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Trust Or Foundation: The Bahamas Is Better At Both

As one of the most progressive jurisdictions in the world for innovative and premier trust legislation, The Bahamas provides a robust and fertile environment for tailored structures that meet the most discerning needs of high net worth individuals and families. In The Bahamas, there is the ability to have perpetual trusts, protective trusts, trusts for purposes both charitable and non-charitable, private trust companies to administer the trusts of related settlers, trust substitutes such asfoundations and pure governance structures, like the Bahamas Executive Entity. The Bahamian trust is at once a model of robustness and flexibility. 

However, the trust is not a “one size fits all” solution, particularly in civil jurisdictions. More than 10 years ago The Bahamas became the first common law country to passfoundation legislation, thus creating a viable alternative planning tool for wealth planning and protection, and reinforcing the jurisdiction’s well-earned reputation for innovative structuring solutions.

Choosing a trust or a foundation depends on clients’ objectives and also their level of comfort with the structure. Certainly, both structures have robust asset protection provisions and allow for the continuity of wealth for generations. For those more familiar or comfortable with the concept of a legal entity (within which some control can be maintained) as the holder oftheir assets, the foundation might be a better fit. The Bahamas’ advantage lies in the fact that both trusts and foundations are intricate components of the financial service offerings that can be utilized as wealth management tools.

The Case for Bahamian Trusts
The advantages of placing assets into a Bahamian trust are available to individuals from many parts of the world who are looking for a stable environment to protect their wealth for future generations.

In establishing a Bahamian trust, planners do not need to take local taxes into consideration since there are no income, capital or estate taxes in the jurisdiction, and The Bahamas maintains a tax neutral position with respect to non-resident clients.

With respect to asset protection, The Bahamas’legal system is without peer. There is a two year time limit during which dispositions can be challenged on the basis that they were designed to defeat creditors. After that period of time, the disposition cannot be challenged on that basis. Further, under Bahamian trust law (and foundations law as well), the structure cannot be defeated by referring to a foreign law. These are key provisions which ensure that the material purpose of the trust (or foundation) is not defeated. 

Another key feature that assures asset protection and succession is a recent provision in the Trustee Act which confirms the validity of provisions in a trust which exterminate the interest of “hostile” beneficiaries, i.e. beneficiaries that challenge the trust, with or without reasonable basis. 

The Bahamas is also the only jurisdiction to have legislatively provided for the arbitration of trust disputes. This assures clients that if they so choose there is no reason that a private family dispute should be laid bare to the public. Disputes can be handled in a confidential manner in a binding arbitration that has the same force as a courtdecision.

In The Bahamas it is possible for a settlor to reserve severalrights without invalidating a trust structure. Alternatively, a settlor can establish a family-owned Private Trust Company (PTC) to be managed by select professionals, as well as family members going forward. Either way, Bahamian statutes such as the Choice of Governing Law Act and The Fraudulent Dispositions Act ensure that the settlor can leave assets however and to whomever they wish, and that those assets are afforded full legal protection from unwanted attacks by creditors.

The recent addition of the Bahamas Executive Entity (BEE) – which institutionalizes the governance of wealth structures and other entities in an entity with limited liability, specifically designed for that purpose – has also solidified the jurisdiction’s reputation as a cutting edge trust provider, and has expanded its portfolio of trust-related products and services.

Anchoring the jurisdiction’s leadership in trust services is the country’s Trustee Act, a modern and standard-setting statute, the key aspects of which include:

Discretionary Powers: The Act enables a Settlor to retain certain discretionary power without compromising the validity of the trust.

Investment of Trust Assets: Trustees have been vested with broad discretionary powers for investment and dealing with the trust property.


Managing Trustee/Protector: The trust may provide for a managing trustee, and a Protector may be appointed with broad discretionary powers, thereby ensuring that the wishes and intention of the Settlor are properly carried out in accordance with the trust instrument. The Act formally recognizes the role of the Protector.

Court Advice: The Act allows a process whereby a trustee may seek advice and directions from a Judge of the Court in chambers without the necessity of filing an action.

Maintenance and Advancement:
 The powers of maintenance and advancement can be applied in respect to any minor who has an interest in the income of a trust property.

Access: The Act creates certainty as to who may be able to have access to the trust documents.

Risk:The Act provides for appropriate flight clauses so that if there is any political upheaval,or any serious activity that would place the trust at risk, the trust and its administration would be transferred immediately and automatically to another country.

Registration: Trust instruments and subsequent documents do not have to be registered (except for conveyances of Bahamian real estate or personal property) under the Registration of Records Act.

The Case For The Bahamas Foundation

In an effort to meet the requirements of an increasingly sophisticated financial services marketplace, The Bahamas established Foundations legislation in 2004, thus becoming the first premier Common Law jurisdiction to introduce Foundations as part of an aggressive legislative agenda designed to strengthen the country’s international business and regulatory environment.

Once afoundation is duly established under the Foundations Act, it is considered to be resident and domiciled in The Bahamas. Nevertheless, this does not prevent a Bahamian foundation from being re-domiciled in another jurisdiction or prevent a foundation from a foreign jurisdiction being re-domiciled in The Bahamas, provided the laws of that jurisdiction allow it to re-domicile. It may be established for private, commercial or charitable purposes,provided these purposes are incidental or ancillary to its main purpose (the management of its assets) and all such purposes are not unlawful, immoral, or contrary to any public policy in The Bahamas.

The Bahamas Foundation certainly can be called the “hybrid vehicle” of the estate planning world in that it is a unique mix between a Trust and a Company since they have several aspects in common.

For example:

  • Like a company, a foundation is a distinct legal entity that enjoys limited liability
  • Like a trust, a foundation has beneficiaries
  • Like a company, a foundation must be registered and have a registered office
  • Like a trust, a foundation may be used to avoid enforced heirship in other jurisdictions
  • Like a company, a foundation may have a council appointed by the founders to act in their interests.

As with a Trust and a Company, the Foundation has a number of key positions that must be filled, including:

  • Founder (similar to the Settlor of a Trust)
  • Secretary
  • Foundation Agent
  • Foundation Council (similar to a Board of Directors or Trustee)
  • Protector or Protector Committee
  • Beneficiaries

There is great flexibility as to who can act in these capacities. As an example, the Foundation Council does not have to be comprised of Bahamas resident members, nor does the office of Protector have to be filled by a Bahamian. Rather, the only caveat is that a Bahamas-based service provider must act in the capacity of Secretary or Foundation Agent. This service provider, by virtue of acting in this position, also provides the Registered Office of the Foundation.

Even though the Foundation is a registered entity, confidentiality is maintained by virtue of the Founder’s name not being public information. An effective estate plan can be put in place by virtue of the trust-like nature of the Foundation.  As with a Trust, the Founder passes the legal title of his / her assets to the Foundation. This then allows the assets to be managed and maintained on behalf of the beneficiaries, with distributions being made in accordance with the Founder’s wishes. 

As part of the family’s estate plan, the Founder may also wish to stay intimately involved in how the assets are invested and distributed. The Founder can reserve a number of powers without jeopardizing the overall integrity of the structure, and certainly more powers than are available when establishing a Trust.

Putting these requirements into a practical context, the Foundation has applications:

  • as a holding vehicle for shareholding of a Private Trust Company and shareholding of a Family Business (promoting longevity of family ownership and creditor protection);
  • as a part of an effective estate plan where a Trust is not the preferred vehicle;
  • where the client wishes to maintain a number of powers and some control over the assets;
  • for charitable purposes.

The Case for The Bahamas

Experience, expertise and regulatory and legislative advancements make The Bahamas one of the world’s most mature and reliable international financial centers. Certainly, The Bahamas is the regional leader in offering the most comprehensive financial services and products. But perhaps the most important advantage is the country’s sovereignty. The Bahamas has been independent for more than 40 years with respect to personal privacy a basic tenant of Bahamian society. At the same time, The Bahamas abides by international standards as a responsible member of the international community. This independence gives The Bahamas the ability to do what is in the best interestsof the country and, in the area of financial services, to act in the best interests of its institutions and the clients they represent.

By Aliya Allen, CEO and Executive Director, BFSB

Aliya Allen is the CEO and Executive Director of BFSB, having taken up the post in January 2012. Prior to this she was a partner in top tier Bahamas law firm, Graham Thompson, specializing in financial services and general corporate law. She was listed in Chambers Global 2012 as an up and coming leading lawyer. Prior to this, she was counsel to the Office of the Attorney General in international cooperation and civil matters.

She holds a LLB (Hons) from the University of Buckingham and completed the Bar Vocational Course at Manchester University. She is admitted to the English and Bahamas Bars and is a member of the Honourable Society of Gray's Inn.