February 15, 2018 flightdigital

Nevis international trust laws & discretionary interests

On May 27, 2015, the Nevis Island Assembly significantly amended its Trust laws by enacting the Nevis International Exempt Trust (Amendments) Ordinance, 2015 (the “Trust Amendments”). The Trust Amendments became effective on 1 July, 2015.

Following on from my previous article that highlighted the strong anti-duress and anti-injunction provisions that strengthen the already highly regarded Nevis Trust laws, this article focuses on the rights of a creditor in regards to claims against a beneficiary’s discretionary interest in an international trust.

8A. Discretionary interests in international trusts

(1) This section applies to a creditor’s claim with respect to a discretionary interest of any beneficiary (including a settlor) in an international trust unless the trust deed provides explicitly otherwise.
(2) A discretionary interest in an international trust is not a property interest or an enforceable right rather is a mere expectancy that a creditor of a beneficiary (including the settlor) may not attach, garnish or otherwise reach.
(3) A creditor of a beneficiary (including the settlor) may not compel or force a distribution with regard to a discretionary interest in an international trust, nor compel or force a trustee to exercise the trustee’s discretion to make a distribution with regard to a discretionary interest in an international trust.
(4) A creditor of a beneficiary (including the settlor) may not compel or force a protector to exercise a power to direct a trustee to make a distribution to any beneficiary of an international trust.
(5) In the case of a discretionary interest in an international trust, a trustee who has the authority to pay income or principal to a beneficiary (including the settlor) may pay it to a third party if the payment is for the benefit of the beneficiary (including the settlor), and the trustee of an international trust shall not be liable to any creditor of a beneficiary (including the settlor) for paying income or principal on behalf of such beneficiary.
(6) A creditor of a beneficiary (including the settlor) may not maintain an action or a proceeding in Court that interferes with the trustee’s discretion to apply income or principal on behalf of the beneficiary of an international trust.
(7) A creditor of a beneficiary (including the settlor) may not obtain an order of attachment, garnishment or similar relief that would prevent a trustee from making a discretionary payment to a third party on behalf of the beneficiary (including the settlor) of an international trust.
(8) In this section, a beneficiary’s entitlement (or lack thereof) to a distribution is within the discretion of a trustee, whether or not the trust deed states the purposes for the distribution, is expressed in the form of a standard of distribution or uses the terms ‘may,’ ‘shall,’ ‘sole and absolute,’ ‘uncontrolled,’ ‘unfettered,’ or similar words and whether or not the trustee has abused the discretion.
(9) Regardless of whether a beneficiary of an international trust has any outstanding creditor, a trustee of a discretionary interest may directly pay any expense on behalf of such beneficiary and may exhaust the income and principal of the trust for the benefit of such beneficiary. No trustee is liable to any creditor for paying the expenses of a beneficiary (including the settlor) who holds a discretionary interest.
(10) (a) In this section, ‘discretionary interest’ means a beneficiary’s interest in an
international trust if the beneficiary’s entitlement to a distribution is within
the discretion of the trustee.”
(b) This section shall not prevent a creditor from obtaining relief from under Section 23 of this Ordinance that is not inconsistent with this Section 8A.

As can be seen, Section 8A certainly restricts a creditor’s ability to reach a beneficiary’s interest in a trust established pursuant to Nevis trust law. A creditor may not compel or force a distribution to a beneficiary via the trustee or protector (8A (3) &(4). The trustee is able to make third party payments on behalf of a beneficiary (8A(5)) and in fact, in paying any expense on behalf of a beneficiary, may exhaust the income and principal of the trust for the benefit of that beneficiary!! (S8A(9).

9A. General power of appointment granted to a beneficiary

A creditor shall have no right against the interest of a beneficiary of an international trust or against the beneficiary or trustee of the trust with respect to such interest unless;

(1) The beneficiary (other than the settlor) has a power to appoint all or part of the trust property to the beneficiary, the beneficiary’s estate, the beneficiary’s creditors, or the creditors of the beneficiary’s estate by will or other instrument such that the appointment would take effect only upon the beneficiary’s death and the beneficiary actually exercises such power in favour of the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate but then only to the extent of such exercise.
(2) The beneficiary (other than the settlor) has a power, including a power of withdrawal, to appoint all or part of the trust property to the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate during the beneficiary’s lifetime and the beneficiary actually exercises such power in favour of the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate but then only to the extent of such exercise.

Section 9A was added to the Principal Ordinance to make it clear that creditors shall have no
a part of the trust property to the beneficiary, the beneficiary’s estate, the beneficiary’s creditors, or the creditors of the beneficiary’s estate- and the beneficiary exercises such power of appointment, but only to the extent that the beneficiary exercises such power. This provision codifies the common law rule regarding general powers of appointment.

Amendment of Section 55

Section 55 of the Principal Ordinance is hereby amended by deleting “100,000.00” and replacing it with the phrase “Two hundred Seventy Thousand Dollars ($270,000)”. The increase in the bond requirement has the effect of discouraging frivolous claims and certainly, will make a creditor think long and hard before embarking on an action governed by the Ordinance. Together with Sections 8A and 9A, the Trust Amendments limit the rights of a creditor to reach a beneficiary’s interest in a Nevis trust, such that only the most determined of creditors will proceed in an action against a beneficiary. Certainly with these provisions, Nevis’ reputation as a premier jurisdiction to establish an asset protection trust is again highlighted.

Charles Petero CPetero@southpactrust.com
Attorney at Law, Client Services Manager

April 2016

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