Cayman Islands

Taxation

The Cayman Islands is a tax-neutral jurisdiction and presently there are no income, capital gains, corporation, wealth, withholding, estate or inheritance taxes levied locally. That said, it is not an entirely “tax-free” jurisdiction.

Stamp duty is levied on the transfer of property at a rate of 7.5% of the purchase price, subject to a limited number of exemptions. It is possible to apply for a waiver of the duty payable where a transfer does not result in any change of beneficial ownership (i.e., in the case of a transfer to a company the shares in which are 100% owned by the transferor) and where a gift of Cayman Islands real property is made “for natural love and affection” to another family member, such as a spouse, child or grandchild. Stamp duty of between USD 20 and USD 120 is also payable on certain documents executed within, brought into or produced before the court in the islands. The only other form of taxes imposed within the islands is an import duty of between 5% and 42% (typically charged at 22%), which applies to most new goods brought onto the island.

While wealth planning for local clients with primarily local assets is straightforward, planning for international clients who are subject to extensive tax regimes is more complicated. As a result, Cayman private wealth advisors regularly work alongside tax advisors from the country in which the international client is domiciled or has been resident for the prescribed period of time in order to ensure that structuring is as efficient and comprehensive as possible.

Trusts and trust administration

The Cayman Islands is one of the leading jurisdictions for the establishment and management of trusts. It has a sophisticated professional trust sector, modern trusts legislation and an effective judicial system. The principles of English common law and equity, both with respect to trusts and generally, apply in the Cayman Islands subject to variation by local statute. The principal trusts legislation is the Trusts Act (as revised) of the Cayman Islands, which is supported by a body of case law from the Cayman courts.

The most common form of Cayman Islands trusts used for wealth structuring is a discretionary trust. A discretionary trust gives the trustees wide powers to administer the assets and to distribute them at their discretion. The trustees will usually be guided by a letter of wishes from the settlor, setting out his or her wishes regarding the manner in which the trust fund is to be administered and distributed. Such letters of wishes can be updated from time to time.

STAR Trusts

The Cayman Islands also provides for a unique form of statutory purpose trust known as a “STAR Trust”. The Special Trusts (Alternative Regime) Law 1997, which is now incorporated into Part VIII of the Trusts Act (as revised), allows for the establishment of a trust for the benefit of persons, purposes, or both. The purposes can be of any kind or number provided that they are not contrary to public policy or illegal. A STAR Trust can remove or restrict the rights of beneficiaries to enforce the trust or to obtain information about the trust fund and its administration from the trustee.

A STAR Trust must have one or more trustees but does not need to have beneficiaries. Instead, a STAR Trust is required to have one or more enforcers, who are the only persons who have standing to enforce a STAR Trust. Enforcers can be corporate entities or individuals, and one or more of the beneficiaries and/or the settlor and/or any protector of the trust may hold the office of enforcer. Unlike beneficiaries of a STAR Trust, the enforcer has statutory standing to seek the direction of the Grand Court of the Cayman Islands (the “Grand Court”) concerning the administration of the trust in appropriate cases, rights to information concerning the trust and its administration from the trustee and rights to take copies of trust documents.

Foundation companies

A Cayman foundation company is a separate legal entity which is unique to the Cayman Islands. It is a type of non-profit company, limited by shares or by guarantee, incorporated under the Foundation Companies Act, 2017. A foundation company will be incorporated with an initial member but can cease to have members post incorporation if desired and can therefore be an orphan vehicle. Given its non-profit nature, the constitutional documents of a foundation company must prohibit dividends or other distributions of profits or assets to the members (if any) of the foundation company. However, the objects of the foundation company can include benefitting individual beneficiaries, and the constitution can specify the terms on which assets should be held for the benefit of beneficiaries. Bespoke rights and obligations can be created and conferred on any person, including through the creation of by-laws that can be updated and modernised over the life of the foundation company with relative ease.

Firewalls

Firewall legislation operating in the Cayman Islands is designed to protect trusts from attacks by forced heirs and those claiming against the trust by reason of a personal relationship with the settlor. Such attacks might include, for example, family provision or inheritance claims brought by a spouse, ex-spouse, child or other dependant, or claims brought based upon community property rules in civil law jurisdictions. The firewall provisions in Part VII of the Trust Act (as revised) operate so that if a trust is expressed to be governed by Cayman Islands law and has a jurisdiction clause in favour of the Grand Court, all questions arising in relation to that trust must be determined in accordance with the laws of the Cayman Islands, without reference to the law of any other jurisdiction with which the trust may be connected. This relates to, among other things, questions about the capacity of the settlor, or any aspect of the validity, construction or administration of the trust. The legislation also confirms that, if a foreign judgment is inconsistent with the laws of the Cayman Islands, that judgment will not be recognised or enforced by the courts of the Cayman Islands.

Registers of beneficial ownership

The Cayman Islands has had a register of beneficial ownership for certain corporate entities since 2017. As part of the Cayman Islands’ commitment to supporting a well-regulated international financial system and participation in global transparency initiatives, the beneficial ownership framework was updated by the Beneficial Ownership Transparency Act, which came into force on 31 July 2024, accompanied by the Beneficial Ownership Transparency Regulations. This legalisation has expanded the scope of the regime, bringing previously exempt corporations within its remit and amending the definition of “beneficial owner”. Additionally, the Beneficial Ownership Transparency (Legitimate Interest Access) Regulations, 2024 came into force on 28 February 2025 which allow for members of the public to apply to access certain beneficial ownership information provided they have a “legitimate interest” in that information and the information is required to prevent, detect, investigate, combat or prosecute money laundering or terrorist financing. Persons who can apply for access include journalists, academics, civil society organisations, and persons in actual business relationships or transactions with the person in respect of whom information is sought. Separate regulations, the Beneficial Ownership Transparency (Access Restriction) Regulations, 2024, which are already in force, allow for beneficial owners to apply to prevent public access from being granted to their details if such access could place them in danger.

While Cayman Islands trusts fall outside of the beneficial ownership regime, trusts and trustees may still be impacted as most trust structures involving Cayman Islands trusts will feature a corporate entity at some level; whether as a holding vehicle for real estate, the family business generating wealth for the beneficiaries, or a private trust company (PTC) acting as trustee. PTCs have specifically been brought within the scope of the beneficial ownership regime along with foundation companies.

There is no localised legislation or regulations.

Recent decisions of the Grand Court offer an interesting insight into the complex issues that arise in many of the private client structures governed by Cayman Islands law.

Capacity

In Re the Poulton Family Trust (unreported, Kawaley J, FSD 121 of 2016), the Grand Court provided a clear but comprehensive review of the law in the Cayman Islands relating to mental capacity. The Grand Court confirmed that the leading English authorities on the capacity applied in the Cayman Islands. The correct test for mental capacity in the Cayman Islands is that set down in Banks v. Goodfellow (1861–1873) All ER Rep 47, which requires that in relation to the exercise of trust powers, the powerholder needs to understand the nature of the act and its effects, the extent of the property being disposed and any moral claims on his or her assets. The level of understanding required depended on the context of the situation, complexity of the transaction and the value of property being disposed (approving the test in Re Beaney [1978] 1 WLR 770).

Firewall and jurisdiction

In Geneva Trust Company (GTC) SA v. IDF & MF (known as Re Stingray Trust (unreported, Kawaley J, 21 December 2020)), the Grand Court carefully considered the scope of the Cayman Islands’ firewall provisions and the extent to which these confer exclusive jurisdiction on the Grand Court when dealing with disputes concerning a Cayman law governed trust. The judge drew a distinction between a governing law clause (which states that questions concerning a trust must be determined by reference to the law of the Islands) and an exclusive jurisdiction clause (which would settle the forum for a trust dispute) and found that the Grand Court did not have exclusive jurisdiction. The judge noted that the legal character of the dispute and the particular facts of the case were highly relevant. In Re Stingray Trust, there were proceedings in Milan challenging the validity of the trust itself. The judge also ruled that Milan was the most convenient forum for the matter to be heard, given that the proceedings had been commenced there three years previously, the trustee had submitted to that jurisdiction, and the majority of interested parties, witnesses and documents were located there. The judgment confirms that in limited circumstances a foreign court can make enforceable orders in respect of a Cayman Islands trust so long as it properly applies Cayman law.

There is no localised case law.

The Cayman Islands has observed a significant increase in demand for cross-border structuring, largely as a result of the influx of new residents who have obtained residency by investment and have international connections. There is an increased use of foundation companies in the wealth planning space, particularly in the fintech and digital assets space, and for families who are interested in having greater governance and control over their private wealth structures. Foundation companies are increasingly the Cayman vehicle of choice for philanthropic ventures.

The increasingly high regulatory burdens as a result of global transparency initiatives mean that private clients and advisors using Cayman Islands structures must give close consideration to how wealth will be reported under the Automatic Exchange of Information framework.

In response to the pandemic, the Cayman Islands introduced the Global Citizen Programme in October 2020, providing a route for digital nomads to live and work remotely in the Cayman Islands for up to two years, providing certain criteria such as income thresholds, health insurance and “good character” requirements were met. The programme has since closed but other routes, such as the Special Economic Zone operated by Cayman Enterprise City, provide a package of work permits, company structures, and benefits for those who continue to be globally mobile post-pandemic and wish to base their operations in the Cayman Islands.

Wills and estate administration

The Cayman Islands allows for complete testamentary freedom, meaning that an individual may leave his or her estate as they choose, with limited grounds to challenge this. With the absence of inheritance taxes as a driver for estate planning, the focus for many of those creating succession plans in the Cayman Islands is streamlining the estate administration process (in the Cayman Islands and abroad) and ensuring asset protection for future generations.

The Wills Act (2021 Revision) provides that a will is formally valid if it is made by an adult aged over 18, is in writing and is signed in the presence of two witnesses. If a person dies without having made a will, the Succession Act (2021 Revision) and Probate Rules (2008 Revision) are used to determine how their estate will devolve on intestacy.

An application for a grant of probate (for a will) or letters of administration (in the case of intestacy) must be made within six months of the date of death. The sealed order is usually granted within three to four months from the time of the registry accepting the application. Within one year of the grant being issued, the personal representative must file estate accounts supported by an affidavit exhibiting receipt and payments from the estate.

Perpetuity periods

Up until August 2024, Cayman Islands trusts that were settled on or after 1 August 1995 were subject to a 150-year statutory perpetuity period. There were some exceptions for charitable trusts, pension trusts and STAR Trusts which are not limited in duration.

The Perpetuities (Amendment) Act 2024 now permits trusts established after its introduction to disapply the statutory period and exist “in perpetuity” provided the trust does not hold Cayman real estate, in which case the 150-year period still applies. Trustees, protectors and beneficiaries of existing trusts may apply to the Grand Court to disapply the perpetuity period. However, the 150-year statutory period will still apply if not expressly disapplied, so it gives settlors choice and certainty.

Variation of trusts

The statutory rules regarding the variation of Cayman Islands trusts have recently been modernised. Prior to 2019, the test the court needed to apply when approached to approve the variation of a trust for minor or unborn beneficiaries was whether the proposed variation was “for the benefit of” those beneficiaries. Section 72 of the Trusts Law (as revised) reduces the threshold so that the variation must not be to the detriment of the beneficiaries. This imposes a negative obligation rather than a positive one, thereby balancing the rights of living beneficiaries with potential future beneficiaries. 

Codification of the rule in Hastings-Bass

The Cayman Islands also recently introduced legislation that has the effect of codifying the English common law rule that concerns the exercise of trustee powers and allows the court to intervene where a trustee has made a mistake. Pursuant to section 64A of the Trusts Act (as revised), the Grand Court can set aside the exercise of a fiduciary person where the person who has the right to exercise that power did so mistakenly by failing to take into account relevant considerations (or taking into account irrelevant considerations). There is no requirement to allege or prove that the person exercising the power has acted in breach of trust. This is a useful antidote to decisions which have been made and are later found to have had unintended consequences, including significant fiscal consequences.

Resolving trust and estate disputes

Despite the robust structuring options available in the Cayman Islands, it is not possible to completely avoid trust disputes. The ability for such disputes to be settled quickly and with minimal intervention from the Grand Court is an essential component of the success of the Cayman Islands’ trusts industry. Section 48 of the Trusts Act (as revised) enables a trustee of a Cayman Islands trust to apply to the Grand Court at any time for an “opinion, advice or direction on any question concerning the management or administration of the trust money or the assets of any testator or intestate” and the trustee will be deemed to have discharged his or duty by acting on the opinion, advice or direction of the court. Where a settlement of a dispute is reached between the parties connected to a trust, it may be necessary to seek the court’s approval of the compromise on behalf of minor and/or unborn beneficiaries. The Grand Court has the power to approve a compromise that is not to the detriment of the minor or unborn beneficiaries.

There is no localised case law or regulation.

Estate disputes

In 2020, the Grand Court considered the scope of its jurisdiction to remove personal representatives from their office in the case of Uzzell v. Wong Sam. The executors had accused each other of misconduct in the administration of the estate and had reached an impasse as to how this should be resolved. Section 8 of the Succession Act (as revised) permits the removal of an executor who is unwilling to resign on grounds of neglect or misconduct, however, the parties wished to avoid the costs of a trial to determine the allegations of misconduct, and it was uncertain whether the court had the discretion to remove an executor on any other grounds. The Grand Court determined that the Succession Law imported section 50 of the UK Administration of Justice Act 1985 and gave the Grand Court a wide discretionary power to appoint and remove a personal representative where this is in the best interests of the beneficiaries as a whole.

STAR Trusts

In Re G Trust (unreported, Kawaley J, FSD 270 of 2023), the Grand Court considered an application for Beddoe relief by the Cayman trustee to participate in litigation in Hong Kong and to be indemnified from the trust for its costs. This was particularly contentious in light of the proprietary claim made by the plaintiffs in the Hong Kong litigation over the assets in the G Trust. At the same time, the Trustee sought Beddoe relief in respect of an application to rectify a supplementary deed. The Trustee joined the trust’s Enforcer and the adult beneficiaries to the proceedings as defendants. The B Beneficiaries submitted that the substantive hearing of the rectification would require adversarial argument and even if all the parties were aligned, a “Devil’s Advocate” should be appointed to make opposing arguments. However, the court confirmed that there was no need for a Devil’s Advocate before the Cayman Court and that if adversarial argument was required, the Enforcer would be the appropriate party to make these submissions. In doing so, Kawaley J confirmed that the voice of a beneficiary in relation to a STAR Trust is more muted compared with the standard position of an ordinary trust.

In AA v. JTC (unreported, Kawaley J, FSD 12 of 2024), the Grand Court considered the role of the enforcer of a STAR Trust and, in particular, whether an enforcer is entitled to seek the blessing of the Grand Court, under the Public Trustee v. Cooper mechanisms, in respect of a momentous decision. The decision in question related to the manner in which rights attached to shares in an underlying company were exercised. The Grand Court, in confirming that the enforcer had the power to give the relevant instruction, found the enforcer had genuinely decided that the decision was in the best interest of the trust, had reached a decision that a reasonable enforcer would have reached after careful deliberation, and was not impeded by conflicts of interests. The enforcer’s decision was therefore blessed.

There is no localised legislation or regulation.

On the disputes side, the Grand Court has seen a significant increase in the number of contentious trust and estate matters before it over the past three years, particularly relating to issues of capacity, testamentary wishes, entitlement to trust assets, and decisions to restructure family trusts.

Electronic signatures and e-filing options were already in place for most agreements and contracts in the Cayman Islands, but the pandemic sped up the adoption of these practices for other areas, notably for certain court documents, including applications for probate. Deeds effecting the transfer of property, powers of attorney and wills and other testamentary documents still require a wet ink signature and, crucially, must be witnessed contemporaneously.

Helpfully, the Formal Validity of Wills (Persons Dying Abroad) Act 2018 came into force on 1 February 2019. This provides that a will shall be regarded as properly executed and capable of being admitted to probate in the Cayman Islands if it complies with the internal law in force in the place the will was executed. Therefore, if the jurisdiction where the will was executed permitted electronic witnessing at the time the will was signed this would not prevent the will being proved in the Cayman Islands.

There is a specialist Financial Services Division of the Grand Court which handles trust matters. Final appeals from the Cayman Islands Court of Appeal are to the Privy Council in the United Kingdom. Unlike some other offshore jurisdictions, the Cayman Islands allows King’s Counsel to appear in the Grand Court.

The Fraudulent Dispositions Law (1996 Revision) provides that every disposition of property, including a disposition into trust, made with intent to defraud and at an undervalue shall be voidable at the instance of a creditor thereby prejudiced. The phrase “intent to defraud” is defined as an intention of the transferor to wilfully defeat an obligation or liability owed to the creditor. Such obligation or liability must exist on or prior to the date of the disposition and the transferor must have had notice of it.

The Foreign Judgments Reciprocal Enforcement Law (1996 Revision) allows for the Governor of the Cayman Islands to extend to foreign courts reciprocity of treatment in respect of the enforcement of its judgments, provided that the foreign courts extend similar treatment to judgments of the courts of the Cayman Islands.

There is no localised legislation or regulation.

The Grand Court regularly provides juridical commentary on key aspects of local statute and guidance in respect of the administration of Cayman Islands trusts.

Trustee mistake

In Re Settlements made by Declarations of Trust dated 9 May 2013 (unreported, Kawaley J, FSD 228 of 2023), the Grand Court was asked to apply the statutory Hastings-Bass provisions. In doing so, it reviewed the settlement of shares in a company on three family trusts, which had occurred many years ago without the original unpaid lay trustees taking advice about the tax implications of the settlements in the settlors’ onshore country of domicile. The applicant trustee, a professional trustee newly appointed to administer the trusts, discovered that these settlements had given rise to a significant unforeseen tax liability, both for the settlors and for the trust funds.

The trustee applied for an order under section 64A of the Trusts Act (as revised) to set aside the mistake. It was duly granted, and the Grand Court noted that section 64A is intended to facilitate a flexible approach to setting aside the flawed exercise of fiduciary powers, and the court will generally be obliged to give it effect subject to appropriate limitations. Those limitations were that the mistake amounted to the improper exercise of a fiduciary power, and that the applicant had not deliberately pursued a course of conduct designed to gain some undisclosed and impermissible onshore tax advantage or some other improper benefit.

Beneficiary consultation

In the case of In the Matter of the A Trust (2016 [2] CILR 416), the A Trust was a Cayman Islands trust, the settlor of which was the father of the three defendants in the proceedings. Following the death of the settlor, the trustee prepared a final distribution proposal which provided for how and to which beneficiaries the assets of the Trust would be distributed. The proposal was supported by two of the siblings but strongly opposed by the third, who alleged bias on the part of the trustee. The Grand Court was asked by the trustee to bless a momentous decision under “Category Two” of the Public Trustee v. Cooper categories, which the trustee was empowered to make but did not wish to implement without the court’s confirmation that it did not entail an improper exercise of its powers. Noting that the trustee’s consultation process had already spanned four years and had not achieved the desired result, the Grand Court concluded that the trustee’s actions in deciding to cease consultation was entirely reasonable and warranted the trustee proceeding to implement the distribution plan without further consultation.

There is no localised case law.

The jurisdiction has seen a sharp rise in beneficiary disputes connected to the passing of a matriarch or patriarch, with demands for the disclosure of trust accounts and trust information very common, along with proposals for significant restructuring of older dynastic trusts. Possibly related to this, the number of “blessing” applications put before the Grand Court by trustees or enforcers in reliance on the Public Trustee v. Cooper jurisdiction has increased significantly.

Virtual hearings before the Grand Court are now much more common following the pandemic, as are virtual client consultations.