IN070 - Nevis Common Law and Registered Trusts

Through its various offices, Dixcart has developed an expertise in the organisation and management of trusts. Our business has grown and developed from the establishment of our first office in Guernsey in 1972 to the present Group, which encompasses seven international offices, employing more than 120 professional staff. In 2000 we opened a new office on the island of Nevis in the West Indies, where we have the resources in place for the provision of trust management for clients of the Group.

In addition to the provision of facilities for the establishment of trusts under United Kingdom common law, Nevis also provides for the registration of trusts under specific local law, giving additional protections.

A trust is a vehicle whereby an individual gives assets away to someone else to manage for the benefit of the individual or others in the future. This disposal, management and subsequent distribution of the assets is protected and proscribed in a trust deed. This can be as complicated or as simple as one wishes, but the overriding message has to be that the assets are legally disposed of. They will no longer belong to the person disposing of them. This is important for inheritance tax and estate planning purposes and is often a difficult concept for the individual passing the assets to the trust to comprehend or feel comfortable with. This is why individuals proposing to establish trusts often seek experienced, competent and regulated trust managers – such as Dixcart, who can address and satisfy the questions of integrity and confidence required.

The use of trusts internationally for the development of business activities and the holding of assets has increased enormously in the last few decades. As a result the drafting of the terms of the documents and the legal interpretation of the manner in which responsibilities and obligations arise on trustees have simultaneously increased in sophistication.

At Dixcart we can advise on all of these issues and, together with professional advisers in the country of residence of the individuals involved, are able to assist with local taxation compliance obligations if they arise.

Nevis provides two opportunities for the establishment of trusts. These can either be created under the general laws of trusts applicable internationally, which are referred to as common law trusts, or created as specific Nevis trusts, which are registered under the Nevis International Exempt Trust Ordinance. The latter have some additional provisions that may be of value in helping secure the ultimate objectives of the settlor in creating the trust.

Common Law Trusts

These have been used for many hundreds of years in common law countries deriving their basis of law from the United Kingdom. They are created when an individual (“the settlor”) transfers assets to a trustee to control and manage the assets on behalf of specified individuals (“the beneficiaries”). The trust is a separate entity and the assets of the trust belong legally but not beneficially to the trustees.

The trust is subject to the taxation laws applicable to the jurisdiction in which the trust is registered or controlled. As long as the trust is established with a Nevis trustee and does not have a Nevis resident settlor or beneficiary, no taxation will arise in Nevis on the income or gains within the trust.

As no income is subject to tax on the Island, there is no need to register the trust with any authorities or to file any details of the activities within the trust.

A common law trust appointing a Nevis corporation as trustee, and which does not seek registration under the Nevis International Exempt Trust Ordinance, does not need to file details of any aspects of the trust with the authorities in Nevis.

Registered Trusts

In Nevis it is possible to arrange for a trust to be registered. This enables the trust to take advantage of the additional protections established through the Nevis International Exempt Trust Ordinance.

A registered trust is one where the trustees register the trust details with the authorities. In Nevis this registration includes the trust name, the registered address of the trust and also a signed declaration stating that the trust complies with the Ordinance and is an international trust.

This is the extent of the detail currently needing to be filed, with this limited provision of information preserving the confidentiality and anonymity of the client. Although it is not a requirement to disclose details of the trust, settlor, beneficiaries etc., the trust instrument may be filed if the settlor wishes.

Why would a Settlor wish to Register a Trust?

The principal reason is to take advantage of the provisions of the Nevis International Exempt Trust Ordinance, which may help to protect the trust from possible creditor action. This is often the principal purpose for the formation of an Asset Protection Trust.

Benefits of an Asset Protection Trust

The Nevis International Exempt Trust Ordinance 1996 was enacted in direct response to the needs of international lawyers and fiduciaries for a progressive trust statute that incorporates modern trust concepts. Trusts are, of course, designed to protect assets, but what makes the Asset Protection Trust legislation different is the way in which trusts can be structured and, in particular, how they can be used to protect assets from frivolous law suits, as seen all too frequently in an increasing number of countries around the world and particularly in the United States of America.

The Nevis Asset Protection Trust

In order to be classified as a Nevis International Trust, the trust must fulfil the following requirements:

• At least one of the trustees must be a Trust Company licensed by the Government to undertake trust business in Nevis, or a corporation incorporated under the Nevis Business Corporation Ordinance (commonly known as an IBC).
• The settlor and beneficiaries must, at all times, be non-residents of Nevis.
• The trust property must not include any land in the Federation of St. Kitts and Nevis.

Advantages

There are many benefits to be gained from the legislation, the principal ones being:

• Governing Law

Provided the trust document expressly selects the law of Nevis as the governing law, the trust is considered valid, effective and conclusive, regardless of the settlor's country of residence or domicile, or the location of the trust property. It is possible, within the provisions of the trust deed, to amend the governing law to another jurisdiction should the need arise.

• Fraudulent Dispositions

If one of the purposes of the trust is to seek to protect assets against potential claims, it is important to ensure that, on any disposal of assets into a trust, no potential risk of claims against the settlor exist. This is important in order that the disposal of assets is not regarded as a fraudulent disposition.

It is important to note that the burden of proof that a fraudulent disposition has occurred is placed upon the creditor, who must establish "beyond a reasonable doubt" that such a fraudulent transfer took place.

To help overcome some of the problems inherent in this area, it is recommended that the settlor, at the time of the creation of the trust, executes a sworn declaration of solvency or obtains an independent statement from his accountant. This will provide prima facie evidence that at the time of the disposition of assets they were not transferred with the intent to defraud creditors.

If a trust's disposition is set aside by the Court, the Ordinance provides strong protection for a trustee or beneficiary unless the Court receives convincing evidence that one or both acted in bad faith. They have a prior right to recoup a broad range of defence expenses before payment is made to the creditor. If a creditor is victorious in a lawsuit, he can only receive the amount of his debt and such costs as the Court may allow.

• Bond Requirement

If an attempt is made to attack the assets of a Nevis trust by a creditor, it is a requirement that a deposit of US $25,000 be placed with the Nevis Ministry of Finance Department. This is to provide a surety against the payment of costs in bringing the action, should the action fail.

• Perpetuity

The maximum duration of an international trust is one hundred years from the date of its creation. However, a Nevis international trust established for charitable purposes may be in existence for greater than the one hundred year period specified in the Ordinance.

• Forced Heirship Rights

One of the provisions in the Act, which maybe helpful from the point of view of estate planning in civil law countries, is the acknowledgement that any forced heirship rights in the jurisdiction of the settlor or beneficiaries do not overrule the provisions of a Nevis trust.

• Statute of Elizabeth

The provisions pertaining to the Statute of Elizabeth do not apply to a Nevis trust.

• Taxation
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  All trust assets and any income deriving therefrom are totally exempt from estate, corporation, gift, income, inheritance, withholding, succession and stamp taxes in Nevis.
  
• Registration

A fee is payable for registration of the international trust under the Nevis International Exempt Trust Ordinance. Full details of these fees can be viewed in the Nevis Jurisdiction section of our web site at www.dixcart.com.

Conclusion

Common law trusts can be established in Nevis without any registration of detail, and are a well known and dependable vehicle for asset management and family control.

Registered trusts, if desired and appropriate, can secure additional advantages for the protection of assets.

The Nevis Registered Trust Ordinance is considered to be one of the most appropriately framed forms of trust legislation in the world. With Dixcart’s experience and its office on the Island, you and your clients can be reassured that the placement of assets in any such trust will be managed and maintained to exacting professional standards.

If you would like to discuss Nevis trusts, or require any further information, please speak to John Terry at the Dixcart office in Nevis, or your usual Dixcart contact.