The Virgin Islands Special Trusts Act (“VISTA”) came into force on 1 March 2004 and was introduced in order to allow a shareholder to establish a BVI trust over a BVI company which disengages the trustee from administrative and managerial responsibility in relation to that BVI company.
The principal effect of VISTA is to remove the duty of trustees to monitor and intervene in the conduct of the directors and in the running of the BVI company held in trust. Owing to the large number of companies incorporated in the BVI, VISTA was introduced, on the one hand, to offer a vehicle which would remove the need to obtain a grant of probate in the BVI (which would otherwise be a requirement on the death of the owner of BVI company shares) by implementing a trust structure, while on the other hand, allowing the owner to retain effective management and control of the company after having divested himself of its ownership.
The VISTA regime can apply to discretionary trusts, fixed interest trusts, charitable trusts or purpose trusts as long as certain conditions are satisfied (see further below).
THE PRUDENT INVESTOR PROBLEM
An irreducible core of trust law is the trustee’s duties to act in the best interests of the beneficiaries of the trust and to safeguard the value of the trust assets. Consequently, the trustee is required to act prudently in relation to the trust assets and this creates a potential clash of investment approach between that of a conservative corporate trustee and that of a risk-taking settlor who may have built up his wealth over time through entrepreneurial flair.
This “Prudent Investor Problem” was keenly felt in the BVI because BVI trusts are commonly used to hold shares in a BVI company, which itself is a holding vehicle for a family business. A BVI trust may typically be used in such a scenario for succession planning reasons and thus it may be of great discomfort to the settlor of a trust that the trustee may have a duty to alter the make-up of the trust assets (i.e. by seeking to reinvest away from the family business) if the trust was specifically established as a succession vehicle for that family business.
The Virgin Islands Special Trusts Act 2003 (“VISTA”) was specifically enacted to solve the Prudent Investor Problem in relation to BVI companies held in trust.
ADVANTAGES OF VISTA TRUSTS
VISTA seeks to solve the following concerns which commonly apply to trusts when used as asset holding structures:
- The duty of prudence imposed on trustees may be incompatible with a settlor who believes that risk taking is an integral part of business practice;
- There may be wider considerations than pure investment return. For example, when a trust holds a family business, issues such as family tradition and ethical and environment considerations may be relevant factors;
- The skill set of the trustee may not be relevant to the range of business activities carried out by the company held in trust and the directors are better placed to take the lead in that regard; and
- The costs involved with a trustee ensuring that it is properly discharging its administrative and monitoring obligations may be prohibitively expensive;
MANDATORY REQUIREMENTS AND RESRICTIONS ON TRUSTEES’ ACTIVITY
The key conditions of a VISTA trust are that:
- the trust must only hold shares in a BVI company (or companies);
- the sole trustee must be a BVI licenced trust corporation; and
- the trustee cannot be a director of the underlying BVI company.
If these conditions are satisfied and it is expressly provided in the trust instrument that VISTA will apply to the trust, the result is that the trustee is prohibited from interfering in the management of the BVI company (except in extreme circumstances known as intervention calls).
There is a restriction on the trustee’s ability to sell the BVI company shares, which must be retained indefinitely, thereby solving the Prudent Investor Problem. Except when acting or being required to act on an intervention call (following a beneficiary acting upon a “permitted ground for complaint”), a trustee of a VISTA trust “shall have no fiduciary responsibility or duty of care” in respect of the BVI company shares or “the conduct of the affairs of” the BVI company.
OFFICE OF DIRECTOR RULES (“ODRS”)
VISTA also contains detailed rules by which the appointment, removal and remuneration of the directors of a BVI company held in a VISTA trust can be controlled by the settlor or another. Through the use of suitably drafted ODRs, a settlor can retain the ability to appoint and remove directors of the BVI company, free from interference from the trustee.
PRACTICAL USES OF VISTA TRUSTS
- VISTA trusts allow individuals to take advantage of the classic benefits of a trust vehicle, such as effective succession planning and holding assets in a confidential manner, without having to give up effective control of the assets held in the BVI company.
- Vista Trusts are especially useful where the underlying assets to be held by the BVI company in the trust are of specific strategic importance to the family. This may apply to family heirlooms or shares in long established family companies.
- Where the assets or asset classes held by the BVI company in trust are viewed as risky or unconventional, VISTA can provide comfort to trustees by altering their fiduciary responsibility and duty of care in relation to the BVI company shares.
- A BVI trust which combines a purpose trust (i.e. a trust for non-charitable purposes) and a VISTA trust is considered the ideal holding vehicle for certain strategic assets, such as shares in a BVI Private Trust Company (for more information see separate guide on PTCs).