Open a STAR Trust in the Cayman Islands

Many owners of international businesses, investors and heads of family offices who need reliable mechanisms for corporate control and succession planning aim to open a STAR trust in the Cayman Islands. This structure does not belong to the category of companies, foundations or "offshore shells" and represents a special trust regime enshrined in Part VIII of the Trusts Act. The high demand for this instrument is due to the possibility of flexibly structuring the ownership of assets without transferring management rights to the beneficiaries.

The present material contains a detailed analysis of the legal basis of this regime and its key differences from the ordinary trust institution. The publication describes in detail how to register a special trust (STAR) in the Cayman Islands, including the step-by-step stages of creation, the timeframes of the procedures, the list of necessary documents and the official fees of the authorities. 

Establishing a STAR Special Trust in the Cayman Islands: the Legislative Framework and the Essence of the Regime

To ensure the stability of capital ownership, a regime based on the provisions of Part VIII of the Trusts Act is used, within the framework of which a special trust is established in the Cayman Islands. This construction is not a separate legal entity and acts exclusively through a trustee within the limits of the trust agreement. To open a STAR trust in the Cayman Islands, the constituent document must necessarily record an express indication of the application of the norms of Part VIII. In the absence of such a stipulation, the structure is classified as an ordinary private trust.

The main feature of the regime is the complete separation of the right to benefit and the right to control. When deciding to register a STAR trust in the Cayman Islands, the owner transfers assets on unique terms: the beneficiary receives a property benefit but is deprived of the procedural right to make claims against the trustee. These powers are monopolistically vested in a special participant — the enforcer.

For investors, the decision to establish a special trust in the Cayman Islands is advantageous because of its high flexibility. The norms of sections 95 to 109 of the Trusts Act make it possible to combine the interests of natural persons and non-charitable purposes (for example, the holding of company shares). 

The main differences between the two regimes

The decision to establish a STAR trust in the Cayman Islands ensures the legal autonomy of assets, shifting the trustee's accountability towards the strict performance of the founder's purposes.

Opening a STAR Trust in the Cayman Islands for Persons, Purposes and Business: the Objects of the Trust and the Rights of the Beneficiaries

According to the provisions of section 99 of the Trusts Act, the objects of a special trust may be natural persons, charitable and non-charitable purposes, as well as mixed constructions. Thanks to this flexibility, entrepreneurs seek to open a STAR trust in the Cayman Islands for business, applying it when fixing corporate control, holding shares in private trust companies and implementing succession programmes.

The legal status of beneficiaries, enshrined in section 100 of the Trusts Act, makes it possible to completely separate the economic interest from managerial influence. The beneficiary is deprived of the automatic right to control the actions of the trustee, to request reporting or to file claims. This helps to create a STAR trust in the Cayman Islands for the protection of family enterprises, shielding the operating business from the risks of involving unprepared heirs, since control is transferred to a professional enforcer.

When forming an asset portfolio, the restriction of section 109 of the Trusts Act applies: a special trust may not directly or indirectly own land or rights to real estate in the Cayman Islands. To circumvent this prohibition, two-tier structures are used:

• direct ownership of local land by a STAR trust is prohibited by law;

• ownership of shares in a company, partnership or other legal entity is permitted;

• this legal entity is entitled to own land in the Cayman Islands if the real estate is used exclusively for its direct operating commercial activity.

An Open STAR Trust in the Cayman Islands: the Trustee, the Enforcer and the Requirements for the Participants in the Structure

The architecture of the system is built on the interaction of the settlor, the trustee and the enforcer. The enforcer is the central element, without which the structure is legally incapable of functioning. They are vested with the right or the obligation of control. If there is no contrary intention, the enforcer bears a fiduciary duty to act exclusively for the realisation of the purposes of the trust. When planning to open a STAR trust in the Cayman Islands, it is important to describe this balance in detail.

The enforcer is entitled to request information, copy documents and bring claims against the trustee in the event of breaches. The role of the enforcer may be performed by natural persons, committees or corporations. The appointment of a beneficiary is permitted, but without the right of personal enrichment. The law establishes strict sanctions for the absence of an enforcer:

• upon the loss of a capable enforcer, the trustee is obliged to file an application with the Supreme Court themselves  (Grand Court Cayman);

• the period for applying to the judicial body is 30 days from the moment of the loss of the participant;

• for the wilful non-performance of this obligation, a fine of 10,000 dollars is imposed on the trustee.

The trustee must be a trust corporation with a licence from the Cayman Islands Monetary Authority (CIMA). A breach of this qualification entails a fine of up to 100,000 dollars and imprisonment of up to 5 years. When carrying out the creation of a STAR trust in the Cayman Islands, owners often establish a Private Trust Company to service the family office. Such structures are obliged to keep documentary records in the territory of the islands. 

Registering a STAR Trust in the Cayman Islands: Documents, the Stages of Creation, Timeframes and Official Costs

The emergence of the special STAR trust regime occurs at the moment of signing the trust declaration containing an express indication of the application of Part VIII of the Trusts Act. The legal registration of a STAR trust in the Cayman Islands as a separate administrative procedure is required in the case where the structure needs to be granted the status of an exempted trust in order to fix tax advantages. The process of establishing and legalising capital is multi-stage in nature, requiring the precise observance of the regulations of the Registrar of Trusts and the Cayman Islands Monetary Authority (CIMA).

To register a STAR trust in the Cayman Islands, it is necessary to pass through all the regulatory stages consecutively. Below is a detailed roadmap used in structuring international assets.

The overall procedure for registering a trust in the Cayman Islands has no fixed legislative timeframes, since the duration of compliance depends on the structure of the assets. At the same time, the official administrative regulations of the Cabinet Office of the Cayman Islands indicate that applications for a tax certificate in paper form (manual applications) are processed within 2 weeks. 

Official government duties and fees

Opening a STAR Trust in the Cayman Islands: the Tax Regime, the Tax Undertaking and Compliance

The decision to open a STAR trust in the Cayman Islands makes it possible to fix a stable tax status for investments. The legislation of the islands does not impose direct obligations to pay fiscal charges on trust structures. To protect against future changes, the Part VI Trusts Act regime is used, making it possible to grant the structure the status of an exempted trust.

Within the framework of this procedure, the Financial Secretary issues a written undertaking — the Tax Undertaking Certificate (TEC). The document guarantees that any future laws on taxes on income, capital gains or inheritance will not be applied to the property and the trustees. The Cabinet Office regulation establishes the period of validity of the undertaking at 20, 30 or 50 years, which forms the stable taxation of a STAR trust in the Cayman Islands. 

A special trust is not an instrument for concealing data. The international tax regime of a trust in the Cayman Islands requires licensed trustees and family PTCs to strictly observe the Anti-Money Laundering Regulations and the prescriptions of CIMA (AML/CFT/CPF compliance).

The KYC/CDD procedure includes documenting data on the settlor, the sources of capital, the enforcers and the beneficiaries receiving distributions. The official file with the Registrar is closed to third parties, which ensures the legitimate confidentiality of a STAR trust in the Cayman Islands. At the same time, the registrar of trust structures is obliged, within 48 hours, to transfer the necessary information to the competent state authorities (CIMA, FRA, TIA) if the corresponding request is connected with an investigation carried out in accordance with the Proceeds of Crime Act or the Anti-Corruption Act.

Registering a STAR Trust in the Cayman Islands: the Period of Existence, the Protection of the Structure and Legal Restrictions

The wish to register a STAR trust in the Cayman Islands for the protection of holdings is justified by the norms of the Perpetuities Act. The internal architecture is protected from the uncertainty of purposes. Vagueness of wording does not render the trust void: the powers to eliminate ambiguities are built into the trust agreement. If the performance of the purposes becomes impossible, the trustee initiates a cy-près procedure in the Grand Court Cayman (a judicial adaptation of the purposes of the trust). The court reforms the structure while preserving the original will of the founder.

When carrying out asset protection through a STAR trust in the Cayman Islands, investors rely on the barriers of English common law that block foreign court decisions:

• forced-heirship claims are ignored by the courts of the Cayman Islands;

• claims in foreign divorces do not entail automatic enforcement against the property;

• the validity of the transfer of assets is resolved solely on the basis of local legislation.

The protection is not absolute: where there is an intention to mislead creditors, the transaction is contested under the rules on fraudulent disposition. There are also other legal restrictions on a STAR trust in the Cayman Islands: the prohibition on the direct ownership of local land, the information-disclosure standards provided for by the Beneficial Ownership Transparency Act for subsidiaries, and criminal liability for an unlicensed service. 

Conclusion

Opening a STAR trust in the Cayman Islands is a considered step for owners of capital who seek to separate the property rights of heirs from the strategic management of an international business. The unique splitting of powers, whereby beneficiaries are deprived of the right to interfere in the administration of assets, and control is transferred to a fiduciary enforcer, turns this regime into an effective alternative to the classic instruments of succession.