The Bahamas: We Create Legacies

I feel it is woefully understated that our virtue as a jurisdiction lies in the comprehensive range of private and corporate wealth management services known collectively as ‘The Bahamas Toolkit’. This is a well-made blend of pragmatically crafted laws, premier wealth management tools, and experts of all kinds calling our jurisdiction home. It is the culmination of stable history, solid finances, and a commitment to effective compliance. We are one of the only Caribbean countries keeping to the Financial Action Task Force's ‘40 Recommendations’.

Like Hong Kong or the Cayman Islands, the root of our success continues to be our common law history. The English Privy Council is the supreme legal authority of our jurisdiction, as established by the Declaratory Act 1799.

Trusts have existed in the country since the 1920s, following the English Trusts Act of 1898. Roywest, the first indigenous trust company, was established in 1936. More recently The Bahamas passed the Trustee Act of 1998, a paragon for modern wealth planning.

Wealth Planning

Wealth management is usually equated with investment advisory – drawing holistically from a range of financial services such as tax planning, accountancy and banking, serving the needs of affluent clients.

Wealth planning, on the other hand, is focused on all things legacy: what do our clients have in mind when they think the word ‘legacy’? The wealth planner’s skillset departs from the wealth manager’s at the second step out the door. There are common-sense similarities, but success lies in the details. A jurisdiction catering to wealth planning requires history, stability, expertise, and legacy itself.

The Bahamas Toolkit

The Bahamas offers trusts, foundations, private trust companies, purpose trusts, protectors, family offices, and our own SMART Fund and ICON structures. If it is useful, our jurisdiction has it. Rarely, if ever, does a Bahamian financial institution offer manufactured products pinning Orwellian numbers on clients. Instead, the Bahamian wealth planner pays attention to their client’s story.

The Government had this aim in mind when it wrote several key statutes in the last 40 years:

• 1991: the Fraudulent Dispositions Act.
• 1998: the Trustee Act.
• 2003: the Investment Funds Act.
• 2004: the Foundations Act and the Purpose Trust Act.
• 2007: the Banks and Trust Companies (Private Trust Companies) Regulations.
• 2011: the Trustee Amendment Act, The Bahamas Executive Entities Act and the Rule Against Perpetuities (Abolition) Act.
• 2014: the Investment Condominium Act.
• 2020: the Digital Assets and Registered Exchanges Act and the Financial and Corporate Service Providers Act.
• 2023: the Arbitration (Amendment) Act and the International Commercial Arbitration Act.

All together, what this collection of statutes serves to do is ensure that settlors can exercise reserved powers, avoid the imposition of foreign forced-heirship laws, and remain free to create common-law trusts, civil-law foundations, dedicated private trust companies, or family offices. Central to trusts, foundations, and dedicated offices are three uniquely Bahamian assets: SMART Funds, ICON Foundations, and The Bahamas Executive Entities.

SMART Funds

Stemming from the Investment Funds Act 2003, SMART Funds capitalise on our jurisdiction’s renowned expertise with purpose trusts (trusts created for specific purposes which have no beneficiaries). These permit investors to act in line with their objectives, risk limits, and time horizons, even if multigenerational.

The ‘Model Two’ Fund, otherwise known as the ‘Incubator Hedge Fund,’ enables up to 10 professional investors to establish a hedge fund at trifling cost that is shielded from the general public. They come with redeemable shares carrying voting rights, allowing their holders to elect to change any fund’s operator.

The ‘Model Four’ Fund, known as the ‘Private Client Fund,’ conveniently provides a family with a centralised asset-holding vehicle by which to open accounts and initiate investments, while losing nothing in the way of control.

Investment Condominiums

The Bahamas was one of the first nations that recognised the immense potential of Brazil and Brazilian entrepreneurs. Yet the civil legal system of that emerging nation presented a problem for a common law neighbour such as The Bahamas.

After working with Brazilian experts and gauging the legal requirements of Brazilian HNWIs, we established the Condominium as a convenient way to pool assets for collective investment purposes – often for high-potential properties. The Bahamas uniquely has a plethora of hundreds of islets and cays.

The Condominium exploits our expertise with purpose-driven investment funds and civil-law foundations. It follows the common-sense principle of limiting investment liability while leaving growth potential uncapped. No investor should expose his global property portfolio to creditors.

The Bahamas Executive Entity

In 2011, The Bahamas abolished the ‘Rule Against Perpetuities’, allowing Bahamian trusts to survive ad infinitum. This opened a portal to a new realm, unlocking the market potential of our jurisdiction with respect to legacy planning. The life of a trust is now unlimited, lasting three, four, five, or six generations.

Every trust requires firm organisation and governance stemming from a central point. A ‘protector’ – a person whom the settlor has chosen to exercise powers over the trust and who is not himself a trustee – is the traditional way of providing this. Such a person acts as a voice of wisdom and guides the trust, but one individual cannot do this for generations.

The Bahamas established the Bahamas Executive Entity (BEE) as our answer. It institutionalises the protector’s role for the purpose of guiding legacies, be they comprised of foundations or private trust companies. The persons that comprise a BEE receive limited liability for multiple jurisdictions, counter-intuitively enabling them to fulfil their fiduciary obligations, for example, when defined in a foundation charter.

Private Trust Companies And Purpose Trusts

At their core, private trust companies contain multiple voices of reason that belong to trusted advisors who maintain complete discretion. These are rare virtues, but essential for effective wealth planning. Further, they delimit the constraints inherent in institutional ‘packaged’ trusts while consolidating affairs under a single roof. We encourage all visionaries to consider a private trust company.

The purpose trust, absolutely protected by the Fraudulent Dispositions Act 1991, allows for unlimited freedom in the pursuit of investing happiness. It establishes a two-year statutory limitation from the date of disposition within which a creditor can claim assets, but they must prove fraudulent intent. Thereafter, the assets settled in the purpose trust may not be attacked.

One must be mindful, however, that any trust established with an intent to defraud is invalid. What we Bahamians do, and what we do well, is think innovatively when tailoring structures to create responsible legacies. We call that ‘the right way’.

As a parting gift, I shall add that the assets under management in the Bahamian jurisdiction stand at more than US$50 billion, contained in more than 680 licenced funds. Deltec itself, with employees and partners located globally, manages and guides nearly US$3 billion of that amount. This article has shown how that is done. That is our legacy. What is yours?

Paul Winder
Paul is a Former Chairman of The Bahamas Financial Services Board (BFSB), past Chairman of The Bahamas branch of the Society of Trust and Estate Practitioners (STEP), and a member of the International Tax Planning Association (ITPA)