BVI Private Trust Companies (PTCs) have proved a great success among High Net Worth (HNW) families, family offices and trust companies alike since their introduction almost 15 years ago. New regulations are expected to widen their popularity further.
The Financial Services (Exemptions) (Amendment) Regulations 2021 (the Amendment Regulations), which amend the Financial Services (Exemptions) Regulations 2007, commonly referred to as the Private Trust Company (PTC) Regulations, have now come into force.
Business owners and internal HNW families often use BVI PTCs to act as trustees of a trust or trusts where they do not wish to transfer their wealth or family business to a third party professional trust company, or where they wish to establish separate family trusts to cover different aspects of their structure.
Why a PTC?
- It can allow the settlor of the trust(s) to retain effective control over the investment and management of assets settled in the trust(s).
- The settlor may be the sole director of a PTC, or a board of directors might be made up of family members, professional family advisors and those familiar with the family business.
- The board of a PTC is likely to be more familiar with the dynamics of the family and their investment culture and more proactive than a third party professional trustee.
- The board’s attitude to risk, for example in terms of investment decisions, may well be less conservative than a professional trustee and so more appropriate where the nature of the business held in the trust involves a level of inherent risk or overall lack of diversification.
Whilst there are a number of conditions which a BVI PTC must comply with to be able to act as a trustee, in this article we review two conditions which have been improved by the Amendment Regulations, with the aim of expanding the appeal and use of PTCs further.
Remuneration payable to “professional” directors
The trustee services provided by a PTC (technically called the “trust business carried on” by a PTC) must be either "unremunerated" or "related". If a BVI PTC is conducting "unremunerated" trust business, then no remuneration can be paid to the PTC or to any person "associated" with it. Naturally, this extends to both directors and shareholders who have a legal or beneficial interest in a PTC.
Though directors are deemed to be associated with the PTC, previously, the Regulations provided that directors of the PTC could receive remuneration but only for the services they provide on a "professional" basis. The Amendment Regulations delete the word "professional" that appeared before the words "director services" in paragraph 2(4)(a) of the PTC Regulations with the result being that it is now clear that a director of an unremunerated PTC may receive remuneration for director services and there is no further uncertainty surrounding which services would be considered "professional". It is important to note that this applies to directors providing director services and therefore associated directors who are not providing such services are not entitled to receive remuneration by virtue of this amendment.
Amendment to “business activity” requirements of PTCs
PTCs were previously prevented from carrying on any business other than “trust business”, i.e. they were not permitted to perform any business other than that of acting as trustee, Protector or administrator of trusts. Such a restriction inevitably caused some difficulty in determining what business may or may not be carried out by PTCs as there are many ancillary activities which PTCs may need to undertake, such as setting up trust bank accounts etc. The Amendment Regulations repeal paragraph 6(1)(b)(i) of the 2007 Regulations entirely, thereby removing the prohibition that a PTC shall not carry on any business that is not "trust business". This amendment now clarifies the position as a PTC will now be able to carry out certain additional activities on its own behalf without fear of falling foul of the previous prohibition.
Ownership of PTC Shares
Aside from the amendments to the PTC Regulations, we also wanted to note that if the PTC shares are owned by an individual outright, it will be necessary to obtain a grant of probate or letters in administration from the BVI court on the death of shareholder which may be costly and time consuming. Furthermore, if the shareholder does not specifically provide for succession to the shares under their Will, or if they die intestate, then the person or persons who inherit the shares (and with them control of the PTC and the trust) may not be the ones they envisaged during their lifetime.
We therefore always recommend placing the PTC shares in a standalone BVI purpose trust to resolve all issues connected to their ownership or succession and are seeing many clients choosing such a structure. Harneys can advise on all the options regarding the ownership of shares in a PTC and the establishment of trusts for this purpose.