Tuesday, November 20, 2012
Tuesday, November 20, 2012
A new piece of legislation enacted earlier this year in the Bahamas seeks to disentangle complicated wealth management structures and reduce personal liabilities on the part of trustees.
The Bahamas Executive Entity (BEE) is designed primarily to act as a shareholder of a private trust company (PTC) – a popular vehicle to manage multifaceted assets of high net-worth individuals (HNWIs). BEEs neither have shareholders nor beneficiaries, but are bestowed with executive powers that mimic a variety of roles currently invested with significant levels of personal liabilities.
PTCs allow settlers of a trust to retain control during sensitive decisions, particularly over who is appointed as director of the trust. Shareholders of PTCs typically exist in the form of a purpose trust. The crux of the matter, then, is finding a trustee of these purpose trusts that fulfills both regulatory restrictions that offshore financial centres have put in place as well as the personal conditions the asset owner(s) may necessitate.
Andrew Law (pictured, top)
Andrew Law, CEO of Bahamas-based International Protector Group, explains the gap a BEE fills. “Historically, incredibly complex structures have defined private wealth management. Families will typically set up private trust companies that manage their assets. These, in turn, require a shareholder – the role which purpose trusts commonly fulfill. However, finding a trustee for the purpose trust leaves the family office with the same problem: the need to find a corporate trustee who can be trusted with and who is willing to take on responsibilities of managing the family’s interests. A BEE is the perfect solution to this.”
Essentially, a BEE has the same executive powers as a purpose trust but with a number of advantages. “Executive entities are incredibly versatile solutions in situations where an entity is required to hold and exercise power, yet there is no need to have a trustee,” Law expounds. “The BEE has all the executive powers of a purpose trust – i.e. it can act as a shareholder in a mutual trust or fund, as a protector, trust enforcer, etc. – but does not require shareholders, eliminating the need for an individual to take on legal and fiduciary responsibility.”
Apart from acting as an owner or shareholder of a PTC, a BEE can fulfill other roles in trusts, some of which have yet to be explored by investors. One intriguing alternative to individuals personally held responsible in court is for a BEE to act as protector in an international fund or foundation. Protectors have the power to remove trustees and are thus typically individuals well known and trusted by the asset owners. Transferring the fiduciary responsibilities to the legal entity of a BEE – whose executive entity council is invested with all the powers of a protector – serves as a model likely to stir interest with personal wealth planners, Law highlights.
Other uses of a BEE include being an investment advisor to a family office as well as a shareholder in other alternative investment vehicles, including hedge funds. IPG has to date set up fewer than two dozen BEEs; yet, Law is confident investors are beginning to recognize the utility of the structure. “Personally, I believe the BEE will be immensely popular. Right now, it is a function of acquainting law firms and family offices with the new law,” he notes.
While all of IPG’s current clients come from the US or Europe, Law is enthusiastic about uptake from Asian economies as well, citing recent studies that suggest the number of HNWIs and ultra high net worth individuals (UHNWI) in Asia has surpassed comparative figures in more developed markets. He adds: “We’ve seen that retaining control over family assets is one of the core concerns of Asian HNWIs. I thus believe there to be high growth potential in this part of the world.”
So far, The Bahamas is the only jurisdiction in the world that allows the setup of an entity with the characteristics of a BEE. Rumor has it, though, that another country nearby is actively looking to introduce a similar piece of legislation, Law shares. ~ Christoph Kober