Bermuda trusts and U.S. reporting rules

How Bermuda trust legislation is organized

The Trusts (Special Provisions) Act 1989 addresses trust relationships and governing law. It also covers purpose trusts and administrative powers. The Act defines a Bermuda trust to include a trust governed partly or wholly by Bermuda law.^[1]

Part I describes the trust relationship and provides rules for selecting its governing law. The settlor's choice can be express or implied through the instrument or other writing evidencing the trust.^[1]

Without an applicable choice, the governing law is the law most closely connected with the trust. Listed connections include where it is administered and where its assets are located. They also include the trustee's residence or business, the purposes, and the places of performance.^[1]

Part II provides for non-charitable purpose trusts, while Part III permits incorporation of scheduled administrative provisions by reference. The Trusts (Regulation of Trust Business) Act 2001 separately establishes the licensing framework for trust business.^[1][3]

Trust arrangements, duration and participant roles

The Act describes a trust as a relationship involving assets controlled by a trustee for beneficiaries or a specified purpose. That relationship can begin during the settlor's lifetime or on death.^[1]

Trust assets form a fund separate from the trustee's estate. The trustee administers and disposes of those assets under the trust terms and applicable legal duties, with accountability for that administration.^[1]

A trustee can also hold beneficiary rights without that fact necessarily preventing a trust from existing. Likewise, retaining certain rights or powers as settlor is not necessarily inconsistent with the trust relationship.^[1]

Section 2A permits specified powers to be retained or granted through the trust instrument without invalidating the trust. They include amendment powers and investment directions. The list also covers appointing or replacing trustees, changing beneficiaries, and changing governing law.^[1]

Holding one of the listed powers alone does not make its holder a trustee. The Act also permits the instrument to state that holding such a power carries no fiduciary duty.^[1]

A non-charitable purpose trust must be created in writing. Its purposes must be sufficiently certain to carry out and lawful. They must also be consistent with public policy. Such a trust cannot hold an interest in Bermuda land, directly or indirectly.^[1]

For purpose trusts, section 12A disapplies the rule limiting how long trust capital can remain unexpendable. For trusts generally, section 7 places duration restrictions and income accumulation rules within the matters governed by the applicable trust law.^[1]

Trust business licensing and public records

The Bermuda Monetary Authority administers trust business licensing through limited and unlimited licence categories. An unlimited licence authorizes trust business and solicitation from the public generally.^[3]

The legislation allows companies to apply for unlimited licences and partnerships or individuals to apply for limited licences. A limited licence does not authorize its holder to serve as the sole trustee.^[2]

The limited licence framework sets an aggregate trust asset limit of $30 million, with statutory routes for exceeding it. Those routes include Authority permission and delegation of relevant functions to a company holding an unlimited licence.^[2]

Minimum licensing criteria apply to both categories. They cover management fitness and governance, as well as prudent business conduct and professional skills. Satisfying those criteria does not remove the Authority's discretion over an application.^[3]

Section 13 requires the Authority to retain licence copies for public inspection at reasonable times and publish a website list of licensed undertakings. Licensed undertakings also display their licences at their principal Bermuda business premises.^[2]

Tax reporting and information exchange

Bermuda's CRS framework requires reporting financial institutions to collect specified account information. They report it for annual exchange with relevant jurisdictions. The Corporate Income Tax Agency is the competent authority that receives that information.^[4]

The CRS regulations address reporting institutions and covered accounts and taxpayers. They also specify information fields and due diligence procedures. Reporting financial institutions register through the Bermuda Tax Information Reporting Portal.^[4]

The Government's reporting notice expressly includes Trustee-Documented Trusts in the annual CRS compliance certification requirement. The Agency's guidance addresses information about account holders and controlling persons. This includes taxpayer identification numbers and birth information.^[4][8]

Treasury lists Bermuda's FATCA agreement as in force under Model 2. Treasury describes FATCA as requiring foreign financial institutions to report information about accounts held by U.S. taxpayers or foreign entities with substantial U.S. taxpayer ownership.^[9]

A FATCA registration number alone does not establish an entity's CRS classification. Bermuda reporting institutions examine other account holder documentation to support that classification.^[4]

U.S. tax and foreign trust reporting

U.S. citizens fall within the IRS definition of U.S. persons for foreign trust reporting. The IRS describes a domestic trust through two conditions: U.S. court supervision of administration and U.S. person control over all substantial decisions.^[11][12]

In general, a U.S. person treated as a foreign trust's owner under grantor trust rules is taxed on its income. A U.S. beneficiary receiving a foreign nongrantor trust distribution generally reports the beneficiary's share of distributable net income.^[11]

Form 3520 generally applies when a U.S. person creates a foreign trust, transfers property to it, makes a loan to it or is treated as its owner. Distributions, loans received and uncompensated use of trust property can also trigger reporting.^[11]

The IRS assigns each U.S. person treated as an owner responsibility for ensuring that the foreign trust timely files a complete, accurate Form 3520-A and furnishes required annual statements to its U.S. owners and U.S. beneficiaries. The trust's Form 3520-A is generally due by the 15th day of the third month after its tax year ends, unless an extension is granted. When that day falls on a weekend or legal holiday, the due date moves to the next business day. If the trust will not file, the owner must attach a substitute Form 3520-A to a timely filed Form 3520, including extensions.^[11]

Form 8938 can apply when specified foreign financial assets exceed the relevant reporting thresholds. FBAR can apply to a financial interest in, or signature authority over, a foreign financial account, including a trust account.^[11]

The IRS describes exceptions to Forms 3520 and 3520-A for certain qualifying foreign benefit trusts and eligible individuals. Those exceptions leave any applicable Form 8938 and FBAR obligations in place.^[11]

Court structure and legal sources

Bermuda's published court structure comprises the Magistrates' Court, Supreme Court, Court of Appeal and Privy Council. The Court of Appeal receives appeals from the Supreme Court.^[6]

Bermuda Laws Online provides consolidated legislation with amendments alongside annual historic legislation. The Drafting Section of the Attorney-General's Chambers maintains the collection.^[5]

Investment and residence certificates

The Economic Investment Certificate and Residential Certificate program provides an immigration residence route connected with investment. The Government describes investment across one or more categories and includes residency rights among the program's features.^[7]

The Government identifies the Department of Immigration as a program contact and provides a route for expressions of interest. For U.S. reporting, the IRS definition separately includes U.S. citizenship as a basis for U.S. person status.^[7][11]

Applicable law for Bermuda trusts

Bermuda's trust legislation addresses questions concerning a trust governed by Bermuda law and dispositions of property on its trusts.^[13]

Those questions are determined under Bermuda law without reference to the law of another jurisdiction with which the trust or disposition may be connected.^[13]

The provision includes a limitation: it does not validate a disposition of property neither owned by the settlor nor the subject of a power.^[13]

More on Bermuda

Bermuda's principal trust statute

Bermuda's Trusts (Special Provisions) Act 1989 provides rules on trusts, purpose trusts and incorporation of administrative powers by reference. A separate Act regulates trust business, distinguishing trust rules from the regulation of trust business.^[1][2]

Part I addresses how governing law is chosen or identified when none is chosen, and what that law governs. Listed matters include trustee appointments, investment powers, trust duration, variation or termination and distributions, along with accounting duties. Part III permits a trust instrument to incorporate provisions from the Act's Schedule by reference. The Schedule contains model administrative provisions on investment powers and additional trustee powers.^[1]

The Act also includes provisions on governing law, choosing different laws for different aspects of a trust, and the jurisdiction of the Supreme Court. The official consolidated text is published on Bermuda Laws Online, the Government of Bermuda site maintained by the Drafting Section of the Attorney-General's Chambers.

Questions and answers

Related resources

Related glossary terms

• Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
• Trustee: A trustee controls trust assets and manages, uses, or disposes of them for beneficiaries or a stated purpose under the trust terms and applicable law.

Related articles and guides

• BVI trust tax rules and U.S. reporting: The British Virgin Islands Trustee Act describes income tax treatment for trusts and beneficiaries. IRS rules address U.S. person reporting for foreign trusts.
• Mauritius Trust Tax and Reporting Rules: Mauritius legislation on trusts and trustee residence, with the IRS guidance on foreign trust reporting by U.S. persons who own or benefit from such trusts.
• Mauritius courts and legal system structure: Mauritius has a two-tier judicial system. The Supreme Court hears first-instance cases and also hears appeals from subordinate courts across the country.

Tools and official documents

• FinCEN Report 114 (FBAR): foreign account reporting: FinCEN Report 114 (FBAR) for U.S. citizens: account definitions, financial interests, signature authority, trust provisions and the filing requirements it sets.