BAHAMAS: An Introduction to Offshore: Trusts

Offshore Trusts in The Bahamas 

As The Bahamas celebrates the 50th anniversary of its independence from Great Britain, the country’s economy continues to grow steadily. The United Nations Council for Trade and Development has stated that foreign direct investment in The Bahamas increased by 6% to nearly USD1.3 billion in 2022. There has also been a USD300 million redevelopment of Nassau Cruise Port so that it may accommodate more cruise ships, including the latest and largest models. Over 4.2 million passengers are expected to arrive in The Bahamas in 2023. For those arriving by air, American Airlines, British Airways, Delta, Westjet, Jetblue and Bahamasair have increased the number of scheduled flights to The Bahamas. Luxury hotels at Atlantis, Paradise Island and Baha Mar have seen an improvement in their room occupancy rates and spending per room. A wide range of luxury condos and villas are also available to purchase or rent.

The Bahamas’ visitor experience and the ease of accessing The Bahamas by air, coupled with the fact that a large number of well-known banks and trust companies are happy to operate in this low-tax jurisdiction, have led to The Bahamas becoming a leading offshore trust jurisdiction for the creation of trusts and the administration of trusts, or for recourse to the courts.

The latter may be for the resolution of trust disputes, but much more often it will be an application by the trustee for paternalistic guidance by the courts so that there will be no squabbling later among the beneficiaries. Since 2011, legislation has specifically made recourse to arbitration possible for trust disputes, even in the absence of a binding agreement between all the interested parties to arbitrate, and the problem that some of the beneficiaries will usually be minors, unborn, unascertained or lacking in mental capacity.

The Bahamas is well served by experienced practitioners and judges, whether applying established law or developing new law as will be needed in the case of cryptocurrency disputes. The government is also alert to the need for The Bahamas to have legislation that upholds its reputation as a leading trust jurisdiction, in terms of its development of flexible asset holding structures involving trusts.

Over the last decade or so the government, advised by leading practitioners, has enacted the following legislation to create an environment in which diverse types of trust structures can flourish: the Trustee (Amendment) Acts 2011 (introducing arbitration for trust disputes), 2013 and 2016, the Rule against Perpetuities (Abolition) Act 2011, the Purpose Trusts (Amendment) Act 2011, the Executive Entities Act 2011, the Trusts (Choice of Governing Law (Amendment) Act 2016), and the Foundations (Amendment) Act 2020.

Very flexible structures can be created, to last indefinitely or for a specified period, perhaps involving underlying companies or other entities, and enabling a settlor or designated “protector” to provide significant input into the decisions of the trustee.

To ensure that The Bahamas keeps up with high global regulatory standards to prevent fraud, tax evasion and money laundering, the government has enacted the following legislation: the Financial Transactions Reporting (Amendment) Act 2022, the Central Bank Act 2020, the Bank and Trust Companies Regulation Act 2020, and the Digital Assets and Registered Exchanges Act 2020 with supplementary regulations, policed by the Securities Commission of The Bahamas.

The outlook for trust companies and trust lawyers in The Bahamas is good, as high net worth individuals seek to organise, in their lifetimes, what they see as dynastic wealth by means of a trust, so as to avoid on their death a public grant of probate in “common law” countries and to ensure that their wealth does not pass directly to their children to be dissipated by them. If their patrimony is governed by “civil law” (as in most European nations), they may take steps to create a trust so that the trust property will not be diminished by the rights of “forced heirs” if such a succession-on-death regime applies (see the Trusts (Choice of Governing Law) Act 1989 as amended in 2016).

Trustees hold a ring-fenced fund protecting the fund from the trustee’s creditors, except for debts incurred by the trustees in their capacity as trustees. Usually, the settlor and the other beneficiaries will only be objects of a discretionary power in a trust instrument and so have only a mere hope of benefiting from an exercise of the trustees’ discretion, so that they have nothing to satisfy a judgment creditor.

The trustees need to manage the trust fund within the parameters laid down by the settlor and need to consider how to deal with income and capital under the usual flexible discretionary trust instruments, subject often to input from the settlor or a protector. Even after a settlor’s death, their letter of wishes needs to be taken into account – although the trustees are not legally bound to follow those wishes, even if they feel morally obliged – unless circumstances have changed significantly since the letter was written.

Nassau is a pleasant place to live and work and holiday, with good international communications. Need one say any more?