straightforward and simply allow for succession to specified individuals on the settlor’s death. Trusts do not have to be BVI-governed to avoid BVI probate, although they must have at least two trustees if they are individuals, since the death of a sole trustee will trigger the need for a Grant even if a successor is specified in the deed. This can often trip up US trusts with a single individual trustee.

Corporate solutions: various types of bespoke Memorandums & Articles offer share class and other probate avoidance solutions. These are yet to be tested in the BVI courts.

This article was originally published by Finance Publications Offshore Limited.