Incorporating offshore trust into your asset protection or wealth management strategies can prove to be a wise decision. Several offshore trust jurisdictions have introduced modern trust legislation that offers superior benefits to both the settlors and beneficiaries compared to domestic options. This makes offshore trust funds an attractive option for those seeking to secure their financial assets and reap the benefits of a more favourable legal framework.
To determine whether offshore trusts in the Bahamas are a viable option for your financial goals and circumstances, it is crucial to comprehend the unique benefits they offer. Therefore, gaining an understanding of the distinct advantages that offshore trusts in the Bahamas provide is the initial step towards evaluating their suitability.
What Is a Bahamian Trust?
A trust is a legal arrangement that separates the ownership of an asset from the rights and benefits associated with it. In this framework, the settlor or trustor transfers the legal title of a property or asset to a trustee, who holds it for the benefit of a third party, the beneficiary. Trust assets can encompass a wide range of assets, including investment portfolios, physical property, stocks, bonds, cryptocurrency, mutual funds, and bank accounts.
In the United States, offshore trusts offer an additional layer of security by shielding your assets from the jurisdiction of domestic courts and government agencies. Furthermore, the Bahamian government has established several offshore trust regulations that are conducive to non-citizens, making it a desirable choice for individuals seeking to set up an asset protection trust in a secure and convenient manner. As a result, the Bahamas provides a compelling option for those interested in establishing a trust.
The Benefits of a Bahamian Trust
The Commonwealth of the Bahamas, comprising of more than 700 islands and islets in the Atlantic Ocean, adopts English law as the foundation of its legal system. Nonetheless, Bahamian law has undergone multiple modifications to its trust regulations, facilitating non-resident persons to establish trusts for non-resident beneficiaries, along with a variety of other noteworthy benefits. These include:
- No local taxes on the trust property or for beneficiaries (though this does not exempt individuals from local income tax in their region)
- A provision that non-residents can create trusts for the benefit of non-Bahamian beneficiaries
- No expiration date — all Bahamian trusts are perpetual
- Expert local trust companies and financial services that result in speedy trust creation
- Protection of the trust (by Bahamas legislation such as the 1991 Fraudulent Dispositions Act and others) from forced heirship claims, forced heirship laws, creditors, foreign judgments, and seizures
- English as the official language
- Privacy, as Bahamian law does not require the settlor or beneficiaries to disclose their information on public records
- Short statute of limitations against asset protection trust disputes — any action against a settlor by a creditor must start within two years of the asset transfer into the trust instrument.
From 2018, every company operating in The Bahamas is required to furnish their registered agents with information regarding their beneficial ownership.
The Bahamian Trust Structure
Bahamian trusts share a comparable structure to most domestic trusts in the United States, consisting of a settlor, trustees, and beneficiaries. However, one significant distinction is that the Trustee Act permits Bahamian settlors to appoint a protector in the trust instrument, acting as a mediator between the settlor and trustee.
The settlor, who creates the trust and transfers legal ownership and control of trust assets, retains specific powers under Bahamian governing law, including:
- The power to remove or appoint trustees, protectors, and beneficiaries
- The power to instruct the trustee in how they exercise their powers and discretion
- Powers of amendment
The settlor designates a trustee, which can be an individual or a corporation, to become the legal owner of the trust assets. The trustee holds and manages the trust assets and is obligated to act with reasonable care and skill in the best interests of the trust.
In the Bahamas, many trusts utilize a private trust company specifically created by the settlor to function as a trustee. The trust holds the company’s shares and grants the settlor and beneficiaries substantial control over the trust. Private trust companies in the Bahamas are tightly regulated and must comply with the Banks and Trust Companies Regulation (Amendment) Act of 2006.
Beneficiaries are individuals or groups that benefit from the trust. Typically, they derive income from the trust that is exempt from gift, capital gains, or estate taxes. These persons or organizations also receive the assets held within the trust when it vests or expires.
Types of Trusts and Trust Assets
Although trusts share some common characteristics, their objectives can differ significantly. They can range from trusts created to support charitable causes to creditor protection trusts or trusts incorporated as a part of a comprehensive estate and wealth management plan. Selecting the appropriate trust from the beginning is crucial to ensure that you can efficiently accomplish your objectives.
Asset Protection Trusts
Asset protection trusts safeguard assets by moving them beyond the grasp of potential creditors. People engaged in high-risk professions may face frivolous lawsuits or liability, and having an APT in The Bahamas can provide a sense of security.
The Fraudulent Dispositions Act of 1991 makes Bahamian trusts particularly appealing as asset protection trusts. This act shields all trust assets from foreign criminal or civil judgments. Creditors are required to file a case within The Bahamas, and the two-year statute of limitations necessitates that any filings must occur within two years of the settlor transferring the asset to the trust.
Bahamian trusts offer substantial safeguards for both settlors and beneficiaries. The Trust Act of 1989 introduces the concept of a “trust protector” who serves as a mediator between the trustee and the settlor. By including a provision in the trust deed, the settlor can nominate a protector, who is granted the authority to:
- Appoint and remove trustees
- Remove and appoint beneficiaries
- Receive information regarding the trust and its activities
- Instruct the trustee with regards to trust fund investments and disbursements
Protectors of the trust are frequently selected by settlors from among their financial advisors or trusted acquaintances. However, there are specialized companies that provide this service, and settlors can also choose them.
The 2011 Abolition of the Rule Against Perpetuities Act eliminated the need for trusts to have a termination date. Although settlors can still establish a vesting date, trusts can now exist indefinitely, enabling them to offer wealth management benefits for numerous generations.
In 2004, The Bahamas introduced the Purpose Trust Act, which regulates all non-charitable trusts in the region. Purpose trusts may hold assets without a designated beneficiary or serve the specific purpose of generating wealth for future generations. For a purpose trust to be established, the settlor must define its purpose, which should not include illegal activities or contravene public policy while involving non-charitable purposes.
Discretionary and fixed trusts are the two most common types of purpose trusts. Discretionary trusts provide trustees with greater flexibility in distributing trust assets and income. Trustees have complete discretion in all capital asset and income distribution, which safeguards assets from possible misuse by beneficiaries.
Fixed trusts, on the other hand, have a trust deed outlining the distribution of trust property and assets in the trust instrument. While trustees have some discretion in managing assets, they have no control over how or when beneficiaries receive their disbursement. The objective is to maximize the trust’s benefit without affecting the beneficiaries’ rights.
Under the Purpose Trust Act, purpose trusts must designate an authorized applicant in the trust instrument to enforce the trust’s purpose and represent it in legal proceedings. If the trust’s objective is to generate profits, it must appoint at least one trustee who is either:
- An attorney
- Licensed banks and trust companies
- Approved by the Minister under the Purpose Trust Act.
Charitable trusts hold assets and securities to benefit charitable causes. In The Bahamas, general trust civil law governs charitable trusts, while charitable foundations must adhere to the regulatory framework outlined in the Foundations Act.
Trust Taxes in the Bahamas
Trust laws, including the Trustee Act of 1998, guarantee that offshore trusts are not subject to income, capital gains, corporate, inheritance, gift, and estate taxes. Nevertheless, individuals who receive income or assets from a trust must disclose such information to their respective local government.
How To Establish a Trust in the Bahamas
In certain instances, settlors can establish an offshore trust in the Bahamas within 1 to 2 days. The process entails nominating a trustee and beneficiaries, with the option of appointing a trust protector. As a prominent financial hub, the Bahamas is home to numerous branches of subsidiary operations of major institutions that provide the requisite financial services to establish and manage a trust.
How Much Does It Cost To Establish a Bahamian Trust?
When establishing an offshore trust, there are multiple fees associated with creating and maintaining it. These fees can include trustee fees, protector fees, legal fees, investment and banking fees, and tax reporting fees. The typical cost to establish an offshore trust can range from $15,000 to $50,000, with annual fees usually falling between $3,500 to $15,000.
According to the Trustee Act of 1998, non-resident trusts are required to pay a trust duty of $50 when creating a trust. Failure to pay this duty results in an annual fine of $100. If the trust contains Bahamian real estate, the country will also charge stamp duty on an ad valorem basis for the conveyancing of the property.
Bahamas Trust Act and Trustee Act
The origin of trust law in the Bahamas can be traced back to the Bahamian Trustee Act of 1893. The Trust Act of 1989 marked the country’s independence from foreign jurisdictions and introduced the option of appointing a protector of trusts.
Over time, trust laws in the Bahamas have evolved, with the introduction of the Trustee Act of 1998 and subsequent amendments in 2007, 2011, 2013, and 2016.