Reprinted with permission of the Bahamas Financial Services Board (BFSB)

Private trust companies
As a successful entrepreneur or a family having secured significant wealth, it is likely that components of your estate involve businesses that require active management. You are unlikely to be anxious to hand over full control to a trustee. On the other hand, independent trustees may face difficult legal and fiscal issues in ceding any significant degree of control back to the family, especially considering increased regulatory controls and litigation fears.

Similarly, certain assets held in a portfolio may carry significant risk rating or represent a disproportionate percentage of the total value of the portfolio. As a result, the priority of an independent trustee to meet the prudent investor litmus test may clash with what may well reflect a peculiar knowledge base or investment interest of the family.

Special-purpose trust companies commonly referred to as private trust companies (PTCs), provide, inter alia, the following benefits:

Control. Provided the private trust company is properly run, it should be possible to retain control within the family without prejudicing the validity of the underlying trust.

Influence. The hand-picked selection of a private trust company board offers families assurance that their trustee is genuinely knowledgeable of, and sensitive to, the family’s background and dynamics and that the trust is administered in a manner sympathetic to those issues.

Continuity. Family-selected board members and staff committed to the family business enhance longevity and understanding of family affairs.

Privacy. With the defined circulation of information and limited turnover, families are comforted with the enhanced sense of confidentiality.

Education and empowerment. The ability to engage the next generation of family members, first as committee members and then as board members, allows children to understand the extent of the family wealth, how it is managed, and the problems and responsibilities that it brings.

Flexibility. A private trust company can tailor its powers and its operations to meet the needs of the family and can work closely with the family office.

Structuring options
Management. Family members, protectors and others involved in the administration of the family’s affairs are usually chosen as directors of private trust companies.

Ownership. If a PTC is chosen, the question of ownership of the entity arises. The PTC can be owned by an individual, either outright or through other arrangements such as a purpose trust. More often than not, one of the large factors impacting international planning involving a PTC is confidentiality and owning the company outright does not facilitate protection against fears of kidnapping, confiscation or expropriation.

Outsourcing. Many required services and advisory activities can be contracted to a trust company with an unrestricted trustee license where staff have genuine and extensive experience in trust administration, as well as adequate capitalization, insurance and regulatory oversight.
Another alternative may involve the appointment of a large bank as banker and custodian but with added oversight and transaction monitoring capabilities.

Many of the larger accounting firms and global banks now offer consultancy and coordination of reporting from multiple wealth managers and brokers – providing tailored reports on performance information, cash flow and analysis in a virtual office setting.

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Family office evolves, with The Bahamas at the forefront
The complex and sensitive issues related to family continuity and wealth management can include confiscatory taxes, volatile economies, spendthrift children and political uncertainties. The family office has been a feature of most major fortunes through the ages, but the concept is changing. Families want dynamic partnerships and advisors who will help them to fulfil lifetime goals while dealing with more regulations, and complex issues of taxation, distribution planning and charitable giving.

A very important planning tool used by the family office in estate planning is the trust. Assets will often be transferred to trusts (with underlying corporations to facilitate separation of various assets) as a means of facilitating the smooth transition from one generation to the next. Other essential services of the family office include: evaluating life insurance needs; active coordination of legal/tax/accounting matters of business interests; financial reporting and audits; coordinating the purchase of non-financial assets; and corporate governance reporting. The Bahamas is an ideal location for the establishment of family offices, scoring high marks on all the requisites. In choosing a jurisdiction an advisor must consider:

• The infrastructure (airports, communications, high-end services);
• The nature of assets and issues of control, such as where main tangible assets are held, whether business interests are involved and whether they are mobile or fixed;
• If a virtual family office model offers a solution to unique problems and whether it can be combined effectively with the establishment of a private trust company;
• Whether tax neutrality and tax treaties can play a role;
• The regulatory and compliance obligations of the jurisdiction;
• Exchange of information and access to information, since confidentiality of their affairs is bound to be a large question on the minds of wealthy clients; and
• Financial environment.