By James Hoar and Miles Evans.
Since the Industrial Revolution possibly the biggest generator of capital and the single greatest driver of wealth creation worldwide has been the private ownership of operating companies. As advisers to international entrepreneurs and their families since 1959 we have observed a number of trends: Families in business together, and the entrepreneurs who drive them are increasingly more sophisticated in terms of their investments, their strategies and their goals; their ”footprint” is becoming more global, as family members cross borders and their businesses expand into new territories and technologies; they are increasingly concerned with wealth preservation and succession planning for both their businesses and their families. In summary their lives and planning needs have become more complex. In most cases, Bahamian trusts, in their many forms, can efficiently provide the answer to these concerns.
The advantages of placing assets into a Bahamian trust are available to individuals from many parts of the world, including those individuals who are looking for a stable environment to protect their wealth from political instability, arbitrary legal and fiscal surrounding or other forms of coercion.
In a typical scenario a settlor transfers assets to a trustee who will administer them for the benefit of specified persons. The trust deed is a private, confidential, contract and trustees are governed by strict rules regarding the way in which they carry out their fiduciary duties to beneficiaries. They must follow the terms set out in the trust deed and exercise their discretion within certain guidelines. A significant benefit of placing assets into trust is that the settlor will cease to have legal ownership of those assets, i.e. ownership has been transferred to the trustee. Thus, a trust may be used to the settlor’s advantage as a confidential vehicle for avoiding probate and protecting assets for future generations and for making specific provisions for others, whilst potentially mitigating taxation and ensuring continuity of asset management after the settlor’s death.
Interestingly, individuals who create great wealth in their own lifetimes are typically those who have firm views on the world, are able to make great intuitive leaps and show great creativity. They have great confidence in their opinions and have a clear understanding of the risks in their businesses. Directing the management of their investments or the manner in which assets and values are distributed or devolved is normally very important to these individuals.
In The Bahamas it is possible for a settlor to reserve many powers 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 like the Choice of Governing Law Act and The Fraudulent Dispositions Act ensure that the settlor can leave assets however and to whomever he wants and that those assets will be afforded full legal protection from unwanted attacks by creditors.
While the majority of family business owners would like to see their business transferred successfully to the next generation, it is estimated that 70 per cent of such businesses will not survive into the 2ndgeneration and 90 per cent will not make it to the 3rd generation. Surprisingly 85 per cent of that loss can be attributed to unprepared heirs and poor communication between family members. The reason for this is that most wealthy families focus primarily on the transition of their financial assets to the next generation, however, the most successful family dynasties place a great emphasis on the transition of values and what the family stands for.
Planning for the family structure starts with communication within the family and consultation with professionals and trusted advisors to create an appropriate legal framework. We have found that a structured approach such as the five-stage process below often assists families in discovering what structures or strategies are most suited to them:
Discovery, involving a detailed review of the existing corporate structure and family systems to build an understanding of the existing legal and operational framework, culture and values within the family and the family business.
Consulting, a collaborative approach to exploring possible options with members of the family and other stakeholders as appropriate.
Advisory, once a solution has been agreed upon, a clear roadmap to implementation is defined by the family, and a project team is created to include specialist external advisors and family members and stakeholders.
Implementation, the timely execution of the detailed structural plan, including consultation with the project team and optimization of the structure as it comes into being.
Effective Administration, the culmination of the process is dynamic administration, constantly assessing needs and breathing life into the structure and governance systems.
Normally the structures that result involve agreed-upon family and corporate governance rules and systems, as well as channels for openly communicating values and beliefs to all stakeholders across generations. Ultimately we have found that family owned Private Trust Companies (PTC’s), Trusts and Foundations form the legal backbone of these systems and many families have set up Family Offices to support and assist the families in the running of their affairs.
With the globalization of families and their businesses it is often convenient for the Family Office or business Head Quarters, as well as the legal holding structure, to be located in a tax neutral jurisdiction. With more than 280 years of uninterrupted parliamentary democracy The Bahamas is a politically stable, democratic, sovereign nation, with modern legislation, an independent judiciary, a respect for property rights and the rule of law. As such it is an ideal jurisdiction for such activities. It enjoys outstanding natural beauty and is ideally located for easy access from the USA and Latin America; it is only 30 minutes from Florida and 2.5 hours from New York and Panama. As a location for business and family office headquarters its attractiveness is further improved by the ability for certain individuals to secure Permanent Residency within as little as 21 days, and a business license within 7 days.
Those attributes led Deltec’s founding families to choose to establish Deltec Bank & Trust in Nassau, Bahamas early in its development in 1959. Throughout our history as an Independent Private Bank & Trust Group we have been owned by families and have developed with their needs as a centre for knowledge and expertise for families to draw upon. As such we have faced many of the same issues as the families for whom we act. With professionals from diverse disciplines and backgrounds we bring language (Chinese, French, Spanish, Portuguese and German), professional skills (from Investment and Merchant Banking to Fiduciary Services) and a perspective matched by very few.
