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Features - July 2011



The Bahamas Investor

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Securing succession

Securing succession

Innovative estate planning tools give Bahamas the edge

The Bahamas Investor Magazine
July 13, 2011
July 13, 2011
Catherine Boal

As baby boomers come of age, they are looking to protect their assets for the next generation. A wide range of estate planning structures can help them make the right choice, tailored to their individual circumstances.

In The Bahamas, finding the most suitable tool to protect wealth is easy, thanks to the availability of highly qualified professionals and legislative support. Following the introduction of new legislation to the sector, ultra-high-net-worth individuals (UHNWIs) can now be even more confident when it comes to securing their assets.

The Executive Entities Bill
Under The Bahamas’ Executive Entities Bill 2010 (EEB), clients are offered a highly structured approach to planning for their future. The bill creates executive entities–mechanisms that operate similar to a foundation but enjoy more powers. The first of their kind in the world, these entities can carry out a range of executive functions including acting as a protector, enforcer, investment advisor or shareholder. “The executive entity was meant to function in the estate planning context, where finding persons or entities to act as protector or enforcer is rife with difficulties,” explains Aliya Allen, partner at Graham Thompson, who was involved in reviewing the legislation. “It is a legal foundation with no beneficiaries designed to fulfill purely executive functions. Because an executive entity is required only to have such assets as are necessary to perform its functions, there is no minimum asset requirement. It is therefore perfectly suited to act as a pure asset holding structure.”

Executive entities will greatly enhance the estate planning process, according to Allen who adds: “It gives clients a cost effective and flexible structure. Wealth generators, particularly with family businesses, are ever more cognizant of the need to put in place proper corporate governance style processes. The executive entity lends itself particularly well to this.”

By using an executive entity, clients can be confident that, no matter how complex their needs are, they will be met. They can also be assured that should any family disputes arise they will not affect the succession of wealth as the settlor’s wishes are entrenched into the structure of the entity itself.

“Executive entities continue on, so succession would be dealt with. It gives UHNWIs security,” says Heather Thompson, partner at Higgs & Johnson, who was also involved in reviewing the legislation.

Friends or relatives of the client can be appointed to administer their wealth under the new bill, which protects these administrators by means of a limited liability provision, provided that the protector acts honestly.

Amendments to Trustee and Perpetuities law
In addition to the EEB, The Bahamas is addressing the current law regarding trusts and perpetuities. Introduced alongside the EEB, are the Trustee Act Amendment Bill (TAAB) and the Perpetuities Bill (PB).

The TAAB is an important step, not only in trust law, but also in dispute resolution, as it allows for arbitration in trusts–effectively removing the need for costly and time consuming litigation. Under the TAAB, there is also provision for asset management responsibilities to be divided between a trustee and a power holder. The two can be compelled to make decisions jointly, or one may have veto over the other. This gives settlors greater control over the management of their assets, and trustees more security.

“It makes it easier to split the trustee function from the investment management function,” says Allen. “It gives trustees comfort that when they are acting under the directions of an investment manager, who is suitably qualified to make those decisions, there will not be liability for simply carrying out those directions.”

Under the PB, the rule against perpetuities is abolished, paving the way for the creation of dynastic trusts and adding another product to The Bahamas’ range of estate planning tools.

“This was way overdue,” says Thompson. “I am only sorry that it will not be applied retroactively. It will be particularly helpful for planning, in conjunction with US dynastic trusts. It will put us in a good position compared to our competitors.”

Allen agrees: “We always talk about dynastic planning and the need to provide for generations, a big roadblock in that is the Perpetuities Act.”

Competing globally
The EEB, PB and TAAB are all expected to become law this year and with this new set of legislation at its disposal, The Bahamas is ensuring it retains its competitive edge as a premier destination for estate planning.

According to Thompson, the EEB in particular positions The Bahamas as a leader in the field. “No other jurisdiction, to my knowledge, is using executive entities,” she says. “We came up with it first, so that gives us a boost. The Bahamas’ strength lies with the private client and this drives that home. [Private client wealth management] is something we are interested in enhancing and improving.

“We are giving clients everything on a plate,” she enthuses.

Dorothy Hilton, managing director at SG Hambros Bank & Trust (Bahamas) Ltd, agrees that The Bahamas is retaining its edge and improving its products. “Wealth management encompasses a broad spectrum and you cannot be all things to all people, but we have to continually assess our position and remain competitive. Where possible, The Bahamas should be seen as a forerunner in the development of new products and services, not simply a follower.

“The Bahamas Executive Entities Bill, driven by market feedback, is a good example of this.”

The Bahamas is well regarded internationally when it comes to dynastic planning, according to Hilton, and will continue to be so thanks to these legal developments.

“Certainly based on our experiences [at SG Hambros] over the past year and a half we have seen contacts in the United Kingdom, the US and Europe express to their clients that The Bahamas is once again becoming a favoured destination for wealth planning on a number of levels. Our contacts are pretty upbeat on The Bahamas right now in terms of the strength of the legislation in trust matters generally.”

“The Bahamas is known for the depth of our expertise in estate planning, our experience and our general willingness to proactively address any issues that we find with our legislation,” agrees Allen. “This underlines and further strengthens our position as a leader.

“With this raft of new legislation we are demonstrating, as we have always demonstrated, a commitment to client service. What it also demonstrates is that we are a jurisdiction that is responsive and innovative.”

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