The following chapter featured in Private Wealth 2023 and is awaiting update from the firm.

There is no income or profits tax, withholding tax, capital gains tax, capital transfer tax or inheritance tax in Bermuda. There is also no exit or any similar tax based on a resident’s wealth when they cease to be resident in Bermuda.

While Bermuda does not impose inheritance tax as such, stamp duty is assessed on the net dutiable value of Bermuda property held in a deceased’s estate. Along with customs duties, stamp duty is a major government revenue earner and is charged at different rates and in different manners on various legal documents, excluding wills.

The issue of exemptions does not arise in Bermuda due to the lack of taxes commonly levied in other jurisdictions (see 1.1 Tax Regimes).

There is no income tax in Bermuda.

The taxes and government fees levied on real estate acquired and owned by non-citizens commonly take the form of:

Planning strategies and structures are limited to foreign real estate owners of Bermuda property. However, some benefit can be obtained by putting children’s names on the title with the buyer in a joint capacity. By doing this, and provided there is no need to probate the local estate of the deceased property owner, the title in the property passes automatically without a taxable event arising. Clearly, however, this strategy will not suit all property owners.

From an international estate planning and trust viewpoint, there are no real taxes applicable to non-Bermudians other than annual government fees on exempt companies, unless there is a physical presence in Bermuda. In that case, and for completeness, if the individual or entity is employing persons, there may be applicable social security tax and payroll tax.

Bermuda is a robust choice of jurisdiction for private clients considering their estate planning affairs. Indeed, the Bermuda trust arena continues to see private clients wishing to establish new structures.

Clients are provided with a good level of stability in terms of the estate and transfer tax laws in Bermuda. The equivalent of inheritance or capital transfer tax in Bermuda takes the form of stamp duty charged on documents such as transfer deeds and estate filing documents (ie, the affidavit of value, as mentioned in 1.4 Taxation of Real Estate Owned by Non-residents).

In the last few years, there has been a focus on all jurisdictions addressing any real or perceived abuses and loopholes in the tax laws.

FATCA

Bermuda has a Model 2 intergovernmental agreement in place in order to be compliant with the US Foreign Account Tax Compliance Act (FATCA). Together with the Bermuda enabling legislation, this requires Bermuda entities that are foreign financial institutions (FFIs) to register and enter into an FFI agreement with the IRS. Provided it complies with the relevant procedures and reporting obligations, a Bermuda FFI will be treated as complying with the requirements of FATCA and not subject to automatic withholding on US-source income and other US-related payments.

CRS

Bermuda is also a signatory to the OECD’s Common Reporting Standard (CRS) and has implemented the CRS into local legislation. Bermuda was one of the “Early Adopter Group” countries, meaning it was one of the first countries to agree to implement the Automatic Exchange of Information with respect to certain tax matters under the CRS.

Economic Substance

In an effort to be compliant with the EU’s request for offshore jurisdictions to have tax transparency, Bermuda enacted the Economic Substance Act 2018 as well as the Economic Substance Regulations 2018 in relation to Bermuda-registered entities. Bermuda’s economic substance legislation has been reviewed by EU finance ministers, who have deemed Bermuda to be a “co-operative jurisdiction” in relation to good tax governance.

With respect to exchange of information and fiscal transparency and in light of the above, Bermuda is regarded as being compliant to a great extent.

Stamp Duty

For completeness, the Stamp Duties Act 1976 contains provisions to deal with evasion of stamp duty (which are specific to Bermuda 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 who neglects or omits to set forth fully and truly all the facts and circumstances, commits an offence. In addition, Section 70 states 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.

Public Beneficial Ownership Registers

At present, beneficial ownership data of companies is not publicly available in Bermuda. A private register has been in existence for over 70 years, to which the Bermuda Monetary Authority (and certain other law enforcement agencies) has access, but the general public does not. The Bermuda government indicated, in July 2020, alongside other British Overseas Territories, that it would progress proposals to establish public access, but there have been no developments since then.

Bermuda’s estate-planning structures are suitable for all forms of family from all cultures, including large and small families.

As businesses and families become increasingly global, this can lead to challenges when transferring wealth to family members who may be affected by tax laws, rules of inheritance and treaties in multiple jurisdictions.

Various strategies have been used in this context, for example:

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, or an equitable interest in, the assets held in such a trust (only a potential entitlement), although this protection depends on the onshore jurisdiction in question and the terms of the trust. It is of vital importance for offshore advisers to 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, having followed the English law concept.

The Trusts (Special Provisions) Act 1989, as amended, provides robust protection (pursuant to Sections 10 and 11) for Bermuda law trusts from attacks on the grounds of “forced heirship” claims.

There is no marital property regime 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), 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 UK’s Matrimonial Causes Act 1973. Orders validly made in another jurisdiction are recognised under comity of law principles. The court has 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 will be of persuasive, rather than binding, authority in Bermuda.

Under Section 41 of the Matrimonial Causes Act 1974, dispositions into a trust may be set aside when the court determines that the disposition was made with intent to defeat an application for financial relief in divorce/maintenance proceedings. This applies to matrimonial matters over which the Bermuda court has jurisdiction.

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 (2010) UKSC 42. While Supreme Court decisions, unlike those of the Privy Council, are not strictly binding on Bermuda, decisions of the 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 prenuptial agreement that is freely entered into by both parties with a full appreciation of its implications, unless, in the prevailing circumstances, 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.

In Bermuda, discretionary trusts are most commonly used to transfer assets to younger generations.

At the time of writing (August 2023), there is no particular regime of Bermuda law in force which deals specifically with the treatment of cryptocurrencies or with the succession of 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 will devolve according to the rules applicable to personalty. They may be bequeathed to beneficiaries in a will, or, if a person dies intestate or without a valid will, the deceased’s estate will be governed by the rules contained in the Succession Act 1974.

Bermuda trusts can be employed to achieve a variety of estate, personal, financial, tax or other business planning objectives. In Bermuda, private trusts and purpose trusts are the primary legal vehicles of choice used to provide wealth-preservation structures to high net worth international clients. Purpose trusts are, essentially, trusts which are established for the benefit of “purposes”, as opposed to being for the benefit of individual beneficiaries.

Bermuda has no foundations law.

Bermuda has an active trust law reform programme and is continually looking to improve its trust laws in order to keep pace with modern standards. Bermuda has enacted several key pieces of legislation in the trusts arena, including legislation making it easier to vary the perpetuity periods of trusts that were settled prior to the abolition of the rule against perpetuities for new Bermudian trusts. There has also been new legislation on reserved powers and the rule in Hastings-Bass (see 3.4 Exercising Control Over Irrevocable Planning Vehicles for more on these developments).

The Bermuda legislature also enacted the Trusts (Special Provisions) Amendment Act 2020, which seeks to clarify the jurisdiction of the Supreme Court in respect of Bermuda trusts and foreign trusts with a connection to Bermuda; and to enhance Bermuda’s existing trust legislation with regard to the application of foreign laws and foreign orders to Bermuda trusts.

Bermuda is a common law jurisdiction and therefore recognises trusts. In fact, Bermuda has pursued a constant review and innovation of its trust laws in order to modernise them in light of the changing regulatory environment as well as the needs of international families and their advisers.

While Bermuda trust law is largely based on English common law, it has been enhanced and codified by a number of key statutes, including the Trusts (Special Provisions) Act 1989, as amended. This 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 a trustee for the benefit of a beneficiary or for a specified purpose.

Since Bermuda does not have income or capital gains tax, 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.

However, advice should always be taken in respect of beneficiaries who are resident in a number of different tax jurisdictions, to ensure there are no unintended consequences of, for example, establishing the trust, or on any distributions out of the trust to the relevant beneficiaries.

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

These include the introduction of a statutory Hastings-Bass rule (giving the Bermuda courts statutory jurisdiction in certain circumstances to remedy the negative effects or unintended consequences of flawed acts or omissions made by settlors, trustees or other fiduciaries) and amendments to make it easier for historic trusts to extend their perpetuity period. (The rule was abolished for most new trusts in 2009.)

Clients from jurisdictions which are not familiar with the concept of trusts are typically reluctant to release control over strategic decisions and their assets to trustees. 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 legislation – namely, the Trust (Special Provisions) Act 1989, Section 2A and the Trustee (Special Provisions) Amendment Act 2014 – provides statutory clarity and certainty in this area. Helpfully, the amending legislation expressly lists certain interests and powers that can be retained by a settlor or granted to a third party (eg, a protector or beneficiary), without prejudicing the validity of a trust. It also clarifies that the retention or granting 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 and paves the way for the creation of valid trusts in which the settlor can retain (or grant) a fairly large degree of control over the wealth settled on trust. It should be noted that the retention of significant control powers by a settlor can have some adverse effects and may not be appropriate for all tax-planning scenarios.

Furthermore, the concept of the “protector” in Bermuda trust law has developed as a means to provide the protector (often the settlor or a trusted confidant of the settlor) with a measure of involvement, supervision or control over the trustees. For example, a protector will often have the power to remove and appoint trustees. In some trusts, the protector will hold veto or consent power over the trustee power to include or exclude beneficiaries and/or the power to distribute capital out of the trust fund. Typically, the protector is appointed to ensure that the wishes of the settlor of the trust are carried out by the trustees in the proper fashion.

Bermuda trusts can be used for asset-protection planning. Bermuda has firewall legislation in place that will protect assets in a Bermuda trust from being attacked based on the orders of a foreign court under foreign law. The relevant provisions are found in Sections 10 and 11 of the Trusts (Special Provisions) Act 1989 (as amended). 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.

Section 10 specifies the circumstances under which any foreign law will be excluded from application to a Bermuda trust. It provides that no foreign law which is excluded shall apply to the determination of any question concerning a Bermuda trust, including the capacity of a settlor to dispose of trust property, any right or interest in or to property disposed upon the trust, the validity of a disposition of, or a declaration of trust in respect of property to be held upon trust, or any obligation or liability of a settlor, trustee or beneficiary. These protective measures are further supplemented by Section 11, which prevents the enforcement or recognition of any order of a foreign court where such order is in conflict with Section 10.

These rules strengthen the position of Bermuda trustees in resisting any such litigation.

There are a number of family business succession planning strategies and approaches used in Bermuda to pass wealth and control from generation to generation.

Commonly, businesses are held by a holding company, the shares of which are held in trust. The trusteeship of the trust may be vested in a private trust company (PTC), as opposed to an independent professional trustee. If appropriate, the PTC can enable a degree of control and involvement to be achieved by the settlor or their family without prejudicing the validity of the trust structure. The PTC can ensure active participation of family members or trusted family advisers on the board of the PTC, with members of the younger generation taking over PTC directorships as time passes. Through the involvement of family members and/or close family advisers on the board of directors, a PTC will be more familiar with the settlor’s family and philosophies, rather than an institutional or independent third-party trustee.

No-contest clauses in trusts and family agreements can be a helpful mechanism to deter or avoid conflict in appropriate circumstances.

This is not relevant because of the favourable tax regime in Bermuda.

One of the circumstances which can cause disputes between people of wealth can be imprecision in drafting of the relevant documentation. This applies not only to Bermuda, but to most jurisdictions. As with all disputes, resolution can be achieved if the parties are willing to work together. The driver of the matter when proceeding to a formal dispute process is usually the desire of one party to the dispute to take a greater share than the other party (or parties) think fair. These disputes usually take the form of 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. In Bermuda, the court’s approach to costs in proceedings is for the “losing” party in the litigation to pay the legal costs of the “winning” party.

Where there are contested trust proceedings and trustees take a neutral stand, the trustees’ legal costs are usually paid from the trust fund. However, it is then open to the parties who are for and against the application to invite the court to make an alternative costs order.

In so far as damages are concerned, an award of damages by the Bermuda courts is usually compensation-based. Bermuda 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 are 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 trust and other structures in Bermuda. A PTC can be incorporated to act as trustee of a particular trust or group of trusts. Bermuda has been home to a number of PTCs for a while now, but the rate of new incorporations has increased considerably over the past few years.

A Bermuda PTC has 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 PTC must act in the best interests of the company (rather than in the best interests of the beneficiaries of the underlying trusts) and are subject to certain statutory duties, as well as fiduciary duties and the common law duties of skill and care.

Where relevant contracts have been properly drafted, it is not usually possible to “pierce the veil” of a trust, foundation or similar entity and hold the fiduciaries liable for the liabilities of such entity. However, in extreme cases it is conceivable that a fraudulent trustee could incur personal liability.

There are a number of mechanisms which can protect fiduciaries from liability:

As regards a PTC, in general the director of a PTC cannot be held personally liable to beneficiaries of the trust for breaches of trust committed by the trustee company. A PTC director therefore avoids the risk of personal unlimited liability which flows from individual trusteeship. The director’s duty of skill and care which is owed to the company is to exercise the degree of skill that may reasonably be expected from a person of the relevant director’s knowledge and experience. This means that the standard of care and skill of the individual director of a PTC will not be as onerous as it would be in circumstances where they would act directly as trustee.

Under Bermuda law, the directors of a PTC may also enjoy the protection of indemnification provisions in the by-laws of the PTC and are not therefore likely to be liable for the PTC’s breaches of trust.

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 will 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.

In general, trustees are required to invest the trust property as a reasonable, prudent businessperson would invest their own funds. Professional trustees will be held to a slightly higher standard of care than non-professional trustees. 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, but diversification is just one factor in an overall assessment of exercising reasonable care in the investment of the trust fund.

It is possible to include a provision in the trust instrument excluding the duty to diversify the trust fund and to allow the trustee to make speculative investments.

Under general trust law, the trustee is primarily responsible for investing trust property, but the modern approach is to include provisions in the trust deed to allow (if not mandate) the delegation of investment management to professional managers. The trustees would be required to supervise and monitor the results often and to constantly review the performance.

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 should (without contrary direction or abridgement of duties in the trust deed) follow the usual prudent investor rule and consider diversification and modern portfolio theory. The trustees should establish the investment policy objectives, bearing in mind the purposes of the trust and the needs of the beneficiaries.

One would expect trustees to do what they can to keep liabilities and losses to a minimum in all circumstances. In the context of running a business, a trustee of a purpose trust is in a much better position compared to the trustee of a private trust, as they would not be directly liable to a beneficiary for loss to that trust fund.

There is no statutory definition of “domicile” in Bermuda. In general, the common law of England is of persuasive authority in Bermuda. Therefore, the Bermuda courts apply the English common law principles in connection with questions of domicile.

In order to be a citizen of Bermuda and obtain Bermudian status, one must satisfy the 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.

In Bermuda, a person who is at least 18 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 the Bermuda Immigration and Protection Act 1956, can apply for a Residence Certificate, which entitles the person to reside in Bermuda without the right to work.

There is also a category of residents known as Permanent Resident Certificate (PRC) holders. If one has a PRC, one has the right to live, work and purchase property in Bermuda. The requirements for this category are more stringent than for the Residence Certificate.

Bermuda’s recent Economic Investment Certificate and Residential Certificate Policy (which came into effect on 1 March 2021) enables a person to apply to reside in Bermuda for an extended period. Non-Bermudian individuals who invest at least USD2.5 million (or the equivalent in another currency or asset) in the island receive the right to live in Bermuda. The Economic Investment Certificate is valid for five years, after which, holders are eligible to apply for the Residential Certificate, which enables long-term residency in Bermuda for the holder, their spouse and/or dependents.

Bermuda does not have special planning mechanisms for minors or for adults with disabilities. Both of these groups can be beneficiaries of a Bermuda trust, and a guardian may be appointed for the purposes of receiving property or any other activity which the beneficiary in question is not capable of undertaking.

In the case of 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 their property and affairs.

Bermuda currently does not have any legislation specific to issues of elder law.

According to Section 18A of the Children’s Act 1998, 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. 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 to be treated as if it was the natural child of its adopted parents.

The Trusts (Special Provisions) Amendment No 2 Act 2020 allows for the terms of a trust to expressly exclude illegitimate children from benefiting. This amendment reintroduced flexibility for the settlor of a Bermuda trust.

Domestic partnerships are legal in Bermuda for both heterosexual and same-sex couples under the Domestic Partnership Act 2018. Under this Act, domestic partners’ rights include the right to inherit in the case of no will, the right to a partner’s pension, access to property rights, the right to be considered next of kin, the right to make medical decisions on behalf of a partner and the right to live and work in Bermuda as the partner of a Bermudian.

A charitable trust of Bermuda property will be exempt from stamp duty if:

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 little framework for obtaining tax deductions through charitable giving under Bermuda law.

Trusts (charitable or purpose) and companies limited by guarantee are the most commonly used structures for charitable planning. Less commonly, unincorporated associations or companies incorporated by private act of the Bermuda legislature may be used. These may also be faster to establish than companies. Furthermore, there are no annual government or licence fees payable for trusts, although registered charities pay a small annual fee. Finally, there is currently no trust register in Bermuda, so parties to a Bermuda 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 submit certain information to the Registrar of Companies, including a register of members, so there is somewhat less privacy. However, while the establishment of unincorporated associations may be perceived as an easier way to establish a charity, in practice, corporate structure and governance (eg, the directorships, board meetings and AGMs) may be more familiar to many clients, especially those from civil law jurisdictions, which is perhaps why it has been common practice in recent years to establish many charitable entities as companies limited by guarantee. Companies may also act in their own name, unlike trusts which do not have legal personality.