BAHAMAS Law and Practice Contributed by: Sean Moree KC, Vanessa Smith and Erin Hill, McKinney, Bancroft & Hughes
ascertained from the trust instrument or by collateral evidence. Settlors’ Reserved Powers Bahamian law permits a settlor to reserve powers to themselves if they so wish; in fact, it is quite common for a settlor of a Bahamian trust to do so. Further - more, the retention by the settlor of certain powers is expressly declared not to invalidate a trust nor cause a trust created inter vivos to be a testamentary trust. These powers include but are not limited to: • powers of revocation; • powers of appointment over any part of the trust property; • powers of amendment; • powers of addition or removal of trustees, protec - tors or beneficiaries; • powers of investment; and • powers to direct the trustee in connection with the exercise of any of their powers or discretions. The most popular method for asset protection plan - ning is the creation of an asset protection trust. When settling an asset protection trust, Section 4 of the Fraudulent Dispositions Act, 1991 (the FDA) should be borne in mind, which provides as follows: • every disposition of property made with an intent to defraud and at an undervalue shall be voidable at the instance of a creditor thereby prejudiced; • the burden of establishing an intent to defraud for the purposes of the FDA shall lie with the creditor seeking to set aside the disposition; and • no action or proceedings shall be commenced pursuant to the FDA unless commenced within two years of the date of the relevant disposition. 4. Family Business Planning 4.1 Asset Protection Based on these provisions, it is important to ensure that a settlor does not have any known creditors when they create an asset protection trust. However, unless the settlor is notified of a claim or litigation pending against them, any future transfer of property to the asset protection trust would not, by itself, be void -
able. While the FDA offers certain protection to the beneficiaries of an asset protection trust, it ultimately depends on the laws of the jurisdiction of their domi - cile as to whether distributions made to them from the trust and paid to them in that jurisdiction are available to satisfy their creditors. 4.2 Succession Planning In addition to trusts and foundations, many high net worth families create private trust companies to act as the trustee of a defined number of family trusts. Another popular strategy is for two or more persons to hold shares in Bahamian International Business Companies as joint tenants with the right of survivor - ship. If one of the joint shareholders passes away, the remaining shareholders automatically continue to be the shareholders of the company, without the need for any probate proceedings in The Bahamas nor the payment of any transfer taxes. 4.3 Transfer of Partial Interest Taxes are generally levied on the transfer of realty and personalty in The Bahamas. However, no taxes are payable on the distribution of assets in accordance with the terms of a valid will. The transfer of shares in a Bahamian land-holding entity is considered a transfer of an interest in real estate that attracts VAT. If a partial interest in a Baha - mian land-holding entity is transferred, VAT is levied on the value of the property and in accordance with the value of the interest that is being transferred. For example, where 25% of the interest in the real proper - ty-holding entity is transferred to another person, 25% of the value of the land will be subject to the payment of VAT. The fair market value would not be adjusted to reflect a discount for lack of marketability and control.
5. Wealth Disputes 5.1 Trends Driving Disputes
The transfer of generational wealth upon the death of settlors or heads of families is the primary driver of wealth disputes in The Bahamas. Such transfers have led to disputes amongst second-generation fam - ily members seeking to position themselves as suc - cessors, or in relation to how the trust fund or estate
53
CHAMBERS.COM
Powered by FlippingBook