As the interest in the use of trusts grows in Asia, so does the search for the right trustee arrangement. Private trust companies are increasingly discussed as a potential option, say Tony Pursall and Richard Grasby of law firm Maples and Calder, and where better to locate a PTC than the British Virgin Islands. Here they reveal a step-by-step plan for creating a BVI-domiciled PTC. This is only a summary of some of the relevant issues and should not be relied upon as comprehensive legal advice.

What is a private trust company?

A private trust company acts as a corporate trustee for a small number of trusts, which are in some way connected. Depending on the particular regime and the wishes of the client, a PTC can be licensed or unlicensed.

A PTC will be carrying out trust business – this is a regulated activity in the BVI. The primary objective of the legislation is to ensure that no disreputable trust company business is conducted in or from the BVI. But since a PTC does not offer trust services to the "public", there is less need for it to be licensed.

Why use a PTC?

For settlors, a PTC can give them the ability to control (either at the outset or on an ongoing basis) who owns, who may own and who is on the board of directors of the PTC.

Decisions can often be taken more quickly and one or more of the directors of the PTC are likely to have much more personal knowledge about the trust's beneficiaries and for example underlying businesses held within the trust. This can give the settlor and other family members comfort from the fact that they retain a certain amount of control and involvement in the trust structure.

In certain regions confidentiality is a major concern – the use of a PTC can reduce the numbers of people with access to certain information.

For an institution there is less direct risk if the institution is not the trustee. In this regard, the institution may be willing to administer a trust which holds assets which are regarded as slightly more risky (operating businesses, aircraft, ships, etc.) but without being the trustee itself.

If service providers need to be changed, it is far simpler to change the directors and service providers to the PTC while leaving the trustee (the PTC) unchanged. This can avoid many of the complications which arise from a change of trustee (such as indemnification provisions and novation of contracts).

A settlor may regard a PTC as a cheaper option and certainly, without the need to pay annual trustee fees, there may be scope for savings. It should be remembered however, that a bespoke PTC structure can sometimes cost a comparable amount to administer and the establishment costs may be higher.

For many wealthy families the trust is regarded as an interim stage where the next generation can learn about the family business or learn to manage wealth before actually becoming entitled themselves (and the assets being at risk to their death, bankruptcy, etc.). Young adult children can be invited to attend trustee board meetings in a way which would not be possible with an institutional trust company.

What are the potential downsides?

The directors of the PTC still need to remember that the PTC is acting as trustee. The PTC needs to act appropriately and administer the trust properly – otherwise there is a danger that a trust will fail. The composition of and conduct of the board of directors is crucial. Having family members as directors might create greater potential for disputes between directors than among professional directors.

A PTC typically has no assets and - perhaps more importantly - no large parent with a reputation to protect. However, as very few institutional trust companies have access to the funds required to fully recompense a substantial trust fund, this may not be a major concern for a settlor.

Why the BVI?

The BVI is a long established trust jurisdiction with trust law forming a core of its legal system. There is therefore clarity and certainty as to the position of trusts in the BVI legal system. There is a substantial number of legal advisors experienced in BVI trust law matters located both in the BVI and in other jurisdictions (including London and Hong Kong), as well as service providers for corporations.

The BVI has a ready made ownership structure for a PTC in the form of a VISTA trust, which can be combined with suitable non-charitable purposes so that no individuals have a beneficial interest in the shares. The VISTA trust enables appointments of future directors to be dealt with outside of the memorandum and articles of the PTC (which are publicly available), keeps the shares out of an individual's hands (avoiding probate and difficulties arising on divorce and bankruptcy) whilst at the same time leaving the management of the PTC to its directors without major involvement of the trustee-shareholder.  Of the major offshore centres, the BVI is the only one to offer such a solution.  

The jurisdiction has a very flexible regulatory regime for PTCs. Like many other jurisdictions, PTCs may act as trustee for "family" trusts – where there is a certain degree of connection between beneficiaries and settlor. However if a PTC is not being remunerated, the BVI regulations permit the PTC to act as trustee of any trust. This is a client-friendly feature of the BVI legislation especially where trusts are being established for employees.

There are no capitalisation requirements for a PTC, no need for a BVI director and no need for a physical presence in the BVI.

The PTC fees are also very competitive – for an unlicensed PTC just slightly higher than for an ordinary BVI business company.