Glossary · SearchOffshore
What Is a STAR Trust?
A STAR trust (Special Trusts Alternative Regime) is a type of trust available only under Cayman Islands law, established under Part VIII of the Trusts Law (2021 Revision). Unlike conventional trusts which must have beneficiaries, a STAR trust can be established for purposes rather than for people — making it the dominant structure for orphan SPVs in securitisation, structured finance and fund holding arrangements where no beneficial owner is required or appropriate.
Overview
How a STAR Trust Works
In a conventional trust, there must be identifiable beneficiaries — real people or classes of people who can enforce the trust. A STAR trust removes this requirement. It can be established for stated purposes — for example, to hold shares in a special purpose vehicle — without any beneficiaries at all. This creates an "orphan" structure where the assets are legally owned by the trustee but there is no beneficial owner, making it ideal for structured finance transactions where a true sale of assets to an SPV requires that the SPV has no beneficial owner.
Because a STAR trust has no beneficiaries to enforce it, the law requires the appointment of an enforcer — a person with legal standing to enforce the terms of the trust against the trustee. The enforcer is typically a professional firm or the transaction counterparty. The enforcer's role is to ensure the trustee carries out the trust's purposes correctly.
STAR trusts are unique to the Cayman Islands. No other jurisdiction has an equivalent statutory purpose trust regime with the same combination of features — the absence of a beneficiary requirement, the enforcer mechanism and the Cayman Islands' established legal framework for structured finance and securitisation transactions.
STAR vs Standard Trust
STAR Trust vs Conventional Trust
| Feature | Conventional Trust | STAR Trust |
|---|---|---|
| Beneficiaries required | Yes — must have identifiable beneficiaries | No — can be established for purposes only |
| Enforcement mechanism | Beneficiaries can enforce against trustee | Enforcer appointed — legal standing to enforce purposes |
| Beneficial ownership | Beneficiaries are beneficial owners | No beneficial owner — true orphan structure |
| Primary use | Private wealth, family succession | Structured finance, securitisation, fund SPVs |
| Governing law | Any jurisdiction | Cayman Islands only |
| Perpetuity | Cayman standard: 150 years | Can be indefinite for purpose trusts |
Use Cases
Where STAR Trusts Are Used
Securitisation SPVs
The most common use — a STAR trust holds shares in a Cayman exempted company SPV that issues notes to investors. The orphan structure ensures the SPV's assets are bankruptcy-remote from any originator or sponsor.
Structured Finance
CLOs, CDOs, repackaging vehicles and other structured finance transactions use STAR trust-owned SPVs to hold the underlying assets with no beneficial owner that could create consolidation or insolvency risk.
Fund Holding Structures
STAR trusts are used to hold shares in fund-related vehicles where a beneficial owner is not appropriate — for example, holding preference shares in a fund structure for economic or regulatory reasons.
Charitable and Non-Charitable Purposes
STAR trusts can also be established for charitable or non-charitable non-purpose trusts — including holding structures for family businesses where the VISTA trust is not appropriate.
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