Understanding Unregulated Trusts

Key Considerations and Compliance Guidelines for Unregulated Trusts in the BVI

By: Estefanía Alemán

What is an Unregulated Trust?

An unregulated Trust is a Trust in which the Trustee is a private individual or private company that is not supervised by any regulatory authority.

This memorandum explores:

• Whether an unregulated Trustee can act simultaneously as Settlor, Trustee, and Beneficiary (a potential conflict of interest known as a “triple role”).
• Recommendations to prevent unregulated Trusts from being considered sham Trusts if challenged in court.
• BVI Compliance rules for beneficial ownership.

Risks: When Unregulated Trusts May Be Considered Sham or Invalid

An unregulated Trust may be deemed invalid in the following scenarios:

1. Triple Role Conflict: The same individual acts as Settlor, Trustee, and sole Beneficiary.
2. Power to Revoke: The individual acting as Settlor, Trustee, and life interest Beneficiary also holds a power to revoke the Trust.

Recommendations to Ensure Validity of Unregulated Trusts

To strengthen the credibility and enforceability of an unregulated Trust:

1. Successor Trustee Appointment Clause
   The Trust Deed should clearly define rules for appointing a Successor Trustee.
   Example: This power can be granted to a Protector or to Beneficiaries acting by majority vote.
2. Corporate Governance of Underlying Companies
   • The underlying company(ies) should not have the Settlor/Trustee as sole director.
   • These companies should have at least two directors, or a corporate director.

BVI Compliance Rules for Beneficial Ownership

Under current British Virgin Islands (BVI) legislation, BVI companies owned by regulated BVI Trustees are exempt from registering their beneficial owners in the VIRRGIN system. Instead, they may register the BVI Trustee as the beneficial owner.

BVI companies owned by Foreign regulated Trustees, and Unregulated Trustees, must register full beneficial ownership information in the VIRRGIN system.

Temporary Policy for Foreign Regulated Trustees

While the BVI Financial Services Commission (FSC) evaluates policy updates, foreign regulated Trustees may temporarily be registered as beneficial owners in the VIRRGIN system when holding BVI companies under foreign Trusts.

Required Information for VIRRGIN Registration

BVI legislation establishes that for BVI companies owned by foreign regulated Trustees or unregulated Trustees, the following details must be disclosed in the VIRRGIN system:

1. Name of the Trustee
2. Name of the Settlor (or person by whom the Trust is made)
3. Name of the Protector, if applicable
4. Beneficiaries or class of beneficiaries with a vested interest in the trust at or before distribution of any trust property or income
5. Any other natural person with ultimate effective control over the Trust (including through a chain of control or ownership); and
6. Nature of interest in, or control over, the legal entity.