Uses of the Bahamas for Private Wealth Management

A robust regulatory framework, progressive Legislative, tenure, prestigious international financial institutions and independent, political and economic stability coupled with a knowledgeable and experienced workforce are all prerequisites for a premier International Finance Centre. The Bahamas has all of the above and is truly a globally competitive international business centre for private wealth management.

Recent legislative amendments have added to The Bahamas Advantage:

Directed Trusts

• An express statutory provision under which, if a third party is given the power to direct the trustee in the exercise of its powers, the trustee is not liable for any loss arising except in limited circumstances.

Rule Against Perpetuities Abolished

• Addresses the rule as it relates to trusts of excessive duration and restriction on the period for accumulation of interest.
• Rule abolished in respect of every disposition of an interest in property made after 30 December 2011.
• Court has power to apply to pre-Act dispositions on an application by the trustee.
• In the interim, trusts with a general power of amendment may now utilize the power to extend the perpetuity period of existing trusts for a period not exceeding 150 years from the date of the trust instrument.

Arbitration of Trusts 2011

• Enables any dispute or administration question to be resolved in arbitration if the trust instrument specifically allows.
• A trust instrument which includes such a clause is construed as if an arbitration agreement is in place and as if the disputing parties were the parties to such an agreement.
• Modern Arbitration Act 2009 will apply.
• It provides the added benefit in that it provides for the ability to choose your own “judge”.
• Provides for confidential and efficient dispute resolution. 

And finally, the pioneering Executive Entity “EE”

An EE is a legal entity established by Charter with limited liability and specific powers to carry out executive functions in its own right.

The main features of the EE are:

• Limited liability.
• No share capital therefore no shareholders/ beneficiaries.
• No minimum level of assets as it only requires assets allowing it to carry out its functions.
• Continuity. It can be established for a definite or indefinite period.
• Confidentiality. The names of the Founder and Executive Entity Council are not public documents although the Charter and Articles may be filed.
• No annual filing requirement.
• No need for Executive Entity Council or officers to be resident in The Bahamas.
• Grants control over a structure without breaching fiduciary and legal principles.
• The powers and executive functions of each EE are set out in its charter and articles.
• Its purpose is limited to performing one or more “executive functions” which are defined as functions of a “supervisory, managerial, or office holding nature” and it may only act in relation to trusts, foundations or other entities which are compliant.

The EE can undertake the following Executive/Advisory & Holding functions

• Process Agent in structured finance.
• Holder of management shares in a SMART Fund.
• Owner of a single premium life insurance policy.
• Director of a company.
• Corporate secretary.
• Protector/enforcer of a trust.
• Authorised applicant for a purpose trust.
• Foundation council/ officer.
• Investment advisor.
• Family council.
• Shareholder of a Private Trust Company.
• Shareholder of a family business.
• Holder of voting shares of a company however it can only hold shares in another entity which also carries out executive functions (e.g. a PTC or protector / enforcer / investment advisory company, but not a trading company).

Case Study

Recently a LATAM based Patriarch advised that he wanted to undertake dynastic planning for his family with respect to said family’s retail business which is in its third generation. He has two sons who work within the business and a daughter that does not as she is engaged to be married and plans to move to Europe.

The Patriarch has undertaken substantive research with respect family protocol and corporate governance and wanted to include this within the eventual structure whilst ensuring that both the business and his children are protected and provided for especially as he is considering an IPO. Whilst approaching various international service providers, he does not have an established relationship and is wary of passing ultimate control to a third party as well as management of his soon to be newly acquired wealth through the IPO.

In view of the requirements of the Patriarch the following structure is a possible solution to meet the required objectives.

Steps to consider

1. Initially there is a requirement to transfer some of the holding in the retail business to his children pre IPO. He can obtain asset protection by placing said shares into individual trusts for himself and his children, particularly the daughter with her upcoming marriage and emigration.
2. He then faces an issue of passing control of the assets to a third party trustee with whom he does not have a relationship however this can be resolved by establishing a Private Trust Company “PTC”. A PTC is a company formed for the express purpose of acting as trustee of a specific trust, or group of trusts. As such individuals can retain control over the administration of their own trusts by establishing a PTC to act as trustee for these trusts. The benefits of a PTC are then greatly multiplied for current and future generations. It is worthy of note that, while the PTC can only act as trustee for a defined class of trusts, through consanguinity, there are no restrictions on the number of trusts for whom the PTC can act as trustee. Further, there are no restrictions on the class of beneficiaries for whom these trusts may benefit.
3. The Patriarch can have the Family Protocol/Governance written into the memorandum and articles of association of the PTC thus providing for certainty with respect to the succession and future management of the family business and assets.
4. The ownership of the shares of the PTC can be undertaken by a Bahamas Executive Entity which also deals with the Patriarchs concerns over ultimate control and ownership.

Now that the dynastic family structure is in place the Patriarch can turn his attention to the issue of the management of the newly acquired wealth post IPO. The benefit of the PTC is that the patriarch will be involved at every stage of the appointment and asset allocation directly as a Director of said PTC as opposed to through a third party professional trustee.

Summary

The above is a possible solution to clients' concerns regarding who should occupy key ownership, management, supervisory and investment advisory positions within their wealth preservation structures. It protects the confidentiality of the wealth preservation structure whilst at the same time giving the Patriarch greater certainty. It also facilitates the application of best practice family and corporate governance principles to protect against internal and external conflict whilst providing for control and protection of the decision making at the top level of the structure within a confidential, straightforward and best practice framework.