We have a wealth of experience acting for high net worth individuals and their advisors worldwide in relation to complex estate planning using trusts, foundations, private trust companies and holding companies.
Our team represents numerous trust companies and advises on drafting trust structures and variations, as well as drawing up trust deeds and managing trusts.
Bahamian and BVI trust legislation is the most advanced in the industry and offers significant flexibility in structuring trusts to meet differing requirements, including protective or spendthrift trusts, trusts for charitable purposes, purpose trusts and insurance and annuity trusts.
Legislation governing foundations in The Bahamas is likewise innovative and foundations can be used as an alternative to trusts for estate planning. Foundations are used, among other things, for preserving family wealth, segregating assets, separating voting and economic benefits, owning private trust companies, establishing charities and where anti-forced heirship and creditor protection are important considerations.
Our lawyers serve on government advisory panels related to development of the trust and private client sector and we continuously monitor developments in the international trust arena to ensure you benefit from leading edge expertise and advice.
We are happy to work alongside your preferred trust companies, or we can introduce you to suitable advisors.
The Bahamas is a common law country and Bahamian courts recognise trusts and the relationships they create.
Under the Trusts (Choice of Governing Law) Act, 1989, a settlor, whether or not they are resident in The Bahamas, may expressly declare in the trust instrument that the laws of The Bahamas shall be the governing law of the trusts. The declaration shall be valid, effective and conclusive regardless of any other circumstances.
The Act further provides that all questions arising in regard to a trust that is governed by the laws of The Bahamas, or in regard to any disposition of property upon the trusts thereof, shall be determined in accordance with the laws of The Bahamas, including questions as to capacity of the settlor, as to any aspect of the validity of the trust, the disposition of trust assets, the administration of the trust and the existence and extent of the powers contained in the trust instrument.
Furthermore, an heirship right conferred by foreign law in relation to a living person shall not, among other things, be recognised as affecting the ownership of immovable property in The Bahamas or movable property wherever situate.
The assets of a trust are vested in trustees for the benefit of the beneficiaries. The assets may be held directly by the trustees or indirectly through holding companies whose shares are vested in the trustees. Trustees may be individuals or trust corporations. If a Bahamian company acts as trustee of a trust, it must have a trust licence issued by the Central Bank of The Bahamas under the Banks and Trust Companies Regulation Act. Individual trustees do not require to be licensed.
A licensed trust company is subject to the strict confidentiality laws of The Bahamas with the penalties for transgression including fines and/or imprisonment.
To establish a trust as a Bahamian trust, the trust must be governed by the laws of The Bahamas, but there need not be any other nexus with The Bahamas i.e. the assets do not need to be located in The Bahamas and neither the settlor nor any of the beneficiaries need to be resident in The Bahamas.
A trust is established by a settlor executing a settlement and vesting trust assets in the trustee. Assets may later be transferred to the trustee by the settlor or by other persons. Alternatively, a trust is constituted by the trustees declaring themselves trustees of the trust assets by a trust deed in which case no settlor need be identified.
A trust may be established as a strict settlement or as a discretionary settlement. In a strict settlement, the beneficiaries and their shares in the trust assets are definitively set forth in the trust deed. In a discretionary settlement, the trust assets are vested in the trustees with a complete discretion vested in the trustees alone to determine how capital and income will be distributed among the beneficiaries. The beneficiaries must be identified in the trust deed or be capable of identification.
There is specific legislation for establishing creditor/asset protection trusts and authorised purpose trusts.
The Rule Against Perpetuities (Abolition) Act, 2011 abolished the rule against perpetuities and as a result, trusts created on or after 30 December 2011, do not require a perpetuity period to be incorporated into the trust instrument, nor is there any prescribed perpetuity period.
Although the rule has not been abolished retrospectively, the Act provides that in relation to any disposition of an interest made before the commencement of the Act, a trustee may apply to the court for an order declaring that the Act shall apply to the disposition.
The Trustee Act is the main piece of legislation governing trustees and the administration of trusts.
Some key features of the Act are:
Retention of powers and control by the settlor
Provision is made for the settlor to retain certain powers and control over the trust which will not invalidate the trust or trust instrument. The powers referred to include the powers to (i) revoke and amend the trust (ii) appoint, add or remove beneficiaries, trustees or protectors (iii) give directions to the trustees in connection with the exercise of any of their powers or discretions (iv) appoint the settlor as a protector of the trust.
The Act allows for self-settled spendthrift trusts.
The trust instrument can provide that an investment power is to be exercised by a trustee on the directions of another person (referred to as the “power holder”). In these circumstances, the trustee will not be liable for any loss arising from acting in accordance with those directions.
Managing Trustee/ Protector
The trust instrument may provide for a managing trustee and the appointment of a protector to act as an overseer of the trustee’s powers.
Disclosure of documents and information
The rights and obligations of trustees are set out in relation to disclosure giving certainty not seen in other jurisdictions where disclosure is governed by the common law.
Termination of beneficiary’s interest upon challenge to the trust
Confirmation is given to the validity of “no contest clauses”. If the trust instrument so provides, the interest of a beneficiary will terminate upon the validity of a trust (including the validity of any disposition of trust property) being challenged whether in good faith or with reasonable cause. Unless otherwise provided in the trust instrument, no rule of law or equity giving relief against forfeiture shall apply to such a provision.
Codification of the Rule in Hastings v Bass
Under the rule as it was applied in the English courts prior to 2011, a trustee could petition the court to have an exercise of a fiduciary power, which resulted in unforeseen or unintended consequences set aside and declared void. Under the Act, a person may seek a declaration from the court that the exercise of the power is voidable and the court has the discretion to declare the exercise of the power void or voidable. The application can be made by, among others, a trustee, protector, a beneficiary or any person with the leave of the court.
Trust deeds and related documents are exempt from having to be registered pursuant to the Registration of Records Act.
Trustees may apply to the court on a written statement for the opinion, advice or direction of the court without the need to commence an action.
The Act allows for settlement of disputes using arbitration where the trust instrument so provides. Such a provision binds all parties as if they were parties to an arbitration agreement.
Increase of perpetuity period for trusts pre-30 December 2011.
Provision is made for increasing the perpetuity period stated in the trust instrument by up to 150 years from the date of creation.
Foundations are recognised in most civil law jurisdictions where trusts are less well known and accepted. With the introduction of the Foundations Act in 2004, The Bahamas became one of the first common law countries to make the private foundation available.
A Bahamian foundation is a legal entity resident and domiciled in The Bahamas. It is able to sue and be sued in its own name.
Any assets properly transferred to a Bahamian foundation become the legal and beneficial property of the foundation and cease to be the property of the founder. The assets do not become the property of any beneficiary until they are distributed.
As with the legislation governing trusts, the Act has provisions which (i) recognise the supremacy of the governing law of the foundation (ii) protect against forced heirship rights and (iii) provide for termination of a beneficiary’s interest upon challenge.
The main purposes or objects of a foundation shall include the management of its assets. The main purposes or objects may also include any purpose or object which is not unlawful, immoral or contrary to public policy in The Bahamas. Also, a purpose or object need not be but may be charitable.
A foundation may be established by a charter or by will and must be registered with the registrar of foundations who will issue a certificate of registration.
A foundation charter must contain details prescribed by the Act.
Where a foundation is established by a will, the Act provides procedures to ensure its proper registration and endowment.
Apart from the provisions prescribed by the Act, the charter may contain such other provisions that are desired to govern the operation of the foundation covering matters such as:
- reservation of powers to the founder
- appointment, removal and representative authority of a foundation council or other supervisory persons
- appointment of auditors
- amendment or revocation of the charter
- use of a seal
The charter may provide for articles. If articles are not adopted or a matter is not regulated by the charter or articles, the provisions of the Act will apply in respect of such.
The charter and articles do not need to be filed with the registrar and the names and addresses of the founder and members of the foundation council can be kept at the registered office of the foundation and need not be a matter of public record.
It is a criminal offence-punishable by a fine or imprisonment for any person who has acquired information in his or her capacity as an officer, a protector, a member of the foundation council, a member of a supervisory body, a counsel and attorney for a foundation, or an auditor of the foundation to disclose any information relating to the identity of a beneficiary of the foundation, or its assets, liabilities, transactions or accounts, without the express or implied consent of the founder and beneficiary, except when lawfully required or permitted to do so by the Bahamian court or under the provisions of Bahamian law.