Contributed By Conyers
There is no income or profits tax, withholding tax, capital gains tax, capital transfer tax or inheritance tax. There is no exit or similar tax based on a resident’s wealth when ceasing to be resident and there are no other consequences of leaving the jurisdiction. Customs duties and stamp duties are major government revenue earners, with stamp duties charged at different rates and in different manners on a variety of legal documents, excluding wills.
There is no inheritance or capital transfer tax in Bermuda. Estate tax is payable on death where the property passing is Bermuda property.
Bermuda has a Model 2 intergovernmental agreement in place in order to be compliant with the US Foreign Account Tax Compliance Act (FATCA). Bermuda is also a signatory to the Organisation for Economic Co-operation and Development's (OECD) Common Reporting Standard (CRS).
The Stamp Duties Act 1976 contains provisions to deal with the evasion of stamp duty (which are specific to Bermudian property); section 19 states that any person, who with intent to evade the payment of duty, executes any instrument in which all the facts and circumstances affecting the liability of an instrument to duty, or the amount of the duty with which an instrument is chargeable, are not truly and fully set forth, or neglects or omits to set forth fully and truly all the facts and circumstances, commits an offence. In addition, section 70 states that any person who practises or is concerned in any fraudulent act, contrivance or device with intent to defraud the government of any stamp duty commits an offence.
Bermuda’s estate planning structures are suitable for all forms of family from all cultures, including large and small families.
Various strategies used in this context, for example: provisions which allow the exclusion of beneficiaries (automatically or at the discretion of the trustees) upon becoming a tax resident in a certain jurisdiction, provisions which aim to protect against civil law issues such as forced heirship laws, provisions permitting beneficiaries to disclaim their interests under the trust and provisions permitting the trust assets to be decanted so that, for example, assets intended for one child who becomes US resident could be decanted into a suitable vehicle for that child without affecting the remaining beneficiaries.
At a basic level, the simple discretionary trust model can provide effective protection against some onshore laws simply because no beneficiary has a definite entitlement to the assets held in such a trust (only a potential entitlement), though this depends on the onshore jurisdiction in question and the terms of the trust. It is of vital importance that offshore advisers work closely with onshore lawyers when designing offshore wealth planning structures.
Bermuda does not have forced heirship laws; it is a jurisdiction that allows individuals complete freedom of testamentary disposition.
There is no marital property regime as such in Bermuda. Ownership of property acquired both prior to and during marriage is determined on ordinary principles (including the principles which determine whether property is jointly owned and, if so, whether on a joint tenancy or tenancy in common basis) and apply to unmarried individuals, subject to the court’s jurisdiction in respect of such property upon divorce.
The principles which govern financial provision on divorce are contained in the Matrimonial Causes Act 1974, which is almost identical to the United Kingdom Matrimonial Causes Act 1973. Orders validly made in another jurisdiction are recognised under comity of law principles. The court has very wide statutory powers on granting a decree of divorce, nullity or judicial separation to order maintenance and property transfers to or for the benefit of a party to, or the child of, a marriage. The decisions of the English courts on the exercise of this jurisdiction are persuasive rather than binding.
Bermuda has not made legislative provision for the recognition of pre- or post-marital contracts. However, the common law position was set out in the UK Supreme Court case Radmacher v Granatino  UKSC 42. While Supreme Court decisions, unlike those of the Privy Council, are not strictly binding on Bermuda, decisions of Supreme Court, in the absence of cogent reasons, are almost always applied and followed by the Bermuda courts. Following Radmacher, it is likely that the Bermuda courts will uphold a pre-nuptial agreement that is freely entered into by both parties with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to uphold the agreement.
In Bermuda a transfer of property either during life or upon death does not affect the cost basis of the property.
Discretionary trusts are most commonly used to transfer assets to younger generations.
There is no particular regime of Bermuda law which deals specifically with the treatment of cryptocurrencies or other digital assets upon the death of the individual holding them. This means that, in principle, digital assets will be treated in the same way as any other asset and may be bequeathed to beneficiaries in a will, or, if a person dies intestate, will fall to be dealt with under the Succession Act 1974.
Private trusts and purpose trusts are the primary legal vehicles of choice used to provide wealth‑preservation structures to high net worth international clients. Bermuda trusts can be employed to achieve a variety of estate, personal, financial, tax or other business planning objectives. Bermuda has no foundations law.
Bermuda is a common law jurisdiction and as such recognises trusts. In Bermuda the common law position regarding trusts has been codified by the Trusts (Special Provisions) Act 1989, which states that the term ‘trust’ refers to the legal relationship created, either inter vivos or on death, by a person, the settlor, when assets have been placed under the control of the trustee for the benefit of a beneficiary or for a specified purpose.
There are no specific Bermuda tax provisions applicable to citizens of Bermuda who serve as a fiduciary or are beneficiaries of foreign trusts, foundations or similar entities.
Bermuda’s legislature works closely with private sector associations to ensure that Bermuda’s trust legislation is regularly reformed. Successive Bermuda governments over the past 20 years have been committed to making innovative reforms, as a result Bermuda’s trust legislation is both modern and facilitative of succession planning.
In particular the legislature collaborates with private sector associations such as the Bermuda Association of Licensed Trustees, the Bermuda International Business Association and the Society of Trusts and Estate Practitioners as well as the Bermuda Business Development Agency, an organisation created to support international business.
Recent legislative initiatives in the trusts arena include the introduction of a statutory Hastings‑Bass rule and amendments to make it easier for historic trusts to extend their perpetuity period (the rule was abolished for most new trusts in 2009) and new legislation on settlors’ reserved powers. The reservation or grant of certain powers by settlors has always been possible under Bermuda’s trust legislation but, historically, there has been some uncertainty about exactly how far settlors could go without calling the validity of the trust structure into question. The Trusts (Special Provisions) Amendment Act 2014 now provides statutory clarity and certainty in this area. Helpfully, the amending legislation expressly lists certain interests and powers which can be retained by a settlor or granted to a third party, for example, a protector or beneficiary, without prejudicing the validity of a trust. It also clarifies that the retention or grant of these powers and interests will not cause the property in the trust to become part of the settlor’s estate – introducing certainty in this area distinguishes Bermuda from some of the other major offshore jurisdictions.
Bermuda trusts can be used for asset protection planning. Bermuda has firewall legislation in place which protects assets in a Bermuda trust from being attacked on orders of a foreign court under foreign law. The relevant provisions are found in Section 11 of the Trusts (Special Provisions) Act 1989. A Bermuda court will only set aside or vary a trust validly created under Bermuda law in accordance with Bermuda law. In particular, the firewall legislation can protect assets held in a Bermuda trust against claims based on divorce, forced heirship and general claims made by or on behalf of creditors.
There are a number of approaches here. Commonly, businesses are held by a holding company whose shares are held in trust. The trusteeship of the trust may be vested in a private trust company (PTC) which can ensure the participation of various family members on the board of the PTC, with younger generations taking over PTC directorships over time.
No-contest clauses in trusts and family agreements can be helpful mechanisms to deter or avoid conflict in appropriate circumstances.
This is not relevant because of the tax regime in Bermuda.
The circumstances that cause disputes between people of wealth can result from imprecision in the drafting of the relevant documentation but, as with all disputes, resolution can be achieved if the parties are willing to work together. The driver of the matter which leads to a formal dispute process is usually the desire of one party to the dispute taking a greater share than the other party or parties think fair. These disputes then take the form of either arbitrations or court actions.
Compensating an aggrieved party who is the winner in a dispute concerning a trust, foundation or similar entity is usually by way of a declaration of entitlement of the successful party and possibly an actual award of a defined sum of money or property.
Insofar as damages are concerned, an award of damages by the Bermuda courts is usually compensatory based. Bermuda, in comparison to the United States, does not have any punitive basis for an award, hence there is no separate heading of punitive damages simply to punish a party for their behaviour in the matter. Aggravated damages may be allowed, but these are compensatory in nature for possible exceptional loss suffered by reason of the conduct of one of the parties.
Corporate fiduciaries are frequently used in trusts and other structures in Bermuda. A private trust company (PTC) can be incorporated to act as trustee of a trust. PTC’s can be exempted from the licensing requirements which apply to other corporate service providers. A Bermuda private trust company owes the same fiduciary and statutory duties to act in the best interests of beneficiaries as any other trustee (subject to any exclusions in the trust instrument). The directors of the private trust company must act in the best interests of the company and are subject to certain statutory duties, as well as fiduciary duties and the duty of skill and care at common law.
Generally, where relevant contracts have been properly drafted the veil of trust cannot be pierced. However, in extreme cases it is conceivable that a fraudulent trustee could incur personal liability.
In the context of trust assets, section 55A(5) of the Trustee Act 1975 provides that when determining whether a trustee has acted in accordance with the investment provisions under the Act, any decision to invest or otherwise apply trust property shall be evaluated in the context of the trust property as a whole and as part of an overall investment strategy having risk and return objectives reasonably suited to the trust. Although as a “prudent investor”, it is clear a trustee needs to have regard to diversification as a way to protect and preserve the trust fund; however, diversification is but one factor in an overall assessment of exercising reasonable care in the investment of the trust fund. It is common to include a provision in the trust instrument excluding the duty to diversify the trust fund and to allow the trustee to invest in speculative investments.
In the context of investment management of a trust, the trustee should be guided by the trust deed. If the trust deed calls for maximising profits for the pursuit of particular purposes, then the trustees would (without contrary direction or abridgement of duties in the deed) follow the usual prudent investor rule and consider diversification and modern portfolio theory.
If the trust deed confers ownership of a particular business then, depending on the terms of the trust, the trustees may be entitled to keep on conducting that business. Of course, one would expect trustees to do what they can to keep liabilities and losses to a minimum in all the circumstances. In the context of running a business, a trustee of a purpose trust is in a much better position as compared to the trustee of a private trust; he or she would not be directly liable to a beneficiary for a loss to that trust fund.
In order to be a citizen of Bermuda and obtain Bermudian status you must satisfy the restrictive criteria set out in the Bermuda Immigration and Protection Act, for example if you possess a qualifying Bermudian connection as defined in the legislation or if you are a spouse, widow or widower of a Bermudian.
A person who is at least eighteen years of age and has substantial means or has a continuous source of annual income without the need to engage in gainful occupation pursuant to section 57 of Bermuda Immigration and Protection Act 1956 in Bermuda can apply for a Residence Certificate. A Residence Certificate entitles the person to reside in Bermuda without the right to work.
There is also a category of residents known as Permanent Resident Certificate holders. If you have a Permanent Resident’s Certificate, you have the right to live and work in Bermuda and to purchase Bermuda property. The requirements for this category are more stringent than the Residence Certificate and will require the applicant to demonstrate they have continuously resided in Bermuda for over 20 years.
Bermuda does not have any special tax/immigration/citizenship programmes designed to attract foreigners to become citizens of Bermuda.
Bermuda does not have special planning mechanisms for minors or for adults with disabilities. Both of these groups could be beneficiaries of a Bermuda trust and a guardian could be appointed for the purposes of receiving property or any other activity the beneficiary in question is not capable of undertaking.
Specifically with regard to minors, the Minors Act 1950 provides the court with various powers, including the power to appoint and remove a guardian in accordance with the welfare of the child. The Mental Health Act 1968 includes provision for the court to appoint a receiver to deal with the property on behalf of a person suffering from a mental disorder. The receiver can later be discharged by an order of the court when the judge is satisfied the person has become capable of administering his or her property and affairs.
Bermuda currently does not have any legislation specific to issues of elder law.
According to section 18A of the Bermuda Children's Act, there is no distinction as a matter of Bermuda law between children born inside and outside marriage. In other words, the concept of legitimate or illegitimate children does not exist under Bermuda law; there is only one class of children. Thus, a beneficial class in a Bermuda law trust which seeks to define the beneficial class on the basis of legitimacy is likely to be ineffective. Similarly, pursuant to the Children Amendment Act 2002, an adopted child is treated as if it was the natural child of its adopted parents.
Same-sex marriage is legal in Bermuda.
As there are no income taxes or taxes on earnings or capital gains levied in Bermuda, whether on a corporate, trust or individual level, there is very little framework for obtaining tax deductions through charitable giving under Bermuda law.
Trusts (charitable or purpose) and companies limited by guarantee are most commonly used for charitable planning. Less commonly, unincorporated associations and entities incorporated by a private Act of Parliament may be used. They may also be faster to establish than companies. Further, there are no annual government or licence fees payable for trusts, though registered charities pay a small annual fee. Finally, there is no trust register in Bermuda, so parties to a trust can remain private.
By contrast, companies limited by guarantee must meet the requirements of the Bermuda Companies Act 1981. They must pay annual government fees and they must submit certain information to the Registrar of Companies including a register of members, so there is somewhat less privacy.
However, the corporate structure and corporate governance may be more familiar to many, especially civil law clients. Companies may also act in their own name, unlike trusts which do not have legal personality.