The following is the second of a four-part series written by Chris McKenzie
Six
Gifts to BVI companies
A resulting trust will generally arise by operation of law whenever a person directs property which has been acquired from his or her own resources to be placed in the name of another. The property will be regarded as being held on resulting trust for the person who provided the purchase money. The presumption can however be rebutted if the legal owner of the property (i.e. the transferee) can show that the intention was that there should be an outright transfer to him or her. As a consequence it is generally advisable for deeds of gifts (or similar documents) to be prepared whenever such transfers are made.
If there is a resulting trust over the relevant assets, these will be held by the transferee on bare trust for the transferor and they will, amongst other things, form part of his or her estate on death.
It is also prudent to remember that whenever assets are transferred to the trustee of an existing trust, the trust will need to be properly ‘constituted’ in relation to those additional assets. This will advisedly involve the preparation of a deed of addition or a similar written instrument pursuant to which the donor declares that those assets are to form part of the trust fund of the relevant trust and by virtue of which the transferee accepts those assets as part of the trust fund (since, amongst other things, the latter would ordinarily be a requirement of the relevant trust instrument). This will assist in preventing those with an incentive to do so from making a successful challenge to the trust’s validity insofar as the additional assets are concerned.
Seven
The need to include accrual clauses in wills
If a will specifies that the deceased’s estate is divisible into various fractions or percentages, it is usually wise to specify what is to happen if one or more of the named beneficiaries predeceases the testator or dies at the same time as him or her.
Many well drafted wills include accrual clauses to the effect that the relevant assets will be divisible pro rata between the other beneficiaries, i.e. assuming that this is the testator’s intention. This will help in terms of preventing those assets from passing pursuant to the applicable rules of intestacy.
Similar considerations apply to clauses in trust instruments which specify that trust property is to be divisible into fractions or percentages. In the absence of any applicable default provisions in the trust instrument, a resulting trust over the relevant property may arise.
Eight
The effect of arbitration clauses in trust instruments
Section 16 of the Trustee Act confers on BVI trustees the statutory power to enter into compromises or to submit disputes to arbitration, but this statutory provision only applies to external disputes – i.e. disputes between the trustees and third parties.
Currently neither BVI statute nor English common law makes specific provision for internal trust disputes to be determined by arbitration. Internal trust disputes would typically be those between the trustees and the beneficiaries, disputes between one beneficiary and another and disputes between the trustees and the protector. This being the case, if there is a clause in the trust instrument requiring internal trust disputes to be submitted to arbitration, the clause would be of questionable validity – except to the extent (if any) that the relevant provision would be capable of being upheld as contractually binding; the provisions of most BVI trusts are not contractually binding, unless, say, the trusts in question are unit trusts or other forms of trust which have been established in a commercial context.
Nine
Why trust instruments should not refer to ‘primary’ and ‘secondary’ beneficiaries
When drafting trust instruments the terms ‘primary’ and ‘secondary’ beneficiaries should be avoided since they are not in themselves legally meaningful. Their inclusion in trust instruments might invite challenges as to what interests those concerned have.
Nor is it ever appropriate for a trust instrument to provide that a specified person, such as the settlor, is the ‘sole’ beneficiary of the trust during his or her lifetime. Nevertheless the settlor’s intention to such effect should, to a large extent, be capable of being achieved by appropriate drafting, e.g. by including in the trust instrument provisions to the effect that no distribution in favour of other beneficiaries can be made during the lifetime of the relevant person without his or her consent and, if appropriate, conferring on the settlor or other person an overriding power of appointment.
For a valid trust which is more than a mere bare trust to be established, the trustees must have duties to more than one beneficiary. The settlor should not therefore be specified as being ‘the sole beneficiary’ because the use of such terminology could invite challenges to the trust’s validity on the basis that the settlor is the absolute beneficial owner of the assets in question and that the other provisions of the trust instrument are testamentary in character, but fail because the trust instrument has not been executed in accordance with the requirements of the relevant laws relating to succession which are in force in the jurisdiction in which the settlor dies domiciled. Such laws may, say, require there to be two witnesses to the testator’s signature or else might include ‘forced heirship’ rules that have not been complied with (and which are incapable of being overridden by the ‘firewall’ provisions in section 83A of the Trustee Act which does not apply to testamentary trusts).
Ten
What happens on the death of a sole trustee or beneficiary of a bare trust
If an individual, rather than a corporate entity, is the sole trustee of a bare trust over BVI assets such as shares in a BVI company or BVI land, when that trustee passes away a BVI grant of probate or letters of administration will be needed in order to transfer the assets into the name of the trustee nominated by the absolute beneficial owner (or into the latter’s own name) when directed to do so by such beneficial owner. Holding such assets in the name of a company should not give rise to similar concerns because perpetual existence is generally a feature of corporate law.
Similarly in the event of the death of the beneficiary of a bare trust, a BVI grant of probate or letters of administration will be needed in order to transfer the absolute beneficial interest in the property to those entitled to his or her assets on death.
The third in this series will be published during the course of June 2025. It will cover (a) the need to avoid referring to a settlor’s letter of wishes in a trust instrument, (b) defining ‘charitable’ purposes in trust instruments, (c) gifts in wills to the trustees of existing trusts, (d) naming successor trustees in trust instruments and (e) the preparation of wills in circumstances in which the testator’s domicile cannot be established with certainty.
Christopher McKenzie | Partner – BVI Trusts & Estates/Private Client
O’Neal Webster (UK) LLP
2 John Street, London WC1N 2ES
cmckenzie@onealwebster.com | Tel +44 (0)783 702 5118 | www.onealwebster.com
