The Bahamas: A preeminent jurisdiction for your wealth management and structuring plans

The Bahamas: A preeminent jurisdiction for your wealth management and structuring plans.

In this feature Dinesh Menon, a trust and private client attorney from Higgs and Johnson explains what sets The Bahamas apart form other offshore and onshore locations and what it offers wealth managers and wealth creators.

Introduction

The Bahamas is a sovereign archipelagic nation of 700 islands and cays located off the coast of Florida, US. It was a former British colony, attaining independence in 1973 while still remaining a member of the British Commonwealth. The first trust company established in The Bahamas in 1936 was The Bahamas General Trust Company Ltd, which is now known as Société Générale Private Banking (Bahamas) Ltd. Eighty-seven years later, The Bahamas continues to be widely regarded as a leader in trusts and wealth management solutions. Many of the world's renowned financial institutions have well- established presence in The Bahamas, taking advantage of the country's stable political and economic systems, reliable business infrastructures, a legal profession and judiciary that are very familiar with complex issues relating to wealth management structures, and critical proximity to key markets in North and Latin America. 

What sets The Bahamas apart

The wealth management industry in The Bahamas has evolved to provide wealth creators with the types of features and solutions they would find especially beneficial. 

• The following is a summary of such useful features of a Bahamian trust:
• Reserved powers

It is not unusual under modern trusts for a settlor/grantor or a trusted member of the settlor's circle to reserve certain powers to him/herself, like powers of investment or to provide investment directions. Most trust-friendly jurisdictions will support such trusts; however, only a few jurisdictions specifically allow for this under their statute. Section 3 of the Trustee Act, 1998, expressly provides for the reserving of powers under a trust. This allows wealth creators to establish carefully tailored wealth management structures without losing total control over how the assets are managed and enhanced.

• Disclosure and confidentiality

While The Bahamas has robust rules in place to enhance the integrity and resilience of its financial industry, it has managed to deftly strike a balance between regulation and preserving privacy and confidentiality for genuine reasons. 

Bahamian trustees are not required to routinely disclose or file trust documents, details of the trusts they administer and personal particulars of trust-related parties, provided they take all necessary steps to ensure the structures they administer do not facilitate criminal conduct and are fully compliant with world-standard regulations that are regularly updated.

Additionally, trustees in The Bahamas need not disclose trust documents to any person without a vested interest, but they are obliged to take reasonable steps to ensure at least one person who can enforce the trust is aware of its existence. This strikes a sensible balance between ensuring the trustee is held to account by at least one person who can enforce the trust and preserving privacy and confidentiality.

• Trust Period

A perpetuity period is the period that defines the life span of a trust and in which the income of the trust may accumulate. Prior to 30 December 2011, all Bahamian trusts had a perpetuity period that was either incorporated into the trust instrument, or if not incorporated, was prescribed by statute. This mandatory period was a product of the long-standing "rule against perpetuities" that prohibited trusts of excessive duration. The Bahamas abolished this rule and consequently trusts created on or after 30 December 2011 can last indefinitely. This allows for the creation of dynastic trusts and avoids expensive and time-consuming restructuring exercises when a trust approaches the end of its perpetuity period.

• Anti-forced heirship

The concept of forced heirship refers to particular testamentary laws of certain countries[1] that limit an individual's freedom of testation by stipulating how that person may dispose of his or her assets upon death. In such countries, the deceased's heirs have a right to claim a portion of that partible inheritance. These forced heirs are persons, usually children and spouse, whom the testator cannot exclude from inheritance due the prescribed portion of the estate they are each entitled to under law. 

Such rules undermine a person's freedom to implement a carefully customised succession plan for his/her wealth. In The Bahamas, the combined effect of Sections 7(2)(a) and 9 of the Trusts (Choice of Governing Law) Act, 1989, as amended, and Section 79A of the Trustee Act, 1998, ensure that heirs from forced-heirship jurisdictions would not have a claim against a Bahamian inter vivos trust or its assets, unless the settlor intended for them to be beneficiaries of such a trust.

• Firewall / asset-protection features

To protect legitimate creditor claims, the Bahamas Supreme Court has jurisdiction under the Fraudulent Dispositions Act, 1991 (FDA) to adjudicate whether a disposition of assets constitutes a fraud on a particular creditor who has brought an action. If the court finds that the assets were fraudulently transferred, it can set the disposition aside, but only to the extent necessary to meet the claims of that creditor. However, wealth creators may be interested to note that there is no jurisdiction under the FDA to invalidate a trust in its entirety, and under Section 4(3) of the FDA, a claimant needs to commence proceedings within two years of the date of the asset's disposition/transfer. 

• Taxes

Wealth creators may also be interested to note that there are no income, capital gains, wealth or estate taxes in The Bahamas. The Trustee Act, 1998, exempts trusts for non-resident beneficiaries specifically from taxation. The only exceptions to this are a small nominal fee, called a Trust Duty, that needs to be paid at the time a trust is created and a stamp duty (on an ad valorem basis) that is only charged when Bahamian real estate is conveyed to trustees or non-beneficiaries.

• The following is a summary of a range of other Bahamian wealth management vehicles that are available to wealth creators to use on their own or in conjunction with their trust:

• Bahamas Executive Entity

The Bahamas Executive Entity (BEE) is a legal entity that is designed to act as a ‘power holder', whereby it exercises one or more powers/functions within wealth management and corporate structures. For example, it can serve as the protector of a trust or foundation, the settlor of a trust, the ultimate shareholder in a family holding structure or shareholder of a private trust company, among others.

Consequently, it can hold key ownership, management, supervisory and investment advisory roles usually held by individuals within such structures, which allows for enhanced governance safeguards and structural continuity, while reducing individual liability and protecting individual identities. It also offers the potential to simplify the operations and reduce the long-term costs of complex structures. 

• Private trust company

A private trust company (PTC) generally acts as trustee of a specific trust or a group of trusts. The Banks and Trust Companies Regulation Act, 2000, introduced specific regulations for PTCs. Provided it does not conduct trust business, it is exempt from licensing requirements. A PTC allows wealth creators to retain control over the ad­ministration of his/her own trust, and by using a BEE to hold the shares of their PTC they remove the need for a special purpose trust to hold such shares further simplifying the administration of their structure.

• Private foundation

Foundations have been widely used for close to 100 years in Europe and Latin America, hence their greater familiarity to clients from those regions. They serve as effective tools for tax, asset protection and estate planning, organising corporate ownership, assisting charities, and the ownership of PTCs, to name a few. With the Foundation Act 2004, The Bahamas became the first common law jurisdiction to introduce foundations' legislation, providing wealth creators with another vehicle to develop their wealth management structures. A Bahamas private foundation is the common law equivalent of the civil law foundation. Unlike a trust, a private foundation has a distinct legal entity; however, like a Bahamian trust, a founder may reserve certain powers and the foundation is not subject to a perpetuity period. Assets placed within a foundation are owned solely by that foundation and a change in the foundation's governing body does not affect the legal ownership of its assets.

• Exempted Limited Partnership

The Exempted Limited Partnership Act, 1995, offers wealth creators the option of including Exempted Limited Partnerships as part of their wider wealth management structures, which may be holding trading entities or high-risk assets. An Exempted Limited Partnership limits the liability and exposure of its limited partner(s), which is an attractive key feature.

Closing remarks

It is clear that The Bahamas is well positioned to enable wealth creators to put in place robust, flexible and resilient wealth management structures as part of their wider planning strategies. As a well-regulated jurisdiction with a long history in the wealth management industry, it stands notably ahead of most other offshore and onshore alternatives.