What comes to mind when you think of the Bahamas? Beautiful beaches and clear waters? Undoubtedly, the Bahamas has some of the world’s most scenic locations, but the country has established its supremacy worldwide in one other industry – financial services.
The Bahamian financial services industry is second only to its tourism industry in terms of GNP contribution. Over two hundred licensed banks and trust companies currently operate in the Bahamas.
The country has established itself as one of the world’s premier offshore financial centers thanks to its legislation and stable political and economic environment. In the Bahamas, you can find plenty of trusts and banks representing countries, including but not limited to Canada, Switzerland, the US, and the UK.
This article will discuss Bahamian trusts, their benefits, and how to set them up. Before we jump into the technicalities, we’ll briefly explain some terms related to trusts so that you can follow the complete article without having to google every third word.
For ages, the wealthy have set up trusts for asset protection, estate planning, avoiding litigation, and asset management. Setting up trusts has also enabled many individuals to create generational wealth and pass on their hard-earned financial assets to their loved ones.
Want to know more about offshore asset protection methods? We have an ultimate guide about offshore trusts that explains everything, including but not limited to the types, structures, terms, and procedures for offshore trusts.
- Offshore Trust: An offshore trust is any trust in a jurisdiction outside the one in which the trust’s settlor resides.
- The Settlor: A settlor or a grantor is any individual or corporation that creates the trust.
- The Trustee: The trustee can be any individual or a corporation to which the settlor of the trust transfers the legal ownership of their assets. Under the Bahamas Banks and Trust Companies Regulation Act, the trustee must be licensed by the Central Bank of The Bahamas if it is a corporation.
- Beneficiaries: A beneficiary is any individual or institution designated by the settlor to receive benefit from the trust.
- The Protector: A protector is an individual or an institution appointed in the trust instrument to advise and oversee the trustee’s administration of the trust. A protector can remove and appoint trustees and beneficiaries, among other powers.
- Trust Instrument: A trust instrument is a written agreement executed by the settlor. It regulates how the trust is to be created and managed.
Probably the most significant advantage of an offshore trust over a domestic one is its protection against predatory lawsuits. Any claim against the settlor of a Bahamian trust must be filed in the Commonwealth within two years (statute of limitations).
Offshore trusts are alien territory for most plaintiffs. So, even if they file a claim, it’s highly probable that the trust established under the Bahamian Law will maintain its privacy. In essence, your trust assets will remain intact due to the strict laws regarding the sanctity of Bahamian trusts.
Moreover, Bahamian trusts established after December 30, 2011, can last indefinitely.
The Bahamas is a premier offshore financial center because of its tax-free regime with no income, corporate, inheritance tax, etc. Generally, any offshore trust will provide extra layers of protection compared to domestic trusts, but the benefits are tenfold when established in a tax-free jurisdiction.
A Bahamas trust may be established even when all assets, settlor and trustee are located outside the Bahamas.
Especially for wealthy US citizens, setting up an offshore trust in a tax haven just southeast of Florida is an excellently convenient way to avoid lengthy probate proceedings and legally lower or eliminate their inheritance, gift, and estate taxes. Still, they must comply with the IRS and FATCA reporting regulations.
However, if you are not a US citizen or a tax resident for IRS tax purposes, you can expect to yield far more benefits from your trust fund.
Gone are the days when any sentence with the term offshore would draw out frowns from the people. In the 21st century, offshore is the way to go for asset protection and lifestyle improvement – all while keeping your taxes from bleeding you dry.
The Bahamas is a safe, legal, and vetted jurisdiction for all financial matters. Bahamian vehicles are world-renowned for their regulatory structure, and a Bahamas trust is no different. As long as you fulfill any reporting requirements set forth by your native country, you can be at peace knowing that you are operating legally.
The Bahamas has one of the most comprehensive trust legislation. The following Bahamian trust laws detail the regulations, exceptions, and conditions for all Bahamian trusts:
- Trustee Act (1998)
- Trustee Amendment Act (2011)
- Choice of Governing Law Act (2016)
- Purpose Trust Act (2004)
- Purpose Trust (Amendment) Act (2011)
- Fraudulent Dispositions Act (1991)
- The Banks & Trust Companies Regulation (Amendment) Act 2006
- The Banks & Trust Companies (Private Trust Companies) Regulations 2007
The Bahamian asset protection laws are detailed in the Fraudulent Disposition Act (1991). An asset protection trust protects from any future claims of unknown creditors.
Upon creation, settlors establishing an asset protection trust must transfer their assets from their estate to the trust.
An asset protection trust is an excellent option for high-net-worth individuals who think they may be targets of opportunistic litigations in the future.
Under the Purpose Trust Act (2004), a purpose trust is a trust of hybrid nature that may be established for non-charitable purposes and individual beneficiaries. You can also set up public charitable trusts in the Bahamas for purposes, including but not limited to the advancement of education and poverty relief.
A purpose trust’s trustee must be a licensed bank/trust company or a licensed financial and corporate service provider. Furthermore, a purpose trust may not directly or indirectly hold Bahamian land or an interest in it. However, the trust can use Bahamian land as office premises to carry out its business.
Generally, foreigners set up purpose trusts for the following reasons:
- To hold the shares of a private trust company (PTC) (we’ll discuss PTCs further in the article). Since the settler, his family, and advisors may be appointed directors of the PTC, they can exercise considerable power over the trust management.
- For charitable purposes.
- To provide an extra layer of privacy and security by purchasing assets or making financial transactions on behalf of the entity that is financing the transaction (usually the settlor).
PTCs offer the settlors and beneficiaries to be more involved in the administration of the trust by allowing them to be appointed as directors of the PTC. A PTC differs from ordinary trust companies in the following regard:
- It doesn’t need a license from the Central Bank of the Bahamas to operate.
- It is exempt from the requirements of the Business License Act.
- It must act as a trustee only for a trust created by a designated settlor or family members, not for the public.
- It must appoint a registered representative licensed by the Central Bank or a financial service provider. The registered representative must also be a Bahamian resident.
The steps to establish an offshore trust may vary depending upon the offshore jurisdiction. Still, the following are the most important things that you must do when setting up a Bahamas trust:
- Hire a Lawyer: Trusts, in general, are highly technical matters involving complicated procedures, due diligence, and legal jargon. When establishing offshore trusts, it’s always best to hire people who’ve been doing this their whole life.
- Educate Yourself: You may think, “I’ve already hired a lawyer, why do I need to bother myself with this?” – to make better decisions. Even if you have the best legal support money can buy, at the end of the day, you may have to make some critical decisions that they can’t handle.
To decide the best for your assets, you must have basic knowledge of the Bahamian trust laws, structure, and how they work. Or if that sounds like too much hassle, you seek our assistance as a Nomad Capitalist client.
- Choose the Type of Trust: Asset protection, purpose, and charitable trusts are only some of the trusts preferred by foreigners in the Bahamas. Each type comes with a set of benefits and regulations. Discuss each with your legal team so you can select a trust structure that best serves your needs and interests.
- Define the Roles: Who will be the beneficiaries? Is there a need for a protector? What will be the extent of the trustee’s authority? Will you be a beneficiary? You need to think about and answer all these questions before setting up a trust so that it takes away your stress rather than adding to it.
Once you’ve done all that, ask your lawyers to set the wheels in motion, transfer your assets to the trust, and enjoy a life without fear of future litigation or hefty taxes.
When it comes to offshore trusts, the Bahamas is a top-tier location. The country’s favorable trust legislation, vetted financial institutions, and stable reputation make it a top choice for wealthy foreigners looking to protect their assets through a trust.