Legal Framework and Formation Rules and Fees
Bahamian trust law is based on English common law, and the Bahamian Trustee Act 1893. In the last 15 or so years the Bahamas have extended and adapted their trust laws, most recently with a new Trustee Act 1998, to accommodate a wider market, which is not necessarily interested so much just in tax avoidance, but also in the efficient management of wealth in a more general sense.
Legislative amendments to allow for the formation of Private Trust Companies were put forward in May 2007.
Other legislation includes The Trust (Choice of Governing Law) Act 1989 and the Fraudulent Dispositions Act 1991. The Trustee Act 1998 repeals the Trustee Act 1983 and the Variation of Trusts Act 1983.
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 a trust if the deed so declares, and makes the trust immune to foreign judgements.
The Fraudulent Dispositions Act 1991 establishes a two-year limitation period for creditors' attacks on asset protection trusts; the attacker has to prove fraud against the settlor.
Trusts (other than those holding Bahamian real estate) with non-resident beneficiaries are exempt from all taxes, including stamp duty on transfers into trust. Under the 1998 Act, new trusts need to be stamped with a $50 Bahamas revenue stamp (at the time of writing), which can be bought for cash and does not involve any disclosures.
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;
Trustees' indemnities are recited in the statute;
A wide range of trust purposes are encompassed, including accumulation trusts;
The role of Protector is recognised;
There are extensive disclosure provisions;
Exemption from all taxes and from stamp duty (an initial stamp is required on all trust deeds, however);
Exemption from registration except where an interest in Bahamian property is to be protected;
Exemption from exchange control regulations for non-resident beneficiaries.
The Act was to have included legislation covering purpose trusts; this was enacted separately as the Purpose Trust Act, 2004.
"There are many estate planning exercises and other commercial transactions that can legitimately and properly take advantage of this kind of structure," observed Alfred Sears, the then Attorney General. These uses include:
The holding of shares of a private company, which is expressly authorised by the Act. 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 or to keep the asset and corresponding liability from appearing on the purchaser’s balance sheet.
Separating voting from economic control.
Temporary avoidance of controlled foreign corporation rules.
Debt Subordination to provide ranking of priority among creditors.
Discretionary trusts to perpetuate a particular corporate governance philiosphy.
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