INTRODUCTION
Trust Companies deal in money belonging to persons other than themselves. The traditional function is to act as corporate trustee for inter vivos or testamentary trusts established by wealthy foreign investors seeking to preserve their assets for their heirs or other beneficiaries and managing these assets in accordance with accepted standards of fiduciary responsibility.
Under settled principles of English Common Law and the provisions of the Trustee Act of 1998, the trustee becomes the legal owner of the trust assets which fall under Bahamian legal jurisdiction. This feature which embodied flexibility in many kinds of trust instruments has enabled Bahamian trust assets to avoid attachment under the law of other jurisdictions, exchange control, disclosure, or nationality restrictions. They continue to be of legitimate use with careful tax-planning in particular circumstances.
TRUST SERVICES
In addition to the traditional fiduciary and related services for individuals, trust companies have developed a wide range of services for the corporate customer. Many new international mutual funds, unit trusts, and investment companies are again appearing on the market, dealing in equities, commodities, and money-market instruments; the sponsors of these entities are frequently selecting The Bahamas as the centre for their establishment or administration by a local financial institution.
Among the other corporate services offered by trust companies are the following:
• Serving as trustees for pension funds benefiting the foreign employees of international enterprises.
• Acting as registrar and transfer agent for the securities of publicly owned international companies.
• Setting up and running re-invoicing facilities for trading companies.
• Assisting foreign shipping concerns to register commercial vessels under the Bahamian flag and to incorporate the owning company in any jurisdiction.
• Arranging money-market investments and financial services for captive insurance companies.
• Serving as “emergency trustees” to become vested automatically with corporate assets upon the happening of adverse political or economic events in designated countries.
TRUST ACT
The Trust (Choice of Governing Law) Act 1989 gives protection to Bahamian trusts and their settlors in civil law countries against forced inheritance claims. The Act makes Bahamian law the proper law of the trust if the deed so declares, and makes the trust immune to foreign judgements.
PURPOSE TRUST ACT
The Purpose Trust Act 2004 added another dimension to the jurisdiction’s trust business. Trust benefits are for a purpose rather than persons or entities, and there is no one to whom beneficial entitlement in the trust property is vested.
FRAUDULENT DISPOSITIONS ACT
The Fraudulent Dispositions Act 1991 establishes a 2 year limitation period for creditors’ attacks on asset protection trusts; the attacker has to prove fraud against the settler.
TRUSTEE ACT
The Trustee Act 1998 is an important piece of legislation which updates Bahamian trust law on many fronts. Some of the more important provisions are as follows:
• A settlor can retain a wide range of powers without falling foul of “sham” trust legislation;
• Trustees are given wide statutory investment and management powers unless the trust deed negates them;
• Trustee’s indemnities are recited in the statute;
• A wide range of trust purposes is encompassed, including accumulation trusts;
• The role of Protector is recognized;
• Exemption from all taxes and from stamp duty (an initial $50 stamp is required on all trust deeds);
• Exemption from registration except where an interest in Bahamian property is to be protected; and
• Exemption from exchange control regulations for non-resident beneficiaries
TRUST ADMINISTRATOR
Much trust work in The Bahamas is handled by Public or Restricted Trust Administration companies, which are often affiliated to or owned by banks. Trust Administrators are licensed by the Central Bank under the Banks and Trust Companies Regulation Act 1965. The application process is lengthy and thorough, particularly for Public Trust Administrators. A foreign company can apply for a licence as a branch, or with subsidiary, which is necessarily a Bahamian-incorporated company (not an International Business Company). The licence when issued specifies that a Trust Administrator is either resident (subject to exchange controls)or non-resident.
The minimum capital requirement for Trust Administrators is $1m for Public and $100,000 for Restricted Administrators (the clients of a Restricted Administrator are specified in the licence and cannot be changed without approval). Capital is then expected to keep pace with the growth of the business, not falling below 5% of total assets. Public Trust Administrators must also post fidelity bond of $1m.
PERPETUITY PERIOD
The Perpetuities (Amendment) Act 2004 increased the period of perpetuity from 80 to 150 years.
TRUST COMPANY
The client may find it advisable to establish a trust company in The Bahamas with a restricted or non-restricted trust licence.
Family, Asset Protection, and Purpose Trusts
THE TRUST CONCEPT
Trusts are being used more and more today to protect the assets of professional against potential mal-practice suits and creditor actions.
1. The trust concept was originated by the Courts of Equity in the United Kingdom some 400 years ago and was subsequently recognized by Common Law Courts. The law governing trusts in The Bahamas are generally similar to those in the United Kingdom and other English speaking countries.
2. A Bahamian trust may be established by residents of any country in the world. The person setting up the trust is generally called the Settlor and when established by living persons to living persons the trust is called an inter vivos trust. The document establishing the trust is known as a Settlement Deed or Deed of Trust in the case of an inter vivos trust and a Declaration of Trust when the Settlor himself acts as trustee. The document specifics the property which is to be placed in trust, the way in which the trust funds are to be invested and administered, whether the income is to be accumulated, to whom the income is to be paid, how long the trust is to continue to continue and to whom the trust property will ultimately be disturbed.
3. Deeds of Trust can be extremely flexible and an inter vivos trust can be either revocable or irrevocable. In other words, the Settlor can decide whether to retain or to surrender the powers to amend or revoke the trust. The trust may provide wide discretionary investment powers and the trust property is not subject to restrictions on the accumulation of income. Trust property held by the trustee may be lodged in The Bahamas or in most parts of the world. No application to any court is required to pay Beneficiaries, and generally the law of the individual country of residence is not applicable to payments to them.
4. Although a trust cannot be established in perpetuity, the laws of The Bahamas governing the duration of trust are such that they enable them to last for several generations. The administration of trusts in The Bahamas is completely confidential.
ADVANTAGES OF TRUSTS
1. Continuity: The Settlor can be confident that his assets will be protected and be administered in accordance with his wishes, not only during his life but thereafter. It can often take the place of a Will.
2. Anonymity: Once the assets are transferred to the trustee, they become registered in the trustee’s name, and no reference is made to the Settlor or the beneficiaries.
3. Taxation: If the trust is discretionary and is in one of the recognized tax havens, because the beneficiaries do not have specified interests in the trust assets on which they can be taxed, there will often be freedom from income or capital taxes.
4. Exchange Control: If based in a suitable tax haven, the trust will not be subject to any exchange control restrictions.
5. Family Companies: Trusts can be used to cover the situation where several family members of a family have shareholdings in the same company or group of companies. If all the shareholdings are placed into one trust, with appropriate provisions, this can ensure that the ownership of these shares does not pass out of the family on the death of one of the participants.
ASSET PROTECTION TRUSTS
A standard deed of trust to establish an Asset Protection Trust recites the name of the Trustee and the Settlor, the name of the Trust, the assets being placed in trust initially, the Trusts upon which the assets will be held, the powers and duties of the Trustee, provisions for a Successor Trustee, a change of the forum for administration of the Trust Assets, the remuneration of the Trustee, the interest and the names of the Beneficiaries, and the governing law.
The Deed can be modified to accommodate a Protector when deemed necessary.
The Deed also provides for the Trustee to have regard to the wishes and suggestions of the Settlor. Since the Trustee is to act solely at its discretion, any letter setting forth the wishes of the Settlor is of no legal effect as far as the Trustee is concerned. However, in practice the letter provides guidelines for the Trustee and the Trustee usually adopts these guidelines. In some instances, the Trustee gives an undertaking to the Settlor outside the Trust Deed that in the exercise of its discretion in dealing with the Trust Assets, it will implement the Settlor’s wishes.
The Deed may be drafted, if the Settlor wishes, to ensure that the Trustee acts solely upon the directions of the Settlor during his lifetime.
Although for taxation reasons, it is normally preferable to use an irrevocable trust nonetheless, the trustee usually power at its discretion to advance capital of the trust and, if it is decided for any reasons to bring the trust to an end, the Settlor could ask the Trustee to exercise its discretion to pay out all the capital of the trust.
PURPOSE TRUSTS
By The Purpose Trusts Act 2004 (“The Act”), The Bahamas introduced purpose trusts for special purposes. These trusts have many estate planning and commercial uses including:
• The holding of shares of a private trust company. In this structure the Settlor and members of his family and his advisors may be appointed directors of the private trust company and thereby assume some responsibility for the management of the trust. This is often useful when the assets of the trust are of an unusual nature.
• A trust which has both philanthropic and charitable purposes.
• Asset purchase or financing transactions to provide security for an entity which finances the purchase of an asset and corresponding liability with the intent to keep the asset from appearing on the purchaser’s balance sheet.
• Separating voting from economic control.
