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Bermuda Introduces Unprecedented Changes to Legislation on Settlor Reserved Powers

Clicks :23792014-08-13 14:14:54 Source: CHINA OFFSHORE

The reservation or grant of certain powers by settlors has always been possible under Bermuda’s trust legislation but historically, there has been some uncertainty about exactly how far settlors could go without calling the validity of the trust structure into question. The recently passed Trusts (Special Provisions) Amendment Act, 2014 (the “Amendment Act”) now provides statutory clarity and certainty in this area.
Helpfully, the Amendment Act expressly lists certain interests and powers which can be retained by a settlor or granted to a third party, for example, a protector or beneficiary, without prejudicing the validity of a trust. It also clarifies that the retention or grant of these powers and interests will not cause the property in the trust to become part of the settlor’s estate - introducing certainty in this area distinguishes Bermuda from some of the other major offshore jurisdictions.

Fiduciary Provisions and the Effect on Trustees’ Duties and Liabilities 

The Amendment Act makes it clear that trustees will not be in breach of their fiduciary or equitable duties for complying with the valid exercise of the powers listed in the Amendment Act. In addition the Amendment Act provides that no person (unless formally appointed as trustee) shall be deemed to be a trustee by reason only of the grant or reservation of any of the powers specified in the Amendment Act. This is a helpful provision because if settlors or protectors are deemed unintentionally to be trustees by virtue of their control over the trust property, this could be problematic; most other offshore jurisdictions do not expressly clarify this point. 
The Amendment Act also clarifies that the terms of a trust deed governed by Bermuda law may expressly provide that the person who holds the powers listed in the Amendment Act shall not be subject to a fiduciary duty. This approach (which is unique to Bermuda1) is useful where, for example, powers are being given to protectors who may be trusted family friends and on whom there is no desire to impose strict fiduciary standards of liability.

Conclusion

These new legislative provisions will render Bermuda trusts more attractive to the international settlor. In particular, they will appeal to clients from jurisdictions which do not recognize trusts, since clients from such jurisdictions are typically unfamiliar with the trust concept and often reluctant to release full control over their assets to trustees.
The new legislation not only provides clarity as to what interests and powers can be retained or granted to third parties. It also provides flexibility, where, for example, a settlor wishes to appoint a family member or friend to oversee certain aspects of the trust administration (e.g. monitoring of investment managers), and at the same time ensure that the friend or family member is absolved of any fiduciary liability. 
Bermuda now has the most comprehensive reserved powers legislation of any offshore jurisdiction, emphasizing its position as a modern, innovative and sophisticated domicile for the international trust.

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