STAR Trusts

The Cayman Islands purpose trust legislation was published in November 1997 as The Special Trusts (Alternative Regime) Act 1997 (or STAR Act). The STAR legislation has now been consolidated with and is contained in Part VIII of the Trust Act (as amended).

The intent of the STAR legislation was to create an alternative regime under which a new trust (a “STAR Trust”), whether for purposes or persons or both, could be created. It does not affect the act relating to ordinary trusts and powers; it simply creates an alternative within that act. It should be noted that the act relating to ordinary trusts and powers is also applicable to special trusts except for the specific STAR provisions.

Uses and Advantages of STAR Trusts

  • Non-charitable purpose trusts. Such a purpose could include the investing in and promotion of a particular company including private trust companies and special purpose vehicles.
  • Charitable purpose trusts. The settlor can specify who will have the duty to enforce such a trust. Under the act for ordinary charitable trusts it is the Attorney General who has the right to enforce the trust for charity or the public interest. A STAR Trust may be the sensible choice when it is unclear whether the purposes are exclusively charitable.
  • As the STAR Trust has no perpetuity period, it is useful as a dynastic trust for many future generations.
  • As person trusts. Where the settlor does not wish the beneficiaries to have the power to enforce the trust or have the right to information. Examples include situations where the settlor does not want the beneficiaries to know of the trust until after the settlor’s death, and where the settlor wants to prevent the creditors of a “spendthrift” beneficiary from seizing and enforcing that beneficiary’s rights.
  • As a combination purpose and person trust. This will provide some unique planning opportunities, for example where a settlor is concerned as to who will succeed him in the ownership and control of a family business he can settle the business into a STAR Trust. The purpose of the trust can be the promotion, growth and development of the business while there can be person beneficiaries who are entitled to the income and the capital of the business as appropriate.