guide to bahamian trusts

Guide to

Bahamian

Trusts

Contents

Preface

What is a Trust? 3

Who is the Settlor? 3

Reserved Powers of the Settlor 3

Establishing & Maintaining a Trust 3

Who is the Trustee? 3

Duties of the Trustee 3

Trustees & Disclosure 4

Who is the Protector? 4

Types of Trusts 4

a. Asset Protection Trusts 4

b. Charitable Trusts 4

c. Authorised Purpose Trusts 5

10.

Private Trust Companies 5

11.

Anti-money Laundering Obligations 7

12.

Conflict of Laws 7

13.

Taxation 8

Preface

The Bahamas has been and is regarded as one of the premier offshore financial centres with steady growth

and experience in financial services. An independent nation since 1973, The Bahamas has passed legislation

to meet the requirements of an increasingly sophisticated financial services marketplace and its reputation

as an experienced and knowledgeable player in this area is universal. In fact, many of the world’s largest and

most prestigious financial institutions have branches or subsidiary operations in The Bahamas, taking

advantage of the country’s stable political and economic system. In using Bahamian vehicles, planners do not

need to take local taxes into consideration, as there are no income, capital, gift or estate taxes in the

jurisdiction.

The information contained in this guide is provided for the general interest of our readers, but is not intended to constitute legal advice. Clients and the

general public are encouraged to seek specific advice on matters of concern. This guide can in no way serve as a substitute in such cases.

WHAT IS A TRUST?

The trust is a unique relationship which allows an

individual or a legal entity known as the settlor to transfer

assets which may be of almost any type to a third party or

the trustee. Such assets are to be administered for the

benefit of the beneficiaries, the persons chosen by the

settlor in accordance with the provisions of the trust deed.

The concept is based on the separation of legal ownership

of the trust assets which rests with the trustees from the

beneficial ownership which rests with the beneficiaries.

WHO IS THE SETTLOR?

The settlor, the creator of the trust, is any person, including

a corporation, who has the legal capacity to enter into a

contract. Under the trust relationship, the settlor divests

himself of legal ownership/title in the assets and unless he

has specific powers reserved the settlor also divests

himself of the ability to control such assets. It should be

noted that a trust is not and does not create a new entity

or new legal person.

RESERVED POWERS OF THE SETTLOR

Under Bahamian Law, the settlor may reserve powers to

himself. Further, the retention by the settlor of certain

powers is expressly declared not to invalidate a trust or

cause a trust created inter vivos to be a testamentary trust.

The powers include but are not limited to:

 powers of revocation;

 powers of appointment over any part of the trust

property;

 powers of amendment;

 powers of addition or removal of trustees, protectors,

or beneficiaries; and

 powers to direct the trustee in connection with the

exercise of any of their powers or discretions.

It is quite common for a settlor to reserve powers of

investment to himself.

ESTABLISHING & MAINTAINING A TRUST

The length of time to establish a trust varies depending

upon the complexity of the trust instrument and the type of

assets. Once the trustee has vetted the trust instrument

and all due diligence has been met, the time taken to

complete the set up of a trust can be as little as one day or

as long as six months.

There is no requirement to register or record a trust. In

fact, there is no register of trusts and it is unusual for a

trust to be recorded unless real property is being conveyed

by the trust instrument. Under the Trustee Act, 1998, trust

deeds are exempt from registration under the provisions of

the Registration of Records Act; however, if the trust is

contained in a conveyance with respect to Bahamian real

property then it would be prudent to register that

conveyance.

The basic annual cost of maintaining a trust varies

considerably. Much depends on how a trust company

calculates its fees. Some companies charge a minimum

annual fee of say $4,000 and others charge a percentage

of the trust assets annually e.g. 0.5%.

WHO IS THE TRUSTEE?

Upon the settlor appointing a trustee, the trust property is

vested in the trustee who is the legal owner of the

property. The trustee holds and manages the assets of

the trust. The trustee can be any individual who has the

legal capacity to enter into a contract or any corporation

licensed by the Central Bank of The Bahamas under the

Banks and Trust Companies Regulation Act. As regulator,

the Central Bank licences institutions, determines whether

a licensee retains its licence and may examine the books

and records of the trust company and conduct onsite

examinations.

DUTIES OF THE TRUSTEE

Ordinarily, it will be the duty of the trustee to hold, invest

and administer the trust assets. A trustee must act with

reasonable care and skill, bearing in mind any special

knowledge or experience he has. This is particularly

relevant for professional trustees who may reasonably be

expected to have special knowledge or experience. As a

matter of general law, if a trustee has acted in good faith,

he will be entitled to be indemnified from the trust assets

in his possession. Where a trustee enters into a contract

on behalf of a trust and expressly contracts as trustee and

limits his liability to the extent of the trust assets in his

possession, the trustee’s personal exposure should be

avoided.

With respect to a trustee’s powers of investment, under

the Trustee Act, 1998, a trustee is bound, barring special

revisions in the trust instrument, to make, retain and

change investments as a prudent investor would, having

regard to the distribution requirements, purposes and

other circumstances of the trust. A special onus is put on

the trustee who professes to have or ought to have special

skills or expertise to use such skills or expertise. A trustee

is also under a duty to seek professional advice on matters

in which he is not competent. Such advice may be

obtained prior to exercising any powers of investment. The

trustee is absolved from liability with respect to any action

taken pursuant to such advice.

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property then it would be prudent to register that

The court has discretion to relieve the trustee of personal

liability for a breach of trust where the trustee has acted

honestly and reasonably. In some circumstances where

the breach of trust may have been requested or even

approved by a beneficiary, the court may order that the

trustee be indemnified for losses from the trust property in

which that particular beneficiary is interested.

These duties can be excluded or varied by the terms of the

trust instrument.

TRUSTEES & DISCLOSURE

Trustees need not disclose certain documents to any

persons without a vested interest but are obliged to take

reasonable steps to ensure that at least one person who is

capable of enforcing the trust is aware of the existence of

the trust. The trust instrument may vest in a person the

power to request or approve such disclosure. Such

documents include:

 the trust instrument and all other documents in which

the terms of the trust or any exercise of any trust,

power or discretion are to be found;

 all financial statements of the trust; and

 all financial statements of companies wholly owned by

the trustees as trustees of the trust.

Trustees are also under a legal obligation at the request

and expense of any beneficiaries having vested interests to

disclose the above mentioned documents to such

beneficiaries.

WHO IS THE PROTECTOR?

It is quite common for a trust deed to provide for the

appointment of a protector. A protector is often appointed

pursuant to the terms of the trust and has such duties and

functions as prescribed by the trust. It would not be

advisable for persons holding trust property to act as

protector of the trust.

Subject to the terms of the trust, the protector may have

the power (without limitation) to do any one or more of the

following:

 determine the proper law of the trust;

 change the forum of administration of the trust;

 remove trustees;

 appoint new or additional trustees;

 exclude any beneficiary as a beneficiary of the trust;

 add any person as beneficiary of the trust in addition

to any existing beneficiary of the trust;

 give or withhold consent to specified actions of the

trustee either conditionally or unconditionally; and

 release any of the protectors’ powers.

The exercise by the protector of certain powers will not

cause him to be deemed a trustee. Further, the protector

can only charge remuneration for his services as protector

if authorised by the trust instrument. Unless otherwise

specifically provided in the trust instrument, the protector

will not be liable to the beneficiaries for any bona fide

exercise of his powers.

TYPES OF TRUSTS

Asset Protection Trusts

These trusts offer significant asset protection because,

upon creation, the settlor transfers assets from his

personal estate to the trust subject to the terms of the

trust. The measures to protect assets in a trust from the

claims of future and unknown creditors were introduced by

the Fraudulent Dispositions Act which came into force on

5th April, 1991. This Act limits an attack on trust assets by

creditors in a number of ways so that a transfer of assets

will be voidable if the following elements are present:

 the liability to creditors must have existed at the date

of transfer;

 the transfer must have been at an undervalue;

 in making the transfer there must have been an intent

to defraud the creditor;

 the transfer is voidable by the creditor who is

prejudiced to the extent of his claim; and

 the creditor must bring his action within two years of

the transfer.

Accordingly, any disposition of property made with intent to

defraud is voidable at the instance of the creditor seeking

to set aside the disposition.

Charitable Trusts

Charitable trusts are public trusts as they are of value and

importance to the public at large. These trusts are created

specifically for charitable purposes, which must fall within

the following categories: (i) the relief of poverty; (ii) the

advancement of education; (iii) the advancement of

religion; or (iv) any other purpose beneficial to the

community. Charitable Trusts are not required to benefit

named beneficiaries or classes of beneficiaries.

Because charitable trusts are established for public

purposes, the Attorney-General, as representative for the

Crown, acts on behalf of charities and represents the

beneficial interests of the charity. Further, if the trustee of

a charitable trust fails to uphold his fiduciary duty to the

trust, it is the duty of the Attorney-General to inform the

court.

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Authorised Purpose Trusts

Under the Purpose Trust Act, 2004, authorised purpose

trusts can be established for non-charitable purposes and/

or individuals.

An amendment which became effective April 3, 2007

provides that a trust may create an authorised purpose

trust of capital or income of any property which may have

fixed interests, discretionary interests, or a combination of

both. Further, the capital or income of the authorised

purpose trust may be disposed of in any of the following

ways:

 to persons who may be of any number;

 for purposes which may be of any number or kind,

charitable or non-charitable; or

 to any combination of persons or purposes

aforementioned.

A trustee of an authorised purpose trust who carries out

trust business in The Bahamas must be either a licensed

bank or trust company or an individual who is licensed as a

financial and corporate service provider.

An authorised purpose trust may not hold land or an

interest in land in The Bahamas directly or indirectly but it

may lease office premises for the purpose of its business.

In The Bahamas, there is no provision for an “enforcer” as

such but rather for authorised applicants who would carry

out similar functions, i.e. persons appointed as such under

the trust instrument. Authorised applicants have the

following rights:

 standing to make application by originating summons

to the court in respect of the allocation of income and

capital amongst the different purposes of the trust.

 standing to apply to the court to resolve an

uncertainty as to the administration of the trust.

 standing to apply to the court to reform the trust

cy-près.

 the same rights inter alia as beneficiaries of an

ordinary trust to bring and prosecute administration

proceedings and proceedings for the recovery of trust

property.

 the right to such accounts and inquiries and such

other personal and proprietary remedies and relief, for

the benefit of the trust, as could be obtained by a

beneficiary of an ordinary trust.

 standing to apply to the court for an opinion, advice or

direction in connection with the trust.

 in addition to rights specifically conferred in the trust

instrument, the right to inspect and make copies of

the instruments, registers and documents of the trust

kept by the trustee, all other records and documents

of the trust, and the opinions and legal advice of

counsel in the general administration of the trust.

 the same rights to information and access to

documents as the authorised applicant would have if

the authorised applicant were a beneficiary with a

vested interest under the trust.

Purpose 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 re-

sponsibility 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.

 separating voting rights from economic control.

Purpose Trust Relationships

PRIVATE TRUST COMPANIES

Previously, in The Bahamas private trust companies were

licensed by the Central Bank of The Bahamas (the “Central

Bank”) with a restricted trust license. Under such license,

a minimum capital of US$100,000 and an annual audit

was required. This process was very expensive and time

consuming. Hence, the government of The Bahamas

recently introduced The Banks & Trust Companies

Regulation (Amendment) Act, 2006 and The Banks & Trust

Companies (Private Trust Companies) Regulations, 2007

to facilitate and regulate private trust companies. As pri-

vate trust companies can allow the settlors and beneficiar-

ies more involvement and control in administration of the

trust, the new regime, granting numerous regulatory

exemptions should give The Bahamas a renewed promi-

nence in the field.

A private trust company (which can be a company

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Trustee

Purpose Trust

Trust Fund

Authorised

Applicant

incorporated either under the Companies Act, 1992 or the

International Business Companies Act, 2000) must state in

its memorandum and articles of association that it acts as

a trustee only for a trust(s) created by or at the direction of

a designated person, an individual who is named in a

designating instrument. If there is more than one

designated person named, then each designated person

must be a blood relative of or related by some other family

relationship to a designated person. It should be noted

that the beneficiaries of trusts administered by private

trust companies are not restricted in any way. Private trust

companies must have a paid up share capital of a

minimum of $5,000. Licence fees for private trust

companies are $5,000 annually.

Private trust companies will be exempt from some of the

obligations of ordinary trust companies. For instance, a

private trust company need not have a licence from the

Central Bank of The Bahamas to operate. Also, private

trust companies will be exempt from the requirements of

the Business Licence Act.

The registered representative is a separate legal entity,

which is either a Central Bank licensee or a financial and

corporate service provider which has obtained prior ap-

proval of the Central Bank and whose sole business is act-

ing as a registered representative. The registered repre-

sentative must be a resident of The Bahamas and main-

tain a minimum share capital of $50,000. The fee payable

to act as the registered representative of a private trust

company is $2,500 annually.

Functions of the registered representative include that of

secretary, director, and Bahamas agent (which must be

under a service agreement). Such services may also be

provided by the duly appointed officers of the registered

representative. The registered representative is responsi-

ble for ensuring that the private trust company is estab-

lished for a lawful purpose and that it operates as a private

trust company. When the private trust company ceases to

meet the requirements for exemption, it is the duty of the

registered representative to inform the Governor of the

Central Bank .

The registered representative must obtain an annual

compliance certificate from the directors of the private

trust company and receive information on request from the

private trust company about the private trust company’s

transactions. The regulations provide that the registered

representative must maintain the following books and

records in The Bahamas:

 memorandum and articles of association of the

private trust company (which do not name the trusts

but do limit the activity of the private trust company);

 designating instrument;

 professional résumé of special Director;

 trust instruments for each trust; and

 a list of all private trust companies for which the

registered representative acts.

 At the discretion of the registered representative, form

of acknowledgement, whereby the settlor

acknowledges that he is aware that the following are

not required for private trust companies:

 the directors possess expertise in trust

administration;

 fidelity bond;

 capital exceeding $5,000; and

 an annual audit.

According to the regulations, the registered representative

must also fulfill know-your-customer requirements in

accordance with the Financial Transactions Reporting Act.

Such requirements include the registered representative

verifying the identities of the settlor and any person

providing the funds or assets which are subject to the

trust, the designated person, the protector of any trust in

which the private trust company is trustee, and the vested

beneficiaries of any trust of which a private trust company

is a trustee. Further, the registered representative shall

report any suspicious transactions to the Financial

Intelligence Unit.

In addition to the registered representative, a private trust

company must have at least one special director who has

knowledge of trust administration or at least five years

experience in a discipline relevant to trust administration.

Such disciplines include law, finance, commerce, invest-

ment management, or accountancy. The special director

need not be a resident of The Bahamas or possess

expertise. Where the registered representative acts as a

director of the private trust company and the registered

representative is a licensee of the Central Bank, the re-

quirement for a special director is waived.

Private Trust Company Relationships

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Private Trust

Company

Family Trusts

Designated Person

Registered

Representative

Special Director

If a private trust company is incorporated under the

International Business Companies Act, 2000, it can have

just one shareholder. A record of the beneficial owners of

the shares and a register of shareholders must be

maintained. There is no public record of the names of the

shareholders or beneficial owners.

ANTI-MONEY LAUNDERING OBLIGATIONS

In 2000, the government of The Bahamas enacted nine

new laws relating to anti-money laundering. These new

laws provide for more comprehensive and enhanced

supervision of financial institutions, corporate service

providers and international business companies and

establish a more coordinated system of deterrence against

money laundering and other criminal abuses within the

financial sector and provide for greater international

cooperation in the oversight of the financial system. The

new laws are as follows:

 The Banks and Trust Companies Regulation Act, 2000

 The Central Bank of The Bahamas Act, 2000

 The Financial Intelligence Unit Act, 2000

 The Proceeds of Crime Act, 2000

 The Financial and Corporate Service Providers Act,

2000

 The Financial Transactions Reporting Act, 2000

 The International Business Companies Act, 2000

 The Evidence (Proceedings in other Jurisdictions) Act,

2000 and

 Criminal Justice (International Cooperation) Act, 2000

Key features of the enactments included: enhanced

powers of the Governor of the Central Bank in respect of

licensees; operational independence of the Central Bank in

supervision and regulation of banks and trust companies;

increased information sharing with other regulators for

supervisory purposes. In addition the legislation upgraded

banking supervision, including, but not limited to, on-site

examination of banks and trust companies, as well as

examinations by appropriate overseas supervisory

authorities; know-your-customer requirements and

suspicious and unusual transactions reporting were

enhanced. A Financial Intelligence Unit was established

and the legislation introduced the licensing of financial and

corporate service providers such as lawyers, accountants

and management companies. In 2003, the Government

enacted amendments to the Financial Transactions

Reporting Act and the Financial Transactions Reporting

Regulations which provided the basis for financial

institutions to implement a risk-based approach to

customer due diligence and anti-money laundering

procedure. The amendments realign The Bahamas' know-

your-customer regime with the Financial Action Task

Force's Revised 40 Recommendations issued in June

2003 with specific regard to the implementation of a risk

rating framework for assessing the money laundering risks

that client relationships pose to licensees.

Additionally, in 2004 Parliament enacted the

Anti-Terrorism Act, 2004, which addresses several of the

Financial Action Task Force's Special Recommendations.

The law defines the offence of terrorism and criminalising

the financing of terrorism and provides for the seizure and

confiscation of terrorist assets; reporting of suspicious

transactions related to terrorist financing; and strengthen-

ing of existing mechanisms for cooperation in this regard

between The Bahamas and other countries.

The anti-money laundering legislation in The Bahamas is

considered to be as advanced as that of any Organisation

for Economic Co-operation and Development member

country.

A trust company, like other financial institutions, has

specific duties with regard to (a) identification (b) record

keeping and (c) internal reporting procedures. These

duties exist irrespective of whether it accepts appoint-

ments to a new trust or it administers an existing trust.

Under the Financial Transactions Reporting Act, a trust

company must “verify” the identity of beneficiaries with a

vested interest under a trust.

A trust company must disclose information to the

appropriate supervisory authority if it knows or reasonably

suspects that another person is engaged in money

laundering. A trustee is given protection from criminal or

civil liability for bona fide disclosure of information;

however, he should exercise caution regarding the extent

of the information divulged.

CONFLICT OF LAWS

The Trusts (Choice of Governing Law) Act 1989 is expressly

designed to confront problems over jurisdiction and

conflict of laws in relation to trusts created in The

Bahamas. This legislation is particularly useful in respect

of the forced heirship provisions in civil law countries as

they relate to trusts in The Bahamas. The principal

provisions of this Act are as follows:

 a term of a trust declaring that the laws of The

Bahamas shall govern the trust is valid, effective and

conclusive;

 a term of a trust that the laws of The Bahamas shall

govern a particular aspect of a trust, or that The

Bahamas shall be the forum for the administration

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thereof, is conclusive evidence that the settlor

intended the laws of The Bahamas to be the governing

law of the trust;

 where a term of a trust so provides, the governing law

of a trust may be changed to or from The Bahamas in

certain circumstances;

 in determining the governing law of a trust,

consideration shall be given first to the terms of the

trust and to any other evidence therein of the intention

of the parties and the other circumstances shall only

be considered if there is a failure in this respect;

 with certain exceptions, all questions arising in regard

to a trust governed by the laws of The Bahamas —

including the capacity of the settlor or donor, any

aspect of the validity of the trust, the administration of

the trust and the existence and extent of the powers

conferred or retained — shall be determined by the

laws of The Bahamas. Generally, if one is dealing with

real property located in The Bahamas, or personal

property located in any part of the world, which has

been placed into a Bahamian trust, the proper law for

determining the validity of questions which may arise

in respect thereof is Bahamian law, which does not

recognise heirship rights in respect of such property.

 The amendments to the Trusts (Choice of Governing

Law) Act 1996 clarified the definition of heirship rights

and made foreign judgments which relate to heirship

and matrimonial claims unenforceable in a Bahamian

Court.

TAXATION

There are no income, capital gains, wealth or estate taxes

in The Bahamas. The Trustee Act, 1998 exempts trusts for

non-resident beneficiaries (for exchange control purposes)

specifically from taxation except for a Trust Duty of US$50

on the creation of a trust. There is a penalty of US$100

per annum for failure to pay this duty. Stamp duty on an

ad valorem basis will only be charged when Bahamian real

estate is conveyed to the trustees or non-beneficiaries.

Should you require more specific advice on trusts we invite you

to contact any of the following attorneys:

Earl A. Cash, Partner

ecash@higgsjohnson.com

Jillian T. Chase-Jones, Associate

jchase@higgsjohnson.com

Samantha Knowles-Pratt, Associate

sknowles-pratt@higgsjohnson.com

Nadia J. Taylor, Associate

ntaylor@higgsjohnson.com

Heather L. Thompson

hthompson@higgsjohnsom.com

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