In this article, originally published by Private Banker International, Matthew Howson shows how advisors can manage the succession of a BVI Co.
The British Virgin Islands International Business Company (the BVI Co) is still the world’s favourite wealth management vehicle. There are around 600,000 BVI Cos in existence, and although it is no longer quite the case that every Hong Kong 18-year old receives a briefcase and “a BVI”, in many parts of the world they remain ubiquitous.
Although many of them are tied up in trusts or corporate structures, many others are held by individuals in their own names or under a nomineeship.
As mortality catches up with even UHNWs, what should you be aware of when your client passes away?
In our experience, most banks know that a Grant must be obtained before the deceased’s shares of the company – and hence their voting rights – can be passed down to their beneficiaries. A Grant is essentially a Court document, authorising banks, company agents, etc, to accept the transfer instructions of the deceased’s personal representative.
There is a widespread misconception however, that a Grant obtained in the deceased’s home jurisdiction is sufficient to pass title to their worldwide assets. In fact, like most countries, the BVI retains jurisdiction over assets based in that jurisdiction. Shares in BVI Cos are deemed situated in BVI for title purposes, regardless of the location of the shareholders. A Grant from Hong Kong or New York is as ineffective to transfer them as a BVI Grant would be to transfer an apartment in Manhattan.
A BVI Grant is needed even where the shares are held through a nomineeship, and on the death of a survivor of a joint tenancy. It is even needed when the client is from the BVI’s parent country, the UK, although Grants from the UK and other Commonwealth monarchies can be “resealed” or confirmed in the BVI, an easier process than a full application.
So, how to obtain a BVI Grant? After 70 years of jurisdictional independence, the process is a very different beast to the UK equivalent. It essentially involves a bundle of around 10 affidavits and documents submitted to the BVI Probate Registry. Although no inheritance tax is payable, searches must be made, and adverts placed in local newspapers.
Much of BVI probate practice is unwritten and based on an informal agreement with the registrars, so it pays to instruct an experienced firm based in the BVI itself. It tends to take a few months to prepare the application documents, depending on the speed of the client to sign them. Once the application is submitted, the Registry takes on average three to five months to make a Grant, depending on the complexity of the case and in particular whether there is a BVI Will.
Until the process is complete:
- the shares cannot be transferred to the beneficiaries; and
- the executor cannot exercise the voting rights attached to the holding, potentially causing quorum and majority deadlock in regard to major corporate issues.
These points can cause major headaches to families involved in restructuring or in need of funds.
How to mitigate or even avoid this process? There are a variety of techniques.
- 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 is comfortable with BVI Wills and so will rubberstamp them with fewer questions. Note that this does not allow a client to avoid laws such as forced heirship, since a BVI Will must comply with the succession laws of the client’s domicile. Note also that a BVI Will has different requirements than Wills from the UK or other jurisdictions so it is not always possible to “rebrand” an English Will.
- Expedited probate process:a formal process was brought in in 2017. Although the only post-death solution available, it involves a Court hearing and so is concurrently expensive.
- Joint tenancies: the assets will be transmitted by operation of law on the death of the first to die, though does not resolve the issue of the survivor’s death.
- Trusts: although bare trusts do not avoid probate, more substantive trusts do. Trusts are increasingly recognised worldwide, and although some are complex and expensive, others are simple 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. However, 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 courts.