Private international law issues which need to be considered both before and after preparing a British Virgin Islands will disposing of shares in a British Virgin Islands company.
Abstract
This note considers the need, when preparing wills disposing of shares in BVI companies, to take into consideration issues arising from the succession laws of the jurisdiction in which a person who makes a will is regarded as being ‘domiciled’. This is critical because, albeit a BVI grant of probate or administration will be needed after the testator passes away, not only might the laws of the domicile jurisdiction restrict the testator’s ability to dispose of the shares in the way intended by them (so as to make the will ineffective in whole or in part), but because those laws will determine the manner in which the will must be executed in order to be regarded as valid (and might stipulate other formal requirements which must be satisfied in order for the will to be regarded as valid as a matter of BVI law).
By CHRISTOPHER MCKENZIE Partner – BVI Trusts & Estates/Private Client
Reasons to prepare wills
There are a number of probate avoidance mechanisms available to shareholders of British Virgin Islands (‘BVI’) companies[1], but if none of these options is taken up serious consideration should be given to the preparation of a will disposing of the shares. Some of the reasons for doing so are set out in the following link: https://onealwebster.com/bvi-shareholders-executing-a-will/
Private international law
When preparing wills, however, one has to be mindful private international law considerations.
Private international law (also known as ‘conflict of laws’) is essentially that part of the law of a particular legal system which deals with designated issues when a matter is perceived as having a connection with a different system of law. Such a connection with another legal system may arise, for instance, because the persons involved are not from[2] the jurisdiction in question or because the relevant property is not regarded as being situated[3] in the relevant jurisdiction. In these circumstances any relevant legal system, such as the that of the British Virgin Islands (‘BVI’), will impose ‘choice of law’ rules which determine which jurisdiction’s laws determine a particular issue – i.e. whether it will be decided in accordance with BVI law or in accordance with the laws of another specified jurisdiction.
In the case of BVI trusts which have been established during a settlor’s lifetime (as opposed to trusts which are established by their will), these private international law issues will generally have less relevance than they have in relation to wills (or to succession law generally).[4]
‘Situs’ of shares in a BVI company
The common law principles of English law assign a ‘situs’ to different types of property. For instance the situs of land is the jurisdiction in which the land is physically situated. In the case of ‘intangible movable property’, such as shares in a company which have no physical existence, the law has to assign a situs to such property. The law makes this assignment either pursuant to express statutory provisions, such as those in section 245 of the BVI Business Companies Act, 2004 (‘BCA’), or, if there are no relevant statutory provisions, the assignment is made following principles which have been laid down by case law.
Section 245 of the BCA states that ‘for purposes of determining matters relating to title and jurisdiction but not for purposes of taxation, the situs of the ownership of shares, debt obligations or other securities of a [British Virgin Islands] company is the [British] Virgin Islands‘.
The consequence of section 245 will be that, following the death of a shareholder of a British Virgin Islands (‘BVI’) company, a BVI grant of representation (probate or letters of administration) will be needed before shares in a BVI company can be transferred to their personal representatives (or beneficiaries). This is the case because the ‘situs’ of the shares is the BVI and, pursuant to the general principles of English private international law which apply in the BVI, a grant of representation must be obtained in the situs jurisdiction before the shares can be disposed of in accordance with the terms of the deceased’s will or intestacy; if no such grant is obtained there could be exposure to liability on the part of anyone who deals with the shares without a grant.[5]
The need to consider the laws of other legal systems
It does not follow from section 245 that non-BVI law can always be wholly disregarded when preparing a will disposing of BVI shares. If the testator has connections with a jurisdiction other than the BVI, consideration must be given to a number of issues of private international law. These issues relate, amongst other things, to the will’s ‘formal’ and ‘essential’ validity and to the testator’s capacity.
Whilst detailed consideration of these private international law issues is beyond the scope of this note, its purpose is to summarise some of those issues which will need to be navigated both before and after a will disposing of BVI shares[6]is drawn up.
The will’s validity
The first question to ask is what law governs the validity of the will? There are two issues of validity: essential (or material) validity and formal validity.
Essential validity
The issue of essential validity involves consideration, not of how the will must be executed, but the fundamental ability of the testator dispose of their property by will in accordance with the terms of the particular will.
In basic terms, the essential validity of a will relating to movables[7] is determined exclusively by the law of the domicile of the deceased as it existed at the time of the latter’s death.[8] If the testator died domiciled outside the BVI, leaving assets in the BVI (such as shares in a BVI company[9]), a grant of representation will normally need to be taken out in the BVI and the assets will need to be administered according to BVI law, whereas all questions concerning the beneficial succession under the will fall to be determined in accordance with the law of their domicile. It follows from this that the dispositive or beneficial provisions of the will (in so far as these relate to the disposition of movable property) will be disregarded to the extent that they purport to override mandatory forced heirship rules forming part of the law of the deceased’s domicile at death.
Formal validity
The law governing the will’s formal validity will determine how it must properly be executed; certain jurisdictions’ laws may also require wills to be notarised, registered or written out in the testator’s own hand in order to be formally valid.
As far as the question of how a will must be executed is concerned, there is, in the BVI, no equivalent[10] to the English Wills Act 1963 (or indeed to its forerunner, the English Wills Act 1861),[11]. Accordingly, the formal validity of a will relating to BVI movables[12] such as shares will be determined in accordance with the law of the testator’s domicile at the time of their death (rather than at the time of making the will).
Capacity
If there is any risk that the testator may lack capacity, the question of what law governs the testator’s capacity to make a will should also be considered. The capacity of a testator to make a will relating to movables[13] will be determined by the law of their domicile. It is unclear, however, whether or not the determinant of the governing law will be the testator’s domicile at death or that when the will was made, but the authors of some of the leading texts submit that, on principle, the law of a testator’s domicile at the date of their will should determine this issue. Determination of this question will be relevant if the testator changes their domicile between making their will and dying, and, as a consequence, the testator either has the requisite capacity under the law of their domicile when making the will but does not under the law of their domicile when dying, or if the testator does not have capacity under the law of their domicile when making the will but has capacity under the law of their domicile when dying.
Construction of will
A will will be interpreted in accordance with the law intended by the testator. Accordingly, if a will contains a statement to the effect that it is to be construed in accordance with BVI law this should be conclusive, but, in the absence of such a statement, the law intended by the testator will, according to the authorities, be presumed (rebuttably) to be the law of the testator’s domicile at the time when the will was made. This makes matters straightforward because a will prepared by a BVI lawyer would be expected to include an express statement to the effect that the will is to be interpreted in accordance with BVI law.
Will trusts and gifts to trustees
Particular care must be taken to ensure that any trusts that are set up by a testator’s will, and that any dispositions in the will to the trustees of trusts that have already been established, will be regarded as valid, pursuant to the relevant principles of private international law. While detailed consideration of the principles of private international law relating to the validity of trusts created by wills and testamentary dispositions to trustees is beyond the scope of this guide, in this context particular care must be taken in relation to the application of the rule against perpetuities and gifts upon ‘charitable’ trusts which might not be regarded as charitable under BVI law. Additional complications can arise where the gift is one to an existing trust, but consideration of these issues is beyond the scope of this note.
Appendix – Domicile
Since the relevant English principles of common law and equity apply in the BVI, to the extent that it is necessary to establish a person’s domicile, the BVI courts will apply these English principles. However, there is no equivalent in the jurisdiction to section 3 of the UK’s Domicile and Matrimonial Proceedings Act 1973; instead of that statutory provision, there is section 59 of the Matrimonial Proceedings and Property Act, 1995, which is referred to below. The material BVI law relating to domicile can therefore be summarised as follows:[14]
- The law assigns a domicile of origin to every person at birth: a legitimate child’s domicile of origin is that of the child’s father.[15] The domicile of origin will prevail until a new domicile has been acquired. A child is incapable of acquiring an independent domicile until reaching full age, since there is no equivalent of section 3(1) of the UK Domicile and Matrimonial Proceedings Act 1973 in the BVI.
- A person can acquire a domicile of choice, and while this is retained the domicile of origin is in abeyance, but not extinguished. When the domicile of choice is abandoned, the domicile of origin revives.
- By rule 10 of Dicey: ‘Every independent person can acquire a domicile of choice by the combination of residence and intention of permanent or indefinite residence, but not otherwise.’ Residence in a country is not, in itself, sufficient to create a domicile of choice without evidence of volition to change domicile. A domicile of choice is not acquired merely by virtue of accepting and holding a post in a country. It is difficult to lose a domicile of origin: there must be clear and positive evidence that a change has been made. Going abroad for a period of years is unlikely to result in the acquisition of the domicile of choice, but, if when taking up residence in another country or subsequently, there is a genuine intention to remain there permanently or indefinitely, the individual may be taken to have acquired a new domicile of choice even if that individual later changes their mind and goes home.
- An individual loses a domicile of choice by leaving the country in question and giving up the intention (supported by clear evidence) of making it their permanent home. An individual may then acquire a fresh domicile of choice if the joint requirements of actual physical presence in the country in question and the definite intention, evidenced by all the circumstances surrounding the individual and their way of life, to make their home in that country permanently or indefinitely, are present. If a new domicile of choice is not acquired, e.g. because the dual requirements for obtaining such a new domicile are not satisfied, then the person’s domicile of origin revives.
- By virtue of section 59 of the BVI’s Matrimonial Proceedings and Property Act 1995, which came into effect on 13 February 1996, ‘the domicile of a married woman shall not be deemed to be the domicile of her husband and she may change her domicile independently of her husband notwithstanding the fact that the marriage subsists’. In view of the wording of this provision, it would appear that the domicile of a married woman is now to be assessed in accordance with the factors outlined above, presumably whether or not the marriage took place before or after 13 February 1996. By way of contrast, under the equivalent provision forming part of UK legislation (section 1 of the Domicile and Matrimonial Proceedings Act 1973), where a woman was already married on 1 January 1974 (when that provision came into effect), she retained the domicile of her husband, which she had acquired on her marriage until losing it either by the acquisition of a new domicile of choice or by the revival of her domicile of origin.
- Although a person who is not of full age is unable to acquire a domicile of choice by that person’s own act, there is nothing to prevent the acquisition of a domicile of choice for that person by the act of one of their parents.[16]
- As authors of Cheshire indicate, the burden of proof that lies on those who allege a change of domicile varies with the circumstances. It appears that it may require far stronger evidence to establish the abandonment of a domicile of origin in favour of a fresh domicile than to establish a change from one domicile of choice to another. It is also worth noting that, conversely, there is authority for the view that a change of domicile from one country to another under the same sovereign is more easily proved than a change to a foreign country, on the basis that it is not lightly to be inferred that a person intends to settle permanently in a country where they will possess the status of an alien, although the ever-increasing restrictions on freedom of movement combined with the provisions of the UK’s Nationality Act 1981 and its predecessor may have diluted the effect of those authorities.
- Greater reliance will generally be placed on an individual’s conduct than on declarations of intention, especially if such declarations are oral.
- If a person is resident in several countries at the same time a domicile of choice can only be acquired in a country if this can be shown to be the person’s chief residence.
In cases where it is difficult to establish where a person is domiciled on the basis of the analysis that is contained in the summary of law set out above it is often considered prudent to ensure that the testator’s will is formally and essentially valid (and that the testator has capacity) under the laws of all jurisdictions in which the testator might conceivably be domiciled.
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Footnotes
[1] See Chris McKenzie’s article Encouraging Successful Succession – Estate planning options for shareholders of BVI companies published in the STEP Journal in April 2024 which can be located in the following link: https://onealwebster.com/encouraging-successful-succession-shareholders-of-bvi-companies/
[2] See the appendix on domicile at the end of this note
[3] See the section on situs immediately below.
[4] This is substantially the case as a result of provisions in the Hague Trusts Convention (most of which applies to such BVI trusts), as supplemented by the ‘firewall’ provisions in section 83A of the BVI’s Trustee Act, which are aimed at protecting BVI lifetime trusts and gifts to their BVI trustees against ‘forced heirship’ and similar claims made in the settlor’s home jurisdiction. Section 83A also resolves the uncertainty prevalent in certain issues of English private international law which would otherwise apply in the BVI. There is however, in the BVI’s laws relating to wills and succession, no direct equivalent to the relevant provisions of the Hague Trusts Convention or section 83A. The consequence of this is that issues of private international law will frequently tend to have a much greater impact when considering such matters as a person’s ability to dispose (by his or her will) of movable property (such as shares in a BVI company) or what must be done for the will to be regarded as having been validly executed.
[5] See Christopher McKenzie’s article, Planning for the Worst, STEP Journal, issue 2, 2020.
[6] BVI land and buildings are often held by BVI companies and in such circumstances the testator’s will will dispose of shares in the company, rather than the land and buildings.
[7] As far as the essential validity of a will relating to immovables is concerned, this will be determined in accordance with the law of the situs (so that, in the case of BVI land, forced heirship and similar considerations should not be relevant). Such law will also govern the intestate succession to immovables.
[8] Such law will also govern the intestate succession to movables
[9] See footnote 6 above.
[10] It is generally understood that the provisions of the Hague Convention of 5 October 1961 on the Conflict of Laws Relating to the Form of Testamentary Dispositions do not form part of the BVI law. The Convention sets out in it certain rules relating to the formal validity of wills – by providing that a will be regarded as properly executed if its execution conformed to the internal laws of specified jurisdictions (such as the place where the will was executed, that where the testator was domiciled or habitually resided, or that of which they were a national) at the time of the will’s execution or at the time of the testator’s death, thus saving most wills of movables from formal invalidity. Although the Conference’s website indicates that the Convention’s provisions were extended to the BVI on 16 December 1964 (with effect from 14 February 1965), no trace of the existence of any statute or order extending its provisions to the BVI can be located and, even if its provisions were so extended to the BVI, a second statute or order implementing its provisions as part of BVI law would have been required whereas no such additional statute or statutory instrument appears to have been enacted
[11] The Wills Act 1861 is also known as Lord Kingsdown’s Act
[12] As far as immovables are concerned, at common law, a will must comply with the formal requirements of the law of the jurisdiction of the situs of the property (i.e. so that, in the case of BVI land, BVI law will determine such formal requirements).
[13] As far as immovables are concerned, although this issue has yet to be determined by the courts, it is thought that the law of the situs exclusively determines whether the testator has capacity.
[14] This summary of the law relating to domicile is largely based on the analysis that is set out in the leading English texts on conflicts, Cheshire and North – Private International Law and Dicey, Morris & Collins – The Conflict of Laws. This statement should not however be considered as fully comprehensive. For a fuller treatment of the English common law principles reference should be made to those works or advice should be taken from your O’Neal Webster adviser.
[15] The common law rule was that an illegitimate child’s domicile was that of their mother and, while this is not entirely clear, it is considered that the common law rule would now be overridden by section 4 of the BVI’s Status of Children Act, 2014, which abolished the legal distinction in the status, rights, privileges and obligations of children born within and outside marriage and makes those of the latter the same as those of the former. On that basis, the domicile of an illegitimate child would now be that of the child’s father and one assumes that if the father cannot be identified it would be that of the child’s mother
[16] The common law rule is that:
- the domicile of a legitimate child automatically changes with any change that occurs in the child’s father’s domicile;
- a legitimate child will acquire, on the death of the child’s father, the domicile of its mother; and
- the domicile of an illegitimate child automatically changes with that of the child’s mother’s domicile
Presumably, on the basis of the analysis set out in footnote 12, above, the domicile of all minors will now change when the father’s domicile changes and so it is only if the minor’s father has died (or if the father cannot be identified) that the minor’s domicile will now change with that of the minor’s mother.
