It has been said that we are in the middle of a multi-trillion dollar transition of family wealth between generations. In order to facilitate that transition, careful planning and management of family wealth and assets need to be seriously considered. Approximately 63,020 individuals and their families control US$24.7 trillion in the world. Family offices therefore play an important role in managing, preserving, and continuing to grow this wealth, while also juggling a range of risks, such as succession planning, cyber threats, investment dynamics, and political instability. The Cayman Islands has become a highly attractive jurisdiction for setting up or relocating family offices. In recent years, many high-net-worth families have moved both their head office and home to the Cayman Islands for this reason.
Family offices have become increasingly common as families recognise the benefits of having more control over their assets. There is no one-size-fits-all approach to meeting families’ needs. As the needs and objectives of family members evolve, having an entity looking out for their interests provides a sense of structure, reassurance, and strategy for the family’s wealth. Family offices can therefore be structured in bespoke ways to reflect the unique vision of each family unit.
Why The Cayman Islands?
The increasing regulatory burden, an unpredictable geopolitical environment, and the spread of assets around the world in recent years, have made centralisation of control and reporting of family wealth within the family office even more critical. Selecting a location for a family office is an important consideration for the family as it is undesirable for it to be situated in a place where family members would spend little time, or which is too remote, inconvenient or inaccessible from their existing base or primary place of residence or business.
The Cayman Islands is a well-known leading offshore financial services centre and in recent years has become recognised as a sophisticated jurisdiction and a centre of innovation. As a British Overseas Territory with close proximity to the United States of America, the Cayman Islands is home to leading international businesses across the financial services sphere which can provide local professional support to all forms of family offices. These range from international banks, investment advisors and large offshore law firms to accountancy firms. At the other end of the spectrum, if the family office is looking to contribute to sustainability practices, there are also many philanthropic initiatives in the Cayman Islands addressing key concerns such as climate change, or they can get involved with other charitable ventures. Therefore, it is well placed to be the jurisdiction of choice when setting up or relocating your family office.
Commercial Benefits
There are many commercial benefits to basing your family office in the Cayman Islands such as:
- No income, corporate, capital gains, inheritance, wealth, recurring property or value added taxes.
- It is a British Overseas Territory, meaning the United Kingdom provides oversight of local security, international defence, good governance, and environmental protection.
- The Westminster legal system is also used, with the Privy Council serving as the highest court of appeal.
- Trusts and foundation companies can be used as a flexible structuring mechanism in a range of legal contexts, including wealth and succession planning, pensions, investment funds, philanthropy, and various other commercial settings.
- Cayman has one of the lowest debt-to-GDP ratios in the word and one of the strongest global currencies.
- Cayman operates on Central Standard Time (CST) with nonstop flights to major North American cities.
Lifestyle Benefits
Along with the commercial benefits, the Cayman Islands offers the following lifestyle benefits:
- High quality real estate built to required hurricane standards is readily available and ranges from luxury beachfront condos to waterfront villas in gated communities.
- Reliable telecoms and utilities, efficient civil services, well-appointed grocery stores, a superlative culinary offering, and modern retail conveniences.
- Hospitals that provide comprehensive services, and schools that offer a high standard of education with both British and American curricula.
- A tropical year-round climate and a glorious marine environment with some of the best diving conditions in the world.
Family Office Structures
Individuals and family offices considering establishing a presence in the Cayman Islands require efficient, timely and discreet services from trust professionals who are specialists in their respective fields. The Cayman Islands is known as a leading jurisdiction for private wealth and succession-planning structures. There are a wide range of vehicles to choose from, however two of the most popular structures to use are trusts and foundation companies.
Trusts
The Cayman Islands has a well-established and highly regarded trust industry and law regime. Trusts, therefore, continue to be the primary succession-planning vehicle used in Cayman. Trusts do not have a separate legal personality, meaning a trust is not a legal person (which contrasts with a foundation company, described below). Rather, the trustee, who is a legal person, holds the assets on behalf of the trust and subject to the rules of the trust and the relevant legal principles.
Cayman trust law is based on English principles, with some important modifications that make the Cayman Islands a more attractive jurisdiction for trusts. For example, the Cayman Islands provides a unique form of statutory trust (referred to as a STAR trust), which can suit different objectives. Cayman trusts law is generally very flexible, and there are a wide variety of options for how trusts can be structured.
Foundation Companies
Foundation companies broadly operate as a hybrid between a company and a trust. A foundation company has many of the same features as an ordinary company, however, it can have beneficiaries or purposes (as with a trust). Foundation companies are therefore an innovative succession-planning structure, with significant flexibility to tailor the governing documents to the needs and objectives of the family.
Given that the structure is familiar, a foundation company can generally provide an efficient structuring vehicle that will fit seamlessly into the wider family wealth structure. Being a single entity, it may also provide a more simplified structure than a trust (which could potentially involve the trustee, the trust, and underlying companies). Due to foundation companies being built on the Companies Law framework, the structure brings with it existing jurisprudence. This approach provides a greater level of certainty and clarity around the operation, governance, and legal treatment of foundation companies in the Cayman Islands.
Cayman Residency & Immigration
Boasting an enviable lifestyle, well developed financial services industry, modern infrastructure, and easy accessibility from anywhere in the world, the Cayman Islands government offers various immigration options to suit the needs and objectives of prospective long-term residents.
There is a variety of ‘residency by investment’ programmes, making it possible to experience the benefits of living in the Cayman Islands, while at the same time saving on the costs of certain local services that might be required. One option for residency is to invest a minimum of US$2.4 million in developed real estate, and apply for a certificate allowing the holder (and their dependants) to reside indefinitely in the Cayman Islands. Applicants must also show evidence of sufficient financial resources to maintain themselves and their dependents during their residency. Other categories of permit are also available for those wishing to make a more modest real estate investment and/or persons who wish to establish or relocate a business in the Cayman Islands. For example, a person can achieve residency by investing at least US$1.2 million in an employment-generating business in Cayman.
To assist with residency requirements, establishing a Cayman Islands branch of a family office or relocating the family office to Cayman, is also possible. Options for structuring will depend on the family’s specific requirements, but the jurisdiction offers a number of highly-experienced service providers to assist with family offices as needed.
A version of this article was first published in IFC Review.
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