By Timothy J. Colclough.
Historically, and when one thinks of estate / succession planning, creditor protection and ease of management of assets, the first “tool” that comes to mind is the tried and tested Trust. Regardless of which International Financial Centre (“IFC”) is chosen, the Trust has been the staple diet of a majority of practitioners for years, and will remain so for many years to come. However, the Trust is not a “one size fits all” solution. Indeed, and if a client feels uncomfortable with the trust concept it has been difficult to find another solution fitting the bill. That is until The Bahamas Foundation (“the Foundation”) was introduced as a viable alternative planning tool.
The Basics Revisited.
The Bahamas Foundation was introduced with the enactment of The Foundations Act, 2004. , It has undergone some amendments, principally in 2005 and 2007, and has become a key tool in “The Bahamas Tool-Kit.” The Foundation has many applications and is able to be used for private, commercial and charitable purposes.
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 provided by a Bahamian. Rather, the only caveat is 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.
The Foundation’s governing document is the Foundation Charter. It sets out the parameters within which the Foundation must be managed and governed. As an example, and importantly, the Charter deals with Founder retained powers; appointment and removal of the foundation’s officer(s), foundation council members, protector(s), beneficiaries; investment powers; dispositive provisions and provisions regarding the amendment and revocation of the charter.
Once the establishment documentation has been prepared, registration is a straight-forward process. In essence, the Secretary or Foundation Agent provides a synopsis of the Foundation Charter (the Founder’s name is not disclosed) to the Registrar General’s Department, along with a statement that the Foundation will maintain a minimum asset value of US$10,000, and the Foundation complies with all the provisions of the Foundation Act, 2004. The Registrar General will then issue a Certificate of Registration.
A Hybrid Vehicle
The Foundation can certainly be called the “hybrid vehicle” of the estate planning world in that it is a unique mix between a Trust and a Company. Here are a few examples for consideration, and once reviewed, some clear advantages of using the Bahamas Foundation will begin to emerge:
Like a company, but unlike a trust, a Foundation:
•may enjoy unlimited duration;
•is a legal entity in its own right, has a registered office and is registered with the Registrar General of The Bahamas;
•enjoys limited liability, enabling riskier types of assets to be managed within the structure;
•as a legal entity, can own assets in its own name;
•does not require a change in the legal ownership of its assets as a result of a change in its governing body.
Like a trust, but unlike a company, a Foundation:
•may have discretionary or vested beneficiaries;
•benefits from The Bahamas’ creditor protection legislation - the Fraudulent Dispositions Act;
•can be established by will;
•may be used to avoid forced heirship in other jurisdictions;
•does not form a part of a person’s estate and is therefore not subject to probate;
•may have a protector.
Benefits and Practical Uses
With the above in mind, and in general, a client often wants to achieve the following:
• maintain confidentiality;
• have an effective estate plan;
• maintain an element of management / control of the assets without damaging the integrity of the overall structure;
• protect their assets from 3rd parties and perhaps family-adverse influences;
• use a registered “legal” entity to hold and / or administer assets.
A Trust is, in most cases, the preferred solution. However, it may emerge that the client:
•is from a civil law country where the trust concept if not well known;
•does not feel comfortable using a 3rd party trustee;
•wishes to maintain an element of control over the assets.
If this is the case, the Foundation could be a good fit. Taking each of the requirements in turn:
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 plancan be put in place by virtue of the trust-like nature of the Foundation. As with a Trust, the Founder passes 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 a 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 jeopardising the overall integrity of the structure, and certainly more than are available when establishing a Trust.
Putting these requirements into a practical and real life context, the Foundation has application:
•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.
Of course, these are but a few examples of where the Foundation can be used, but they certainly help highlight the Foundation’s versatility.
