When affluent individuals and families ponder on their estate planning needs; asset management and protection; the preservation of wealth; tax and succession planning; business continuation and all other such ideas that is the privilege of the wealthy, the usual structure recommended by wealth management professionals is, and continues to be, the Trust. A Trust is administered by a trustee who has title to all of the assets and usually owns the shares of a privately held underlying company. The company can own a variety of assets ranging from bank accounts to immoveable property, or may have the right to receive income from a third party, such as royalties or licensing fees.
For over thirty years, Barbados has been involved in considerable activity in trust services and management. The International Trusts Act provided the island with an opportunity to be marketed as a strong, modern and comprehensive trust formation destination, which is highly favoured and attractive for the purposes of asset protection. This attractive modern trusts system, boasting provisions of financial incentives, including the absence of capital gains tax or estate duty, has propelled the island into one of the leading destinations for the creation and administration of trusts.
There are three different types of legislation which govern each of the three (3) generally used types of trusts in Barbados, namely the Trustee Act responsible for domestic trusts, the International Trust Act which oversees international trusts, and the International Financial Services Act which facilitates offshore trusts.
A domestic trust in Barbados is one which does not expressly state in its instrument to be an international or offshore trust, and where a majority of the trustees must be Barbadian residents or trust companies licensed under the Financial Institutions Act or the Corporate Trust and Service Providers Act. While there is no required registration, there is an eighty year perpetuity period and the trust is also subject to taxes on its worldwide income and its expenses are subject to Value Added Tax. Domestic trusts can be used very advantageously mainly owing to the benefits emanating from the various bilateral double taxation treaties Barbados has with countries such as China, Canada, the United States of America and the United Kingdom. Essentially this means that the tax payable in one of these other jurisdictions can either be 0% or substantially low. They also allow for exemption from exchange controls if the trust has foreign assets, non-resident beneficiaries and primarily conducts business in foreign currency.
For an international trust, at least one of the trustees must be resident in Barbados, but the settlor and generally the beneficiary must be resident outside of the island. The trust instrument must expressly state that it is an international trust, and the trust fund must not include any immoveable property located in Barbados. Any income from an international trust that is derived within Barbados or remitted to Barbados is taxed, but they are exempt from exchange controls and Barbados withholding tax. The international trust is registered but the details of the registration is not publicly available. It has a perpetuity period of up to one hundred years, and most importantly, the capability to create non-charitable purpose trusts. Traditionally, purpose trusts were dictated by trust law to be for charitable purposes, however, the International Trust Act allows the settlor to establish a purpose trust that need not be for charitable purposes and may not have any named or ascertainable beneficiaries. The purpose trust still must be established for a specific and reasonable reason, capable of fulfillment, with the restriction that it must not be for an illegal or immoral purpose. Since their creation, these purpose trusts have been extensively used for the holding of shares in companies, debt financing as well as numerous social, and philanthropic and political purposes, which would not have been previously classified as charitable. Provision under the International Trust Act has also been made for the establishment of asset protection or creditor protection trusts.
Finally, offshore trusts which are regulated by the International Financial Services Act, must have all of its assets consisting solely of foreign currencies or securities. Both the settlor and beneficiaries must be resident outside of Barbados, and the trust is exempt from all taxes, duties and exchange controls within the island. There is no registration requirement but the trustee is regulated by the Central Bank of Barbados. There is a perpetuity period of up to eighty years, and the International Financial Services Act allows for income to be accumulated throughout this period.
The trust instrument usually specifies the duties and discretion of the trustees, and both residents and non-resident individuals and corporations can act in the capacity of trustee of a Barbados trust. More often than not the trust instrument will outline the powers and duties of a trustee as to how they are to manage and distribute the trust property. There is also a common law duty placed upon trustees to provide the beneficiaries with accounts and other documents with regards to the title and whereabouts of the trust assets.
If it is the settlor’s intention, the trust instrument for a Barbados trust can provide for a protector of the trust, and determine just how much power the position is to control. This has become increasingly popular with trusts as a result of the degree of natural uncertainties the settlor may have over relinquishing control over substantial assets to a third party. Therefore, what the protector essentially does is to offer a buffer of protection for the settlor and also the beneficiaries which for the most part is non-existent.
In recognition of the foregoing, Barbados has amended the Trustee Act to allow for the settlors of trust to reserve certain powers which were traditionally only given to trustees. Additionally Barbados provides for the formation of Private Trust Companies (PTCs). The PTC was borne out of the necessity for greater control by families over their trust and has become a very attractive option. The settlor and family can legally exercise greater control over the administration of the assets of the trust. Such flexibility is favored over the traditional trust structures, where the trustee is the legal owner and custodian of assets, and the beneficiaries are subject to the total and complete discretion of the trustee, who must approve all actions. PTCs allow the client to make administrative changes as needed, without actually affecting the trustee position.
Liza manages a successful law practice and team of professionals offering services in Company and Commercial matters, formation of Banks & Insurance Companies, Environmental Law, Tax Planning, Conveyance, Trademarks & Patents, Employment Law and the law of Trusts.
In 1994, Liza graduated with honours, from the law faculty at the University of Manchester, England and then articled in London, England. Thereafter, she completed professional training course in Jamaica to qualify as Caricom lawyer prior to being called to the Bar in Barbados in 1996. In 2001 Liza earned a Masters Degree in the Law of International Trade & Finance from the University of Wolverhampton and London.
Shortly following acceptance to the Barbados Bar (1996), Liza worked for a private, Barbados based wealth management international bank as in-house Counsel and Trust Officer, and then moved on to a leading law firm in Barbados. Liza Harridyal-Sodha & Associates (LizaLaw) was formed in 2002 and has become a well known practice in international circles.
Liza is an Executive of the Society of Trust and Estate Practitioners (Barbados Branch), a Director of the Barbados International Business Association, and the Deputy Chair of the Joint Working Policy Group which advises the Ministry of International Business in Barbados.
