Trust types under Nevis legislation

Nevis legislation describes several trust forms and sets rules for their purposes, participants, duration and income.

How the legislation defines a trust

The Trusts Act defines a trust through a trustee holding property for a beneficiary or a purpose, or for both. A beneficiary may be named, identified through a class, or identified through a relationship to another person. The Act also allows the settlor or a trustee to be a beneficiary of the same trust.^[2]

For a trust under the Trusts Act to be recognized as valid and enforceable, it is to have at least one resident trustee. The Act says a corporate body may serve as settlor, trustee or beneficiary.^[2]

The International Exempt Trust Ordinance describes an international trust as one registered under that Ordinance, subject to specified conditions for the trustee, settlor, beneficiary and property. At least one trustee is to fall within one of the listed categories, including a licensed Nevis trust company or a Nevis registered agent. The settlor and beneficiaries are to remain non-resident, and the trust property is not to include local real property.^[1]

Forms named in the Trusts Act

The Act classifies trusts as charitable, spendthrift, protective or unit trusts, and as common trusts. A common trust is a trust outside the other categories. It may arise through an oral declaration or a written instrument. It may also arise through a will or codicil, or through conduct.^[2]

A charitable trust applies income or capital, or both, to a purpose recognized as charitable under the Act. Its provisions allow a charitable purpose to benefit a section of the public or to include private benefit within a class. The trust may be discretionary or contingent on an event, and it requires a written instrument.^[2]

A unit trust provides participation as beneficiaries in profits or income arising from property acquisition. It is for people with funds available for investment. The Act requires a written instrument for this form. It also permits a trust to be created for a lawful purpose, with any property held by or vested in a trustee.^[2]

A non-charitable purpose trust under the International Exempt Trust Ordinance is permitted if its purpose meets the Ordinance's stated conditions. Its terms are to provide for a protector capable of enforcing the trust and for a successor protector. The Ordinance also names a charitable purpose trust form through the purposes it lists, including education or religion, as well as environmental protection, provided the community-benefit condition is met.^[1]

The Trusts Act's common-trust provisions also address trusts for non-charitable purposes, which may be enforced by a person named in the trust terms even if that person is not a beneficiary.^[2]

Beneficiaries, trustees and protectors

A beneficiary's status may depend on a named identity, a class, or a relationship. Trust terms may add or exclude a beneficiary and may make an obligation a condition of receiving a benefit. A beneficiary's interest is treated as movable property under the Act, subject to the trust terms.^[2]

Under the Nevis International Exempt Trust Ordinance, the minimum number of trustees is one unless the trust terms require more. Trustees are to administer the trust according to its terms and act with due diligence and good faith. They are also to keep trust property separate from personal property. Where there is more than one trustee, they are generally to join in performing the trust, subject to the terms and the Act's majority rule option.^[2]

Trust terms may establish a protector's office. Under the Trusts Act, a protector may direct a trustee on matters specified in the trust terms where the trustee has discretion, and may have trustee appointment or removal powers. The International Exempt Trust Ordinance also allows terms to give a protector authority over distributions or investment decisions.^[1]^[2]

The Trusts Act expressly addresses a settlor retaining benefits or powers. A trust is not invalid or affected solely because the settlor remains a beneficiary or retains the power to appoint or remove a trustee or protector. The Ordinance also addresses a settlor's retained right of revocation.^[1]^[2]

Nevis legislation settles whether a trust stays valid when the settlor keeps powers. It does not settle the U.S. result. A power to revoke, to direct distributions back to the settlor, or to veto trustee decisions can make the trust a grantor trust under sections 671 to 679, so the settlor reports the trust's income and the foreign trust forms. The legal effect of retained control depends on the governing law and the facts.

Duration and accumulation of income

The International Exempt Trust Ordinance states that the rule against perpetuities does not apply to an international trust. Unless the trust terms provide otherwise, the trust has unlimited duration. Its separate duration provision also describes circumstances in which perpetuity and duration limits do not apply to property interests held in trust.^[1]

The same Ordinance permits trust income to be accumulated under the trust terms for as long as needed to accomplish the trust's purposes, notwithstanding laws limiting accumulation. Where the terms authorize accumulation or defer distribution until a date or event, the trustee may give effect to that direction, subject to the other trust terms.^[1]

For income not accumulated under the trust terms, the Act says it is to be distributed, subject to the provision allowing accumulation and advancement.^[2]

Questions and answers

Can a Nevis trust be created for a non-charitable purpose?

The International Exempt Trust Ordinance permits an international trust for a non-charitable purpose if the purpose is specific and reasonable, and capable of fulfillment. The terms are to provide for a protector able to enforce the trust and for a successor protector.^[1]

Does the International Exempt Trust Ordinance set a perpetuity limit?

The Ordinance says the rule against perpetuities does not apply to an international trust. Unless its terms state otherwise, the trust has unlimited duration.^[1]

Can income remain in a trust under the statutes?

The International Exempt Trust Ordinance allows accumulation under the trust terms for as long as necessary to accomplish the trust's purposes. Income not accumulated is to be distributed.^[1]^[2]

What role can a protector have?

The trust terms can create a protector's office. Under the Trusts Act a protector may direct a trustee on matters the terms specify where the trustee has discretion, and the Ordinance allows protector powers over distributions or investments.^[1]^[2]

Can the settlor also benefit from a trust?

The Trusts Act says a settlor may also be a beneficiary and that a trust is not invalid solely because the settlor is a beneficiary. The Act also addresses retention of powers to appoint or remove a trustee or protector.^[2]

Related glossary terms

Control test: The control test is part of the IRS rules for classifying trusts as domestic or foreign. It describes whose authority over substantial decisions counts.
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.
Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.