Advisory & Trust Services
Cayman Islands

Individuals, families, and corporations often choose to establish trusts in the Cayman Islands because of the jurisdiction’s tax-neutral environment. The Cayman Islands doesn’t impose local taxes on income, capital gains, profits, or distributions derived from a trust. This means that any income or growth generated by assets held within a properly structured Cayman trust is not subject to Cayman Islands taxation, regardless of where the trust’s beneficiaries reside.

However, tax neutrality does not mean tax exemption everywhere. While the Cayman Islands does not levy its own taxes, settlors and beneficiaries remain responsible for complying with the tax laws of their home countries. For instance, if you are a U.S. citizen or resident, you must still report your interest in an offshore trust and disclose any income, capital gains, or distributions received from it to the Internal Revenue Service (IRS). The same also applies to residents of other jurisdictions, such as the U.K., Canada, or Australia.

When creating a trust in the Cayman Islands, one of the first decisions you will make is whether to establish it as revocable or irrevocable. This choice determines the degree of control you retain over the trust and the level of protection it offers.

Revocable trust
A revocable trust allows the settlor (the person creating the trust) to retain full control over the trust and its assets during their lifetime. The settlor can modify, amend, or completely revoke the trust at any time, making this structure highly flexible. Because the settlor maintains control, the trust’s assets are typically considered part of the settlor’s estate for tax and creditor purposes.

Revocable trusts are often used for convenience and estate planning, allowing assets to pass smoothly to beneficiaries without probate. However, they offer limited asset protection, as creditors may still access the trust’s assets if claims arise against the settlor.

Irrevocable trust
An irrevocable trust, once established, cannot be easily altered, amended, or revoked without the consent of the trustee and beneficiaries. By transferring ownership of the assets to the trust, the settlor relinquishes control, which creates a stronger legal separation between personal and trust property. This structure offers superior asset protection and potential tax advantages, as the assets are generally excluded from the settlor’s taxable estate.

Irrevocable trusts are ideal for long-term wealth preservation, philanthropic giving, or shielding assets from future liabilities. Because of their permanence, they require careful legal drafting and professional guidance to ensure the trust aligns with the settlor’s intentions.

Yes. Cayman Islands trust law provides strong protection against forced heirship claims, ensuring that a settlor’s assets are distributed according to their personal wishes, not the inheritance laws of another jurisdiction.

In many countries, forced heirship laws dictate how a person’s estate must be divided among certain family members, limiting testamentary freedom. However, under the Cayman Islands Trusts Act, assets settled into a valid Cayman trust are legally separated from the settlor’s estate and cannot be challenged on the basis of foreign heirship rules.

This protection is reinforced by the “firewall provisions” in Section 90 of the Trusts Act, which state that Cayman law governs all questions relating to the trust, regardless of foreign claims. As a result, Cayman trusts offer a secure solution for individuals with international families or cross-border assets who wish to maintain full control over their estate planning decisions.

Trusts can be structured in several different ways depending on your goals, level of control, and desired degree of asset protection. In the Cayman Islands, each type of trust offers distinct benefits. Below are the most commonly used trust structures and their key features:

• Discretionary trusts: These are among the most flexible trust structures. The trustee has full discretion over how and when assets are distributed to beneficiaries, allowing decisions to be made based on changing family or financial circumstances. Discretionary trusts are ideal for long-term wealth preservation and multi-generational estate planning.
• Fixed interest or life interest trusts: These trusts provide beneficiaries with a fixed entitlement to income or capital from the trust. For example, one beneficiary may receive income during their lifetime, with the capital passing to others after their death. This structure offers predictability and stability but less flexibility compared to discretionary trusts.
• STAR trusts: Unique to the Cayman Islands, STAR (Special Trusts Alternative Regime) trusts can be established for charitable and non-charitable purposes. Beneficiaries have no right to enforce or access trust information; instead, an appointed “enforcer” oversees compliance. They are used for family businesses, philanthropic projects, and succession planning.
• Reserved powers trusts: In these trusts, the settlor retains certain powers, such as the ability to appoint trustees, direct investments, or amend trust terms. This allows the settlor to maintain strategic oversight while benefiting from the legal and tax advantages of a trust.
• Charitable purpose trusts: These aim to support philanthropic initiatives in education, healthcare, or community development. Cayman charitable trusts can exist indefinitely, ensuring lasting impact and oversight aligned with the settlor’s charitable mission.
• Private trust companies (PTCs): A PTC is a company established to act as trustee for one or more family trusts. This allows families to maintain greater control and confidentiality over their trust management while ensuring compliance with Cayman law. It’s particularly beneficial for complex, high-value estates or family-owned businesses.

Selecting the right estate attorney is one of the most important decisions when planning your trust or estate in the Cayman Islands. The right partner will ensure your structure is compliant, secure, and tailored to your personal and financial goals. When choosing a Cayman Islands estate attorney, consider the following:

• Experience handling complex offshore trusts and estate structures
• Strong knowledge of Cayman Islands Trusts Act and related legislation
• Proven background in cross-border estate planning and tax coordination
• Ability to provide customized advice aligned with your wealth objectives
• Clear communication and transparency in legal strategy and fees
• Established relationships with financial institutions and trust companies
• Skilled in asset protection and succession planning for high-net-worth clients
• Access to dispute resolution and mediation expertise when needed
• Commitment to ongoing support and long-term client relationships

If you are appointed as a trustee of a Cayman Islands trust, you hold both responsibilities and legal rights. Trustees play a central role in managing trust assets, ensuring compliance with the trust deed, and acting in the best interests of the beneficiaries. Cayman law recognizes that trustees must have certain rights to fulfill their duties and protect themselves from risk.

As a trustee, you have the right to:

• Administer the trust in accordance with its terms and the Cayman Islands Trusts Act
• Make investment and management decisions using prudent judgment and professional advice
• Seek reimbursement for reasonable expenses incurred in administering the trust
• Receive fair compensation if the trust deed provides for remuneration
• Access professional guidance from legal, accounting, or financial experts
• Rely on indemnity provisions within the trust deed to protect against personal liability
• Apply to the Cayman Islands court for directions or clarification on complex matters
• Maintain confidentiality regarding trust affairs, subject to legal disclosure requirements