Bahamas: A General Guide To Trusts And Their Uses

Under common law, a Trust is not a company nor does it have any separate legal existence. The word "Trust" is in fact a convenient description of the personal relationship that exists between a settlor, a trustee and a beneficiary. A Trust relationship is created whenever one person (the "Settlor") gives property to another (the "Trustee") to be held in trust for the benefit of named beneficiaries. This relationship is usually created by a written deed. The fundamental concept of a Trust is that assets are transferred into the ownership of the Trustee and are no longer owned personally by the Settlor.

Trusts were essentially devised for estate planning purposes. Assets can be placed in trust for named beneficiaries (even unborn ones) with a view to them inheriting at some later stage. They are also used as asset preservation vehicles. For instance, where there are spendthrift beneficiaries who might otherwise dispose of inherited property unwisely. The main purpose is to provide comfort for both the Settlor and future generations that family assets are being properly looked after and administered.

More recently, Trusts have also been used in an international context to assist high networth individuals in legitimate tax planning measures (so as to avoid local income and estate taxation on income or capital) and to avoid the strictures of local forced heirship inheritance provisions.

In the international environment, there are two types of Trusts commonly used. These are:

1) The Long-form Trust; and 2) the Short-form Trust.

These are the more traditional types of Trust, which are used for all kinds of property and tend to involve complex beneficial provisions. The Trustee usually has full involvement in the administration of the Trusts assets and liaises with beneficiaries as to their income and capital needs. In most cases, a Protector is also appointed, who assists the Trustee in the performance of its functions. The Protector is often a trusted adviser to the Settlor.

The Trustee will prepare annual accounts for the approval of the beneficiaries or Protector, detailing annual income and expenditure and capital valuations.

These Trusts (so-called because the trust deed is usually much shorter than that of a long-form trust) are used to hold bank or brokerage accounts only. They do not contain complex beneficial arrangements and do not provide for the appointment of a Protector. Typically, they involve the use of an underlying company, which holds an account in its name and which in turn is held by the Trustee.

Whichever form of Trust is used, the Trust Deed will set out the Settlors' wishes for beneficiaries. Life interest in income can be created. Most Trusts provide for a class of beneficiaries, with the final decision of income and capital entitlement being left to the Trustee under guidance from a Protector or a letter of wishes from the Settlor.

International Trusts are becoming a more popular estate and tax planning device. Some banks and brokerage firms are now recommending, in appropriate cases, that their clients set up international Trust and company structures for existing or new accounts. The precise benefits to the clients will depend largely upon their local laws.

The most common advantages have been outlined in Paragraph 2 above. Marketing personnel should be aware of local laws to be able to recommend the formation of an international Trust whenever it is advantageous to the client to do so. Local counsel should, if necessary, be involved in this process.

Offshore centers have been acting as professional trustees and fiduciaries for over 50 years. Through their offices, they can act as Trustee of Long-form and Short-form Trusts. They have in conjunction with local counsel, developed a range of trust precedents, which they use in most cases where they are appointed Trustee. Has full in-house legal and accounting staff to enable it to provide a complete range of services without the necessity of incurring the expense and delay of appointing outside professional advisers in these areas.

Can either offer its services independently or, if so desired, can provide support services for banks or brokerage firms who do not wish to incur the high cost of establishing full offshore facilities of their own. Can also provide training materials and programs to educate marketing personnel about trusts.

Also arranges for incorporation of BVI and Cayman International Business Companies and can provide corporate director services.

All of our services are conducted in complete privacy.

For a confidential, private consultation or for greater clarification about any of these matters please contact us and our staff would be pleased to assist you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.