BAHAMAS Law and Practice Contributed by: Sean Moree KC, Vanessa Smith and Erin Hill, McKinney, Bancroft & Hughes
3.4 Tax Consequences of Fiduciary and Beneficiary Roles There are generally no tax consequences if a ben - eficiary or the donor of a trust, foundation or similar entity also serves as a fiduciary. However, this largely depends on the type of fiduciary role. For example, if the fiduciary role is that of a trust company, there are business licence requirements, and such companies would be subject to applicable taxes. Taxes may also arise when Bahamian real property or personalty is transferred into a trustee’s control. 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. 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 should be divided or the extent of their rights in the post-death era. They have also led to disputes regard - ing the exercise of fiduciary powers by trustees, who hitherto were likely addressing only requests from the patriarch or matriarch of the family. Some disputes have also emerged from the very broad reporting obligations imposed on trustees to make filings under the CRS regime, with enforcement authorities being willing to utilise their coercive pow - 5. Wealth Disputes 5.1 Trends Driving Disputes
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