Bahamian trust law is derived from the courts of equity in England and the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition.

Is there any specific legislation which legitimises the retention of any powers by the settlor?

Section 3 of the Trustee Act (Ch. 176 of the Statute Law of the Bahamas, 2000 Revised Edition) permits a settlor to retain a wide range of powers without invalidating the trust or trust instrument. Such powers include, but are not limited to, revocation, appointment of trust assets, amendment, appointment addition or removal of trustees protectors or beneficiaries.

What limits are there on the legitimacy of a Letter of Wishes and how are such instruments properly created and used?

Letters of Wishes are not legally binding on trustees and are normally provided by the settlor as a method of apprising the trustees of his wishes for the administration of a discretionary trust. The Letter of Wishes should express that it is to have no legal effect and is an indication of the settlor’s views with respect to the administration of the trust.

Under section 83(8)(a) of the Trustee Act, a Bahamian court generally cannot compel a trustee to disclose or produce a Letter of Wishes because the same is not considered to be a trust document. As such, beneficiaries routinely are not entitled to inspect or receive copies of such Letter.

However, trustees when exercising their discretion should be mindful to provide documentation which details or minutes the consideration which they gave to the circumstances at hand when making decisions relative to a discretionary trust where they have been provided with a Letter of Wishes.

What have been the latest developments in trust law and regulation in the jurisdiction and what changes are planned or expected?

The Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, is expected to be amended in 2010 to provide more expressly for reserved powers trust and to broaden the investment powers that can be conferred on third parties. It is also anticipated that the perpetuities rule will be abolished prospectively in 2010.

Are private trust companies a feature of trusts in the jurisdiction and are there firms or organisations who could host such a private trust company?

Yes, private trust companies are a feature of trusts in The Bahamas. A 2006 amendment to the Banks and Trust Companies Regulation Act, Chapter 316 Statute Laws of The Bahamas, 2000 Revised Edition (the “BTCRA”) specifically provides for the regulation of private trust companies. Generally speaking, a private trust company is incorporated to act as trustee of a specific trust or in some cases, a group of trusts that are related.

A private trust company or “PTC” must appoint a Registered Representative which will be responsible for ensuring that the PTC is established for a lawful purpose and that it operates as a private trust company which meets the applicable regulatory requirements. A Registered Representative provides to a private trust company the services of (i) secretary, (ii) director or (iii) Bahamas Agent. When the private trust company ceases to meet the applicable requirements for exemption from licensing under the BTCRA it is the duty of the Registered Representative, within seven days of the change, to notify the Central Bank of The Bahamas (the “Central Bank”).

The Registered Representative is required to be (i) a licensee under the BTCRA or (ii) a licensee under the Financial and Corporate Service Providers Act, Chapter 369 Statute Laws of The Bahamas, 2000 Revised Edition which has obtained the prior approval of the Governor of the Central Bank to act as Registered Representative and whose business is limited to acting only as Registered Representative. The Registered Representative is required to be resident in The Bahamas and have at all times a minimum paid up capital of not less than $50,000.

The Registered Representative must obtain an annual compliance certificate in the form prescribed by the Banks and Trust Companies (Private Trust Companies) Regulations, Chapter 316 Subsidiary Legislation, Statute Laws of The Bahamas, 2000 Revised Edition (the “Private Trust Companies Regulations”) from the directors of the private trust company and receive information on request from the company to enable the Registered Representative to discharge its functions under the Private Trust Companies Regulations.

The Private Trust Companies Regulations require the Registered Representative to maintain the following documents in The Bahamas in respect of each private trust company for which it acts as Registered Representative:

(a) memorandum and articles of association;

(b) Designating Instrument;

(c)  Curriculum vitae of the Special Director of each private trust company, if any;

(d)  trust instruments for each trust (including sub-trusts) administered by the private trust company;

(e) where possible, an acknowledgment by the settlor; and

(f) a list of all private trust companies for which it acts as Registered Representative.

Additionally, a Registered Representative is responsible for ensuring compliance with the know-your-customer requirements of the Financial Transactions Reporting Act, Chapter 368 Statute Laws of The Bahamas, 2000 Revised Edition and its accompanying regulations, for the private trust company.

Are there any particular laws relating to the setting up of a private trust company? If so, are there any precautions which should be taken to ensure that the trust remains valid?

Yes. Pursuant to the Banks and Trust Companies Regulation (Amendment) Act, 2006 (the “BTCRA Amendment Act”) a private trust company can be incorporated either under the Companies Act, Chapter 308 Statute Laws of The Bahamas, 2000 Revised Edition or under the International Business Companies Act, Chapter 309 Statute Laws of The Bahamas, 2000 Revised Edition. The memorandum and articles of association of such a company must state that it acts as a trustee only for a trust created or to be created by or at the discretion of a designated person. A designated person is defined in the BTCRA Amendment Act as, “the individual or individuals (whether living or deceased) described as such within a Designating Instrument provided that if more than one Designated Person is described as such each Designated Person must be related to a Designated Person so described by consanguinity or some other family relationship”. A private trust company cannot solicit trust business and is required to have a Registered Representative resident in The Bahamas.

A private trust company is not required to have or obtain a license to operate. However, a private trust company shall at all times:

i) have a Registered Representative in The Bahamas;

(ii) have at least one Special Director, except where an officer of a licensee of the Central Bank of The Bahamas serves as Registered Representative;

(iii) maintain at the offices of the Registered Representative, a copy of the designating instrument pertaining to the company;

(iv) where possible, be in possession of a settlor’s acknowledgement in the form prescribed by the Banks and Trust Companies (Private Trust Companies) Regulations, Chapter 316 Subsidiary Legislation, Statute Laws of The Bahamas, 2000 Revised Edition (the “Private Trust Companies Regulations”) in respect of each trust for which it serves as trustee; and

v) have and maintain paid up share capital of not less than $5,000.

Additionally, a private trust company shall:

(i) pay annual fees in the amount of $5,000;

ii) not conduct its operations in any manner that is inconsistent with the provisions of the Private Trust Companies Regulations;

iii) not amend its memorandum or articles of association in any way which would cause such memorandum or articles of association to be or become inconsistent with the company acting as a private trust company.

In addition to the above, such a company would be required to pay annual fees to the Government of The Bahamas in order for the company to remain on the register of companies.

If the majority of trustees are resident outside the jurisdiction, is it necessary to have one of them, or an agent, resident in the jurisdiction?

No, there is no requirement that a trustee or any trustee (if there be more than one) be resident in The Bahamas; nor is there a requirement for there to be an agent of a trustee resident in The Bahamas if the trustee is not in The Bahamas.

If however a company is engaging in “trust business” as defined in the Banks and Trust Companies Regulation Act, Chapter 316 Statute Laws of The Bahamas, 2000 Revised Edition (the “BTCRA”), from within The Bahamas, whether or not such business is carried on in The Bahamas, then such entity would require a licence in order to conduct such business.

“Trust business” is defined in the BTCRA as, “the business of acting as trustee, executor or administrator”.

Once a trust is set up, what access can the public or government, local or foreign, have to details of the parties involved in the trust or trust assets under OECD Exchange of Information agreements, double taxation treaties or mutual assistance agreements? Is information revealed to foreign tax authorities automatically or solely in response to enquiries properly made under these international agreements?

There presently exists between the Commonwealth of The Bahamas and the United States of America a Tax and Information Exchange Agreement (“TIEA”) with supporting legislation in place in respect of same. The Bahamas has also negotiated and signed Tax and Information Exchange Agreements with twenty other countries, and supporting legislation to give effect to these agreements will be forthcoming. For the purpose of this response, the particulars of the TIEA with the United States of America will be discussed.

The TIEA is an agreement for the provision of information with respect to taxes and for other matters. Under the TIEA, the Secretary of the Treasury of the United States or his delegate can make a request for information only when he is unable to obtain the requested information by other means, having made all reasonable efforts to do so. Upon receipt of a request, the Minister of Finance of The Bahamas, or his delegate, shall, subject to the provisions of the TIEA, make all reasonable efforts to provide the Secretary of the Treasury information with respect to US federal taxes.

The request must be in writing and properly signed and shall include certain particulars as set down in the TIEA, one of which is that it must state that the information sought is in The Bahamas, the likely location of the information, and that a person in The Bahamas that is specified in the request has or may have the information in his possession, custody or control.

Under the TIEA, the Minister of Finance shall have the authority to obtain and provide information held by financial institutions, nominees or persons acting in an agency or a fiduciary capacity or information respecting ownership interests in a person.

Under the TIEA, “information” is defined as, “any fact or statement, in any form, that is forseeably relevant or material to United States federal tax administration and enforcement, including (but not limited to) (a) the testimony of an individual; and (b) documents or records.”

Under the TIEA, “person” is defined as, “including an individual and a partnership, corporation, trust, estate, association or other legal entity.”

What are the main types of trusts and their particular uses (for example, interest in possession, discretionary or accumulation and maintenance trusts)?

The main types of trusts in this jurisdiction are fixed interest trusts interest in possession), discretionary trusts, asset protection trusts, authorised purpose trusts and charitable trusts.

Fixed interest trusts and discretionary trusts are used fairly regularly in this jurisdiction and the choice of one over the other is dependant largely on the settlor.

Asset Protection Trusts

These trusts offer significant asset protection since, upon creation of the trust, the property of the settlor is transferred to the trust subject to the terms of the trust instrument. The Fraudulent Dispositions Act (Ch. 78 of the Statute Law of the Bahamas, 2000 Revised Edition) provides a measure of protection for assets held in a trust from claims of future and unknown creditors. This Act was designed to limit the amount of attacks on trust assets by creditors; therefore, (i) the liability to the creditor must have existed at the date of the transfer, (ii) the transfer must have been at an undervalue and (iii) the creditor must bring his action within two years of the transfer. Accordingly, any disposition of property with the intent to defraud is voidable at the instance of the creditor seeking to set aside the disposition

Authorised Purpose Trust

Under the Purpose Trust Act (Ch. 176A of the Statute Law of the Bahamas, 2000 Revised Edition), it is possible to establish a trust exclusively for a non-charitable purpose and/or individuals. Purpose trusts have numerous commercial and estate planning uses including, but not limited to, the holding of shares of a private trust company, or a trust which has both charitable and philanthropic purposes.

Charitable Trust

These types of trust are public trusts and are of value and importance to the public at large. These are created solely for charitable purposes, which must fall into one of the following categories: (i) the relief of poverty; (ii) the advancement of education; (iii) the advancement of religion; or (iv) any other purpose beneficial to the community at large. It is not necessary for charitable trusts to have named beneficiaries. The Attorney-General, as representative of the Crown, acts on behalf of charities and represents the beneficial interests of the charity.

Can any type of assets be placed in a trust (examples should be given of types of assets which may be included which are in addition to the normal range of cash, securities and land)?

The Trustee Act does not limit the type of assets that can be held under a trust; limitations are normally as a result of trustee policy. For example, one trustee might prefer not to hold object d’art while another might readily accept the same.

What are the formal requirements which are required such as certainty of intention of subject matter and of objects?

In order for a trust to be validly established, the three certainties must be present; that is, certainty of intention, certainty of subject matter and certainty of objects. The intention to create the trust must be clear and manifest, the property to be held on trust must be certain and the beneficiaries must be certain. In addition, the trust with professional trustees will insist on a written trust instrument.

Following the previous question, are shams a danger in the jurisdiction and what are the consequences of an arrangement being declared a sham?

Decisions of offshore courts have seemingly rendered it increasingly difficult to invalidate a trust as being a sham. The decision of the Jersey Court in the Grupo Torras (Grupo Torras SA v Al Sabah 2003 JRC 092) litigation emphasizes that for there to be a sham, both the settlor and the trustees must take part in the pretence. The court held: “Accordingly in order to find a sham the court must find that both the settlor and the trustee had the intention that the true position should be otherwise than as set out in the trust deed which they both executed.”

As previously noted, however, the Bahamian Trustee Act permits settlors to reserve substantial powers in relation to the trust without necessarily resulting in the trust becoming invalid or a sham.

What is necessary to make a trust properly constituted, i.e., to make it active after the trust instrument has been signed; that is, to make the trust properly constituted? What are the consequences of this is not fulfilled?

A trust is properly constituted when the person who acts as trustee takes legal title to the assets comprising the trust fund. The principle established in Milroy v Lord [1862] 4 De G.F. & J. at 274. provides that:" ... in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.'

Accordingly, it is very important to understand the legal procedure for transferring the title of various types of property being transferred to a trust. The consequence of this not being fulfilled is that there will be no valid and effectual trust; There can be no trust before legal title to the trust fund is transferred to the trustee.

Can trusts be set up by a declaration by the settlor that he henceforth holds assets which he already owns on trust for someone else, hence becoming the trustee, or is it necessary that there should be a transfer of the settlors’ assets to the trustee accompanied by a written instrument by which the trustee undertakes to hold the assets for the beneficiaries?

The seminal test derived from Milroy v. Lord provides that a settlor may establish a trust in two ways: “He may, of course, do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds in trust for those purposes; ... but, in order to render the settlement binding, one or other of these modes must ... be resorted to, for there is no equity in this court to perfect an imperfect gift.” Applying the second test, a valid and effectual trust may be established by a declaration of the settlor that he will henceforth hold assets which he already owns on trust for someone else, hence becoming the trustee without a written instrument of transfer; However, this will only apply to special types of property whose lex situs would not require a written document to be subject to a trust.

What powers are implied under the trust legislation to trustees and what powers need to be, and usually are, expressed in the trust instrument?

The Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition is permissive and sets out a number of powers which would be implied to the trustee unless a contrary intention appears in the trust instrument. Some examples are the powers of investment set out in Part II of the Act and the general powers, such as the powers regarding land, power to employ agents and power to insure property set out in Part III of the Act.

Notably, the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, has not codified the principle that the office of the trustee is gratuitous and must be performed without remuneration although Section 50 does enable a Bahamian Court to authorise remuneration for the services of the trustee as it thinks fit. Nonetheless, the general view is that if the trust instrument doest not allow for the compensation of the trustee, then the trustee cannot take a fee. Accordingly, the right to receive reimbursement is usually expressed in the trust instrument.

Can a settlor be appointed a trustee?

Yes, the settlor may be a trustee of a trust if he declares that he holds the property on trust for a third party. Please see out response to question 13 above.

Can a settlor be made a beneficiary?

Yes, a settlor can be a beneficiary under a trust. Moreover, section 81(2) of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that the trust instrument may confer on the settlor or on any protectors thereof, the power to add any person as a beneficiary of a trust in addition to any existing beneficiary of the trust, including the settlor.

Are Protectors/Guardians usually incorporated into trusts in the jurisdiction; if so, what are the specific rules relating to them and, if none, how does the general law treat them?

Yes, Protectors/ Guardians are frequently incorporated into trusts in the jurisdiction. Section 81 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that a trust instrument may contain provisions by virtue of which the exercise by the trustees of powers and discretions shall be subject to the previous consent of the settlor or of some other person as protector, and if so provided the trustees shall not be liable for any loss caused by their actions if previous consent was given and they acted in good faith.

While Section 81 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition provides for the recognition of a Protector/ Guardian, there are no specific rules relating to them. In practice, where a Protector/ Guardian has been appointed, the trust instrument would be drafted to include rules as to how such person should govern himself / herself and provide mechanisms for replacement upon death incapacity or retirement.

Do protectors/guardians have fiduciary responsibilities?

In the 1990 case of Rawson Trust Co. v. Perlman BHS J. No. 64, the Bahamas Supreme Court held that because the beneficiaries of a trust were simultaneously functioning as Protectors, they could not be fiduciaries and were, thereby, given the power to protect their own interests. Accordingly, the Protectors could not be subject to the control of the Court in the exercise of the Protectors’ powers, as if they were exercising powers of fiduciaries. While there is no express statement in the ruling, it may be inferred that where a person serving as Protector of a trust has no beneficial interest in the trust, such Protector must exercise all of its powers in a fiduciary manner.

Notably, Section 81(3) of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition expressly exempts a person serving in the capacity of a protector from being classified as a trustee and further provides that such person is not liable to the beneficiaries for the bona fide exercise of the power, unless otherwise provided in the trust instrument.

To what extent do beneficiaries have any control over the trustees or over their appointment or dismissal?

The Trustee Act does not vest beneficiaries with any specific powers in relation to the appointment or removal of trustees. Of course, should the trust instrument provide beneficiaries with the power to appoint or remove trustees then they would be able to do so. Moreover, the beneficiaries in certain circumstances could petition the courts for assistance in removing or appointing trustees.

Can beneficiaries indicate to the trustees how they wish the trust to be managed or may they terminate the trust when the law relating to such termination is fulfilled (such as under Saunders v Vautier)?

Beneficiaries can indicate to trustees how they would wish the trust to be managed but, unless the trust instrument provides otherwise, such indication would not be binding on the trustee.

Section 87 of the Trustee Act circumvents the rule in Saunders v Vautier. The beneficiaries are unable to terminate or modify the trust if doing so would “defeat a material purpose of the settlor or testator in creating the trust”. What is a material purpose will be ascertained from the trust instrument or by collateral evidence unless, the settlor is living and consents to the change in such material purpose.

What is the standard of care required under the law for trustees and what measures exist to ensure an appropriate level of performance?

While, the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition does not establish a statutory standard of care with regard to the general management of a trust, there are express provisions in respect of the trustees duties concerning investments discussed in more detail below (see our response to question 27). Notably, the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition allows some flexibility to negotiate the applicable standard of care in relation to investments, providing that the statutory standard of care is applicable unless the terms of the trust instrument express a contrary intention.

In equity, there is a higher standard of care imposed a paid trustee. The rule which applies to unpaid trustees provides that such trustees are bound to use only such due diligence and care in the management of the trust fund as an ordinary prudent man of business would use in the management of his own affairs. The test for the paid trustee may be stated to be that he must exercise the degree of diligence and show the degree of knowledge that a specialist in trust administration could be expected to show. A standard institutional trust instrument would typically includes a limitation on the liability of a trustee save for incidents involving its fraud, gross negligence or willful misconduct.

A prudent trustee, mindful of his fiduciary responsibilities, will establish measures to ensure an appropriate level of performance such as the preparation of annual reports so that he is able to account for assets held by him as trustee. Under Bahamian law, corporate trustees are regulated and licensed by the Central Bank of The Bahamas and are subject to periodic unscheduled audits which serve as further encouragement to establish internal measures to ensure appropriate levels of performance.

If a trustee fails to take an appropriate measure, what powers are there to correct the error which may be taken by the trustees, (e.g., by agreement with the beneficiaries) or with the consent of the court?

If a trustee in the exercise of a discretion or power under a trust, in good faith, omits to take an appropriate measure which results in an error, the trustees may take steps to correct the error by making an application to the Court to correct the error by virtue of Hastings Bass relief. In the case Re Hastings-Bass dec’d [1975] Ch 25 from which the Hastings-Bass principle was derived, the English court of appeal held that where irrelevant considerations are taken into account by a trustee exercising a fiduciary power, the trustee’s decision will be invalid provided the decision would have been different if the trustee considered only the relevant factors.

Additionally, a trustee may seek indemnification for such error by written agreement with the beneficiaries. Section 74 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that where a trustee has committed an error resulting in a breach of trust with the consent in writing of a beneficiary, upon an application by a trustee, the Court may if it thinks fit, make an order as the Court seems just impounding all or any part of the interest of the beneficiary in the trust property by way of indemnity to the trustee or persons claiming through him.

What are the limits that trustees may claim indemnity for costs and expenses of running the trust and opposing outside claims and is any procedure advisable before engaging in litigation (such as a Beddoe application)?

The limitations on the liability applicable to a trustee for the costs and expenses of administering a trust and defending against claims brought against the trust are usually set out within the trust instrument. The industry standard for trust companies in The Bahamas provides that the trustee will be indemnified for all costs and expenses of administering the trust and defending against an actions brought against the trust save for any action involving the trustees own fraud, willful misconduct, or gross negligence. Before engaging in litigation, a trustee may apply by a written statement for the opinion, advice or direction of the court pursuant to section 77 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition. Applications of this nature are known as “Beddoe Applications” pursuant to the English decision, Re Beddoe, Downes v. Cottman [1893] 1 Ch 547. Section 77(4) provides that any trustee acting upon the advice or direction of the court granted pursuant to a Beddoe Application will be indemnified from the trust fund for any actions taken pursuant to the advice or direction of the court. This indemnification is limited to the trustee acting in good faith upon making the application.

Are the assets of a trust held by trustees considered in law to be separate from the trustee’s personal assets and thereby insulated from claims against the trustees personal creditors?

The assets of a trust while under the control of the trustee are considered to be separate from the trustee’s personal property and would not be available to personal creditors of the trustee.

On transfer of assets to the trustees, the settlor must arrange for the legal title of the assets to be transferred and undertake whatever transfer procedures are required by the place in which the assets are situated; if this transfer does not take place entirely as proposed when the trust is set up, does this affect the validity of the trust?

If the intended trust assets are not properly transferred to the trustees, the validity of the trust may be compromised since the trust could not exist without a trust corpus. Yet, as long as some property is in fact transferred, even if a nominal amount, the trust would be properly constituted and other assets can then be added subsequently.

What duty of care and other criteria are applied to the investment of trust funds? Can this duty be delegated by the trustees?

Section 5 of the Trustee Act outlines the duty of care that should be followed by a trustee when investing trust funds. The trustee is to act as a “prudent investor” and “exercise reasonable care and caution and the skill of ordinary persons”; however, if a trustee has special skills or expertise and was appointed as trustee in reliance upon its representation that it possessed such special skill or expertise then such trustee has a duty to the beneficiaries of its trust to use those special skills and expertise.

Pursuant to section 6 of the Trustee Act, trustees may obtain and consider “proper advice” prior to exercising any investment powers. Should there be a loss resulting from action taken by the trustee after having taken such proper advice, the trustee would not be liable for such loss. Nevertheless, since trustees have a fundamental obligation to preserve the assets of the trust, they ought not blindly implement investments directions that greatly diminish the value of the trust fund over a sustained period.

Notwithstanding the foregoing, many trust instruments expressly exclude the foregoing sections 5 and 6 of the Trustee Act to afford trustees and settlors more flexibility.

Can trusts migrate into or out of the jurisdiction and may they change their proper law?

Section 81(2) of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that the trust instrument may grant powers to the settlor or any protector of a trust to, inter alia, determine the law which shall be the proper law of the trust and to change the forum for the administration of a trust. Hence, in the case of a trust governed by the laws of The Bahamas, if the trust deed so provides, the settlor or a protector of such trust can change the governing law for the administration of the trust, provided however that section 5(1)(b) of the Trusts Choice of Governing Law Act, Chapter 179 Statute Laws of The Bahamas, 2000 Revised Edition (“Choice of Governing Law Act”) is satisfied. Section 5(1)(b) of the said Act provides that if the trust deed permits a change in the governing law of the trust, such law may be changed from The Bahamas if the new governing law would recognize the validity of the trust and the respective interests of the beneficiaries.

In the case of trusts whose current governing law is not The Bahamas, the question of whether such a trust can change its governing law to The Bahamas would have to be determined based on the provisions of the trust deed of such trust and on the laws of the current jurisdiction of the trust; however there is no restriction in Bahamian law that would prohibit a trust from changing its governing law to that of The Bahamas. In fact, section 5(1)(a) of the Choice of Governing Law Act provides that if a trust deed permits the governing law of a trust to be changed, such law can be changed to The Bahamas if such change is recognized by the governing law previously in effect.

Section 5(2) of the Choice of Governing Law Act states that, “a change in the governing law shall not affect the legality or validity of, or render any person liable for anything done before the change.”

Pursuant to section 4(2) of the Choice of Governing Law Act a term of a trust which expressly declares that the laws of The Bahamas governs the trust, shall be valid, effective and conclusive regardless of any other circumstance. Moreover, pursuant to section 4(3) of the Choice of Governing Law Act a term of a trust that the governing law is the law of The Bahamas or that the laws of The Bahamas shall be the forum for the administration of the trust is conclusive evidence, subject to any contrary term of the trust, that the settlor intended the laws of The Bahamas to be the governing law of the trust and is valid and effective accordingly.

Is the jurisdiction governed by the Hague Convention on the Recognition and Enforcement of Trusts and, if not, to what extent are foreign trusts recognised?

The Bahamas is not a signatory to the Hague Convention on the Law Applicable to Trusts and there is no legislation specifically dealing with the recognition of foreign trusts in the Bahamas. As a result, the common law position prevails and the validity, effect and interpretation of a foreign trust will be determined in accordance with the proper law of the trust as defined in the English case, Duke of Marlborough v Attorney-General [1945] Ch 78.

What powers are there for beneficiaries to seek replacement of trustees?

The beneficiaries of a trust may seek replacement of trustees under an express power in the trust instrument, or under section 48 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition. Pursuant to Section 48, the court may appoint a new trustee when it is found inexpedient, difficult or impractical to do so without the assistance of the court.

How are vacancies as trustees filled and what is the normal number of trustees who are appointed to a fixed interest or discretionary trust?

Section 42 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition provides a mechanism for the appointment of a new trustee upon a trustee dying, becoming incapable of acting as trustee, being a minor, refusing to act or otherwise requiring to be discharged from the trusts or powers conferred on him, subject to the restrictions imposed by the Act on the number of trustees. While the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition does not provide a restriction on the number of trustees serving in relation to a type of trust, there is a limitation placed on the number of trustees appointed to a trust holding real property. Section 41, limits the number of trustees to no more than four persons. Notably, the restriction on the number of trustees does not apply, in the case of land vested in trustees for charitable, ecclesiastical or public purposes or where the net proceeds of the sale of land are held for like purposes.

Section 42 provides that either (i) the person(s) nominated for the purpose of appointing new trustees by the trust instrument; or (ii) if there is no such person able and willing to act, then the surviving or continuing trustee or trustees for the time being or the personal representatives of the last surviving or continuing trustee, may appoint a one ore more persons by deed to be the new trustee or trustees of the trust. Such person or persons appointed as the new trustee are not required to be resident in The Bahamas, moreover, the persons exercising the power may appoint him or herself as trustee of the trust.

Under the law, what criteria are applied to persons licensed to deal with international trusts to determine whether they are ‘Fit and Proper’ persons to undertake this work according to the law?

Section 3(2) of the Banks and Trust Companies Regulation Act, Chapter 316 Statute Laws of The Bahamas, 2000 Revised Edition (the “BTCRA”) provides that no trust company shall carry on trust business from within The Bahamas, whether or not such business is carried on in The Bahamas, unless it is in possession of a valid license granted by the Central Bank of The Bahamas (the “Central Bank”). Trust business is defined as, “acting as trustee, executor or administrator.” Trust company is defined as “any company carrying on trust business.”

Pursuant to section 4(2) of the BTCRA, an application for a license to conduct trust business shall be in writing, in English and shall contain the information and accompanying documents prescribed by the Banks and Trust Companies (Licence Application) Regulations, Chapter 316 Subsidiary Legislation of The Bahamas, 2000 Revised Edition (the “Licence Application Regulations”), and in addition, the following factors will be considered:

(a) whether the applicant is a fit and proper person or company to carry on trust business;

(b) the nature and sufficiency of the financial resources of the applicant to provide continuing financial support for the trust company;

(c) the soundness and feasibility of the business plan;

(d) the business record and experience of the applicant;

(e) whether those who will operate the trust company will do so responsibly and whether such persons have the character, competence and experience for operating a trust company; and

(f) the best interest of the financial system in The Bahamas.

Pursuant to the Licence Application Regulations, the following is, in large part, the information that applicants for a licence to conduct trust business are required to provide to the Central Bank, in order for the Central Bank to determine if such persons are ‘fit and proper’:

a) in the case of a “corporate applicant” (as defined in the said Regulations), the name of the applicant or in the case of a “group applicant” (as defined in the said Regulations), the name of each individual making the application;

b) for corporate applicants, the address of the head office of the applicant (including its mailing address);

c) for group applicants, the business and personal address of each individual (including a mailing address);

d) the proposed corporate name;

(e) address of the proposed office in The Bahamas;

f) for a subsidiary, branch or representative office applicant, the purpose of opening the subsidiary, branch or representative office as the case may be;

g) for a group applicant, the purpose of opening the trust company;

(h) a description of planned business activities in The Bahamas;

(i) where the applicant is a body corporate, the following


(a) history, activity, present structure and organization;

(b) annual reports (including audited consolidated financial statements) of the applicant for the three consecutive financial years immediately preceding the date of the application;

(c) unaudited consolidated financial statements of the applicant as at the end of the most recent quarter prior to submission of the application, certified by a director or senior officer; and

(d) two original references from a financial institution in a form satisfactory to the Central Bank.

(j) for corporate applicants, particulars concerning the composition of the direct and/or indirect ownership structure of the proposed licensee, including an organizational chart showing the structure of the direct and/or indirect share holdings analysed according to the holdings of voting rights and/or shares;

(k) in the case of a group applicant, the following:

(a) date of formation, history, present structure and organization of the group applicant, and details of all business activities of the group;

(b) detailed comments regarding the position within the group, of any dominant member(s) of the group;

(c) current statement of assets and liabilities for each member of the group, certified by public accountants, which should be prepared no earlier than three months prior to the date of the application.

(l) in the case of a corporate applicant, the following is required:

(a) names and background information of all direct or indirect shareholders who represent individually or as a group 5% or more of the voting rights and/or shares of the applicant at the time of the application;

(b) a certified and duly authenticated copy of the certificate of incorporation (or other similar document) and the constitutive documents of the applicant;

(c) an organizational chart showing the structure of the direct and indirect shareholding of the applicant;

(m) in the case of a group applicant, the following is required:

(a) details of the proposed shareholdings of each individual shareholder;

(b) curriculum vitae for each shareholder, incorporating, inter alia, educational background, professional education and training;

(c) two original character references and two original financial references.

(n) information on the composition and organization of the board of directors and management of the applicant;

(o) for each director or member of management, a curriculum vitae (to include, inter alia, educational training, professional education and training), two original character references, one original financial reference and an original police certificate or other original certificate confirming that the person has not been convicted of a serious crime or any offence involving dishonesty; and

(p) details of the source of funds to comprise the initial capital of the applicant.

Jillian Chase-Jones and Nadia J. Taylor, attorneys practicing in Private Client Wealth Management are the co-contributors of the Trust World Survey for The Bahamas. Samantha Knowles-Pratt, now no longer with the firm also helped to contribute.

Bahamian trust law is derived from the courts of equity in England and the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition.

Is there any specific legislation which legitimises the retention of any powers by the settlor?

Section 3 of the Trustee Act (Ch. 176 of the Statute Law of the Bahamas, 2000 Revised Edition) permits a settlor to retain a wide range of powers without invalidating the trust or trust instrument. Such powers include, but are not limited to, revocation, appointment of trust assets, amendment, appointment addition or removal of trustees protectors or beneficiaries.

What limits are there on the legitimacy of a Letter of Wishes and how are such instruments properly created and used?

Letters of Wishes are not legally binding on trustees and are normally provided by the settlor as a method of apprising the trustees of his wishes for the administration of a discretionary trust. The Letter of Wishes should express that it is to have no legal effect and is an indication of the settlor’s views with respect to the administration of the trust.

Under section 83(8)(a) of the Trustee Act, a Bahamian court generally cannot compel a trustee to disclose or produce a Letter of Wishes because the same is not considered to be a trust document. As such, beneficiaries routinely are not entitled to inspect or receive copies of such Letter.

However, trustees when exercising their discretion should be mindful to provide documentation which details or minutes the consideration which they gave to the circumstances at hand when making decisions relative to a discretionary trust where they have been provided with a Letter of Wishes.

What have been the latest developments in trust law and regulation in the jurisdiction and what changes are planned or expected?

The Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, is expected to be amended in 2010 to provide more expressly for reserved powers trust and to broaden the investment powers that can be conferred on third parties. It is also anticipated that the perpetuities rule will be abolished prospectively in 2010.

Are private trust companies a feature of trusts in the jurisdiction and are there firms or organisations who could host such a private trust company?

Yes, private trust companies are a feature of trusts in The Bahamas. A 2006 amendment to the Banks and Trust Companies Regulation Act, Chapter 316 Statute Laws of The Bahamas, 2000 Revised Edition (the “BTCRA”) specifically provides for the regulation of private trust companies. Generally speaking, a private trust company is incorporated to act as trustee of a specific trust or in some cases, a group of trusts that are related.

A private trust company or “PTC” must appoint a Registered Representative which will be responsible for ensuring that the PTC is established for a lawful purpose and that it operates as a private trust company which meets the applicable regulatory requirements. A Registered Representative provides to a private trust company the services of (i) secretary, (ii) director or (iii) Bahamas Agent. When the private trust company ceases to meet the applicable requirements for exemption from licensing under the BTCRA it is the duty of the Registered Representative, within seven days of the change, to notify the Central Bank of The Bahamas (the “Central Bank”).

The Registered Representative is required to be (i) a licensee under the BTCRA or (ii) a licensee under the Financial and Corporate Service Providers Act, Chapter 369 Statute Laws of The Bahamas, 2000 Revised Edition which has obtained the prior approval of the Governor of the Central Bank to act as Registered Representative and whose business is limited to acting only as Registered Representative. The Registered Representative is required to be resident in The Bahamas and have at all times a minimum paid up capital of not less than $50,000.

The Registered Representative must obtain an annual compliance certificate in the form prescribed by the Banks and Trust Companies (Private Trust Companies) Regulations, Chapter 316 Subsidiary Legislation, Statute Laws of The Bahamas, 2000 Revised Edition (the “Private Trust Companies Regulations”) from the directors of the private trust company and receive information on request from the company to enable the Registered Representative to discharge its functions under the Private Trust Companies Regulations.

The Private Trust Companies Regulations require the Registered Representative to maintain the following documents in The Bahamas in respect of each private trust company for which it acts as Registered Representative:

(a) memorandum and articles of association;

(b) Designating Instrument;

(c)  Curriculum vitae of the Special Director of each private trust company, if any;

(d)  trust instruments for each trust (including sub-trusts) administered by the private trust company;

(e) where possible, an acknowledgment by the settlor; and

(f) a list of all private trust companies for which it acts as Registered Representative.

Additionally, a Registered Representative is responsible for ensuring compliance with the know-your-customer requirements of the Financial Transactions Reporting Act, Chapter 368 Statute Laws of The Bahamas, 2000 Revised Edition and its accompanying regulations, for the private trust company.

Are there any particular laws relating to the setting up of a private trust company? If so, are there any precautions which should be taken to ensure that the trust remains valid?

Yes. Pursuant to the Banks and Trust Companies Regulation (Amendment) Act, 2006 (the “BTCRA Amendment Act”) a private trust company can be incorporated either under the Companies Act, Chapter 308 Statute Laws of The Bahamas, 2000 Revised Edition or under the International Business Companies Act, Chapter 309 Statute Laws of The Bahamas, 2000 Revised Edition. The memorandum and articles of association of such a company must state that it acts as a trustee only for a trust created or to be created by or at the discretion of a designated person. A designated person is defined in the BTCRA Amendment Act as, “the individual or individuals (whether living or deceased) described as such within a Designating Instrument provided that if more than one Designated Person is described as such each Designated Person must be related to a Designated Person so described by consanguinity or some other family relationship”. A private trust company cannot solicit trust business and is required to have a Registered Representative resident in The Bahamas.

A private trust company is not required to have or obtain a license to operate. However, a private trust company shall at all times:

i) have a Registered Representative in The Bahamas;

(ii) have at least one Special Director, except where an officer of a licensee of the Central Bank of The Bahamas serves as Registered Representative;

(iii) maintain at the offices of the Registered Representative, a copy of the designating instrument pertaining to the company;

(iv) where possible, be in possession of a settlor’s acknowledgement in the form prescribed by the Banks and Trust Companies (Private Trust Companies) Regulations, Chapter 316 Subsidiary Legislation, Statute Laws of The Bahamas, 2000 Revised Edition (the “Private Trust Companies Regulations”) in respect of each trust for which it serves as trustee; and

v) have and maintain paid up share capital of not less than $5,000.

Additionally, a private trust company shall:

(i) pay annual fees in the amount of $5,000;

ii) not conduct its operations in any manner that is inconsistent with the provisions of the Private Trust Companies Regulations;

iii) not amend its memorandum or articles of association in any way which would cause such memorandum or articles of association to be or become inconsistent with the company acting as a private trust company.

In addition to the above, such a company would be required to pay annual fees to the Government of The Bahamas in order for the company to remain on the register of companies.

If the majority of trustees are resident outside the jurisdiction, is it necessary to have one of them, or an agent, resident in the jurisdiction?

No, there is no requirement that a trustee or any trustee (if there be more than one) be resident in The Bahamas; nor is there a requirement for there to be an agent of a trustee resident in The Bahamas if the trustee is not in The Bahamas.

If however a company is engaging in “trust business” as defined in the Banks and Trust Companies Regulation Act, Chapter 316 Statute Laws of The Bahamas, 2000 Revised Edition (the “BTCRA”), from within The Bahamas, whether or not such business is carried on in The Bahamas, then such entity would require a licence in order to conduct such business.

“Trust business” is defined in the BTCRA as, “the business of acting as trustee, executor or administrator”.

Once a trust is set up, what access can the public or government, local or foreign, have to details of the parties involved in the trust or trust assets under OECD Exchange of Information agreements, double taxation treaties or mutual assistance agreements? Is information revealed to foreign tax authorities automatically or solely in response to enquiries properly made under these international agreements?

There presently exists between the Commonwealth of The Bahamas and the United States of America a Tax and Information Exchange Agreement (“TIEA”) with supporting legislation in place in respect of same. The Bahamas has also negotiated and signed Tax and Information Exchange Agreements with twenty other countries, and supporting legislation to give effect to these agreements will be forthcoming. For the purpose of this response, the particulars of the TIEA with the United States of America will be discussed.

The TIEA is an agreement for the provision of information with respect to taxes and for other matters. Under the TIEA, the Secretary of the Treasury of the United States or his delegate can make a request for information only when he is unable to obtain the requested information by other means, having made all reasonable efforts to do so. Upon receipt of a request, the Minister of Finance of The Bahamas, or his delegate, shall, subject to the provisions of the TIEA, make all reasonable efforts to provide the Secretary of the Treasury information with respect to US federal taxes.

The request must be in writing and properly signed and shall include certain particulars as set down in the TIEA, one of which is that it must state that the information sought is in The Bahamas, the likely location of the information, and that a person in The Bahamas that is specified in the request has or may have the information in his possession, custody or control.

Under the TIEA, the Minister of Finance shall have the authority to obtain and provide information held by financial institutions, nominees or persons acting in an agency or a fiduciary capacity or information respecting ownership interests in a person.

Under the TIEA, “information” is defined as, “any fact or statement, in any form, that is forseeably relevant or material to United States federal tax administration and enforcement, including (but not limited to) (a) the testimony of an individual; and (b) documents or records.”

Under the TIEA, “person” is defined as, “including an individual and a partnership, corporation, trust, estate, association or other legal entity.”

What are the main types of trusts and their particular uses (for example, interest in possession, discretionary or accumulation and maintenance trusts)?

The main types of trusts in this jurisdiction are fixed interest trusts interest in possession), discretionary trusts, asset protection trusts, authorised purpose trusts and charitable trusts.

Fixed interest trusts and discretionary trusts are used fairly regularly in this jurisdiction and the choice of one over the other is dependant largely on the settlor.

Asset Protection Trusts

These trusts offer significant asset protection since, upon creation of the trust, the property of the settlor is transferred to the trust subject to the terms of the trust instrument. The Fraudulent Dispositions Act (Ch. 78 of the Statute Law of the Bahamas, 2000 Revised Edition) provides a measure of protection for assets held in a trust from claims of future and unknown creditors. This Act was designed to limit the amount of attacks on trust assets by creditors; therefore, (i) the liability to the creditor must have existed at the date of the transfer, (ii) the transfer must have been at an undervalue and (iii) the creditor must bring his action within two years of the transfer. Accordingly, any disposition of property with the intent to defraud is voidable at the instance of the creditor seeking to set aside the disposition

Authorised Purpose Trust

Under the Purpose Trust Act (Ch. 176A of the Statute Law of the Bahamas, 2000 Revised Edition), it is possible to establish a trust exclusively for a non-charitable purpose and/or individuals. Purpose trusts have numerous commercial and estate planning uses including, but not limited to, the holding of shares of a private trust company, or a trust which has both charitable and philanthropic purposes.

Charitable Trust

These types of trust are public trusts and are of value and importance to the public at large. These are created solely for charitable purposes, which must fall into one of the following categories: (i) the relief of poverty; (ii) the advancement of education; (iii) the advancement of religion; or (iv) any other purpose beneficial to the community at large. It is not necessary for charitable trusts to have named beneficiaries. The Attorney-General, as representative of the Crown, acts on behalf of charities and represents the beneficial interests of the charity.

Can any type of assets be placed in a trust (examples should be given of types of assets which may be included which are in addition to the normal range of cash, securities and land)?

The Trustee Act does not limit the type of assets that can be held under a trust; limitations are normally as a result of trustee policy. For example, one trustee might prefer not to hold object d’art while another might readily accept the same.

What are the formal requirements which are required such as certainty of intention of subject matter and of objects?

In order for a trust to be validly established, the three certainties must be present; that is, certainty of intention, certainty of subject matter and certainty of objects. The intention to create the trust must be clear and manifest, the property to be held on trust must be certain and the beneficiaries must be certain. In addition, the trust with professional trustees will insist on a written trust instrument.

Following the previous question, are shams a danger in the jurisdiction and what are the consequences of an arrangement being declared a sham?

Decisions of offshore courts have seemingly rendered it increasingly difficult to invalidate a trust as being a sham. The decision of the Jersey Court in the Grupo Torras (Grupo Torras SA v Al Sabah 2003 JRC 092) litigation emphasizes that for there to be a sham, both the settlor and the trustees must take part in the pretence. The court held: “Accordingly in order to find a sham the court must find that both the settlor and the trustee had the intention that the true position should be otherwise than as set out in the trust deed which they both executed.”

As previously noted, however, the Bahamian Trustee Act permits settlors to reserve substantial powers in relation to the trust without necessarily resulting in the trust becoming invalid or a sham.

What is necessary to make a trust properly constituted, i.e., to make it active after the trust instrument has been signed; that is, to make the trust properly constituted? What are the consequences of this is not fulfilled?

A trust is properly constituted when the person who acts as trustee takes legal title to the assets comprising the trust fund. The principle established in Milroy v Lord [1862] 4 De G.F. & J. at 274. provides that:" ... in order to render a voluntary settlement valid and effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him.'

Accordingly, it is very important to understand the legal procedure for transferring the title of various types of property being transferred to a trust. The consequence of this not being fulfilled is that there will be no valid and effectual trust; There can be no trust before legal title to the trust fund is transferred to the trustee.

Can trusts be set up by a declaration by the settlor that he henceforth holds assets which he already owns on trust for someone else, hence becoming the trustee, or is it necessary that there should be a transfer of the settlors’ assets to the trustee accompanied by a written instrument by which the trustee undertakes to hold the assets for the beneficiaries?

The seminal test derived from Milroy v. Lord provides that a settlor may establish a trust in two ways: “He may, of course, do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or declares that he himself holds in trust for those purposes; ... but, in order to render the settlement binding, one or other of these modes must ... be resorted to, for there is no equity in this court to perfect an imperfect gift.” Applying the second test, a valid and effectual trust may be established by a declaration of the settlor that he will henceforth hold assets which he already owns on trust for someone else, hence becoming the trustee without a written instrument of transfer; However, this will only apply to special types of property whose lex situs would not require a written document to be subject to a trust.

What powers are implied under the trust legislation to trustees and what powers need to be, and usually are, expressed in the trust instrument?

The Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition is permissive and sets out a number of powers which would be implied to the trustee unless a contrary intention appears in the trust instrument. Some examples are the powers of investment set out in Part II of the Act and the general powers, such as the powers regarding land, power to employ agents and power to insure property set out in Part III of the Act.

Notably, the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, has not codified the principle that the office of the trustee is gratuitous and must be performed without remuneration although Section 50 does enable a Bahamian Court to authorise remuneration for the services of the trustee as it thinks fit. Nonetheless, the general view is that if the trust instrument doest not allow for the compensation of the trustee, then the trustee cannot take a fee. Accordingly, the right to receive reimbursement is usually expressed in the trust instrument.

Can a settlor be appointed a trustee?

Yes, the settlor may be a trustee of a trust if he declares that he holds the property on trust for a third party. Please see out response to question 13 above.

Can a settlor be made a beneficiary?

Yes, a settlor can be a beneficiary under a trust. Moreover, section 81(2) of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that the trust instrument may confer on the settlor or on any protectors thereof, the power to add any person as a beneficiary of a trust in addition to any existing beneficiary of the trust, including the settlor.

Are Protectors/Guardians usually incorporated into trusts in the jurisdiction; if so, what are the specific rules relating to them and, if none, how does the general law treat them?

Yes, Protectors/ Guardians are frequently incorporated into trusts in the jurisdiction. Section 81 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that a trust instrument may contain provisions by virtue of which the exercise by the trustees of powers and discretions shall be subject to the previous consent of the settlor or of some other person as protector, and if so provided the trustees shall not be liable for any loss caused by their actions if previous consent was given and they acted in good faith.

While Section 81 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition provides for the recognition of a Protector/ Guardian, there are no specific rules relating to them. In practice, where a Protector/ Guardian has been appointed, the trust instrument would be drafted to include rules as to how such person should govern himself / herself and provide mechanisms for replacement upon death incapacity or retirement.

Do protectors/guardians have fiduciary responsibilities?

In the 1990 case of Rawson Trust Co. v. Perlman BHS J. No. 64, the Bahamas Supreme Court held that because the beneficiaries of a trust were simultaneously functioning as Protectors, they could not be fiduciaries and were, thereby, given the power to protect their own interests. Accordingly, the Protectors could not be subject to the control of the Court in the exercise of the Protectors’ powers, as if they were exercising powers of fiduciaries. While there is no express statement in the ruling, it may be inferred that where a person serving as Protector of a trust has no beneficial interest in the trust, such Protector must exercise all of its powers in a fiduciary manner.

Notably, Section 81(3) of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition expressly exempts a person serving in the capacity of a protector from being classified as a trustee and further provides that such person is not liable to the beneficiaries for the bona fide exercise of the power, unless otherwise provided in the trust instrument.

To what extent do beneficiaries have any control over the trustees or over their appointment or dismissal?

The Trustee Act does not vest beneficiaries with any specific powers in relation to the appointment or removal of trustees. Of course, should the trust instrument provide beneficiaries with the power to appoint or remove trustees then they would be able to do so. Moreover, the beneficiaries in certain circumstances could petition the courts for assistance in removing or appointing trustees.

Can beneficiaries indicate to the trustees how they wish the trust to be managed or may they terminate the trust when the law relating to such termination is fulfilled (such as under Saunders v Vautier)?

Beneficiaries can indicate to trustees how they would wish the trust to be managed but, unless the trust instrument provides otherwise, such indication would not be binding on the trustee.

Section 87 of the Trustee Act circumvents the rule in Saunders v Vautier. The beneficiaries are unable to terminate or modify the trust if doing so would “defeat a material purpose of the settlor or testator in creating the trust”. What is a material purpose will be ascertained from the trust instrument or by collateral evidence unless, the settlor is living and consents to the change in such material purpose.

What is the standard of care required under the law for trustees and what measures exist to ensure an appropriate level of performance?

While, the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition does not establish a statutory standard of care with regard to the general management of a trust, there are express provisions in respect of the trustees duties concerning investments discussed in more detail below (see our response to question 27). Notably, the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition allows some flexibility to negotiate the applicable standard of care in relation to investments, providing that the statutory standard of care is applicable unless the terms of the trust instrument express a contrary intention.

In equity, there is a higher standard of care imposed a paid trustee. The rule which applies to unpaid trustees provides that such trustees are bound to use only such due diligence and care in the management of the trust fund as an ordinary prudent man of business would use in the management of his own affairs. The test for the paid trustee may be stated to be that he must exercise the degree of diligence and show the degree of knowledge that a specialist in trust administration could be expected to show. A standard institutional trust instrument would typically includes a limitation on the liability of a trustee save for incidents involving its fraud, gross negligence or willful misconduct.

A prudent trustee, mindful of his fiduciary responsibilities, will establish measures to ensure an appropriate level of performance such as the preparation of annual reports so that he is able to account for assets held by him as trustee. Under Bahamian law, corporate trustees are regulated and licensed by the Central Bank of The Bahamas and are subject to periodic unscheduled audits which serve as further encouragement to establish internal measures to ensure appropriate levels of performance.

If a trustee fails to take an appropriate measure, what powers are there to correct the error which may be taken by the trustees, (e.g., by agreement with the beneficiaries) or with the consent of the court?

If a trustee in the exercise of a discretion or power under a trust, in good faith, omits to take an appropriate measure which results in an error, the trustees may take steps to correct the error by making an application to the Court to correct the error by virtue of Hastings Bass relief. In the case Re Hastings-Bass dec’d [1975] Ch 25 from which the Hastings-Bass principle was derived, the English court of appeal held that where irrelevant considerations are taken into account by a trustee exercising a fiduciary power, the trustee’s decision will be invalid provided the decision would have been different if the trustee considered only the relevant factors.

Additionally, a trustee may seek indemnification for such error by written agreement with the beneficiaries. Section 74 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that where a trustee has committed an error resulting in a breach of trust with the consent in writing of a beneficiary, upon an application by a trustee, the Court may if it thinks fit, make an order as the Court seems just impounding all or any part of the interest of the beneficiary in the trust property by way of indemnity to the trustee or persons claiming through him.

What are the limits that trustees may claim indemnity for costs and expenses of running the trust and opposing outside claims and is any procedure advisable before engaging in litigation (such as a Beddoe application)?

The limitations on the liability applicable to a trustee for the costs and expenses of administering a trust and defending against claims brought against the trust are usually set out within the trust instrument. The industry standard for trust companies in The Bahamas provides that the trustee will be indemnified for all costs and expenses of administering the trust and defending against an actions brought against the trust save for any action involving the trustees own fraud, willful misconduct, or gross negligence. Before engaging in litigation, a trustee may apply by a written statement for the opinion, advice or direction of the court pursuant to section 77 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition. Applications of this nature are known as “Beddoe Applications” pursuant to the English decision, Re Beddoe, Downes v. Cottman [1893] 1 Ch 547. Section 77(4) provides that any trustee acting upon the advice or direction of the court granted pursuant to a Beddoe Application will be indemnified from the trust fund for any actions taken pursuant to the advice or direction of the court. This indemnification is limited to the trustee acting in good faith upon making the application.

Are the assets of a trust held by trustees considered in law to be separate from the trustee’s personal assets and thereby insulated from claims against the trustees personal creditors?

The assets of a trust while under the control of the trustee are considered to be separate from the trustee’s personal property and would not be available to personal creditors of the trustee.

On transfer of assets to the trustees, the settlor must arrange for the legal title of the assets to be transferred and undertake whatever transfer procedures are required by the place in which the assets are situated; if this transfer does not take place entirely as proposed when the trust is set up, does this affect the validity of the trust?

If the intended trust assets are not properly transferred to the trustees, the validity of the trust may be compromised since the trust could not exist without a trust corpus. Yet, as long as some property is in fact transferred, even if a nominal amount, the trust would be properly constituted and other assets can then be added subsequently.

What duty of care and other criteria are applied to the investment of trust funds? Can this duty be delegated by the trustees?

Section 5 of the Trustee Act outlines the duty of care that should be followed by a trustee when investing trust funds. The trustee is to act as a “prudent investor” and “exercise reasonable care and caution and the skill of ordinary persons”; however, if a trustee has special skills or expertise and was appointed as trustee in reliance upon its representation that it possessed such special skill or expertise then such trustee has a duty to the beneficiaries of its trust to use those special skills and expertise.

Pursuant to section 6 of the Trustee Act, trustees may obtain and consider “proper advice” prior to exercising any investment powers. Should there be a loss resulting from action taken by the trustee after having taken such proper advice, the trustee would not be liable for such loss. Nevertheless, since trustees have a fundamental obligation to preserve the assets of the trust, they ought not blindly implement investments directions that greatly diminish the value of the trust fund over a sustained period.

Notwithstanding the foregoing, many trust instruments expressly exclude the foregoing sections 5 and 6 of the Trustee Act to afford trustees and settlors more flexibility.

Can trusts migrate into or out of the jurisdiction and may they change their proper law?

Section 81(2) of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition, provides that the trust instrument may grant powers to the settlor or any protector of a trust to, inter alia, determine the law which shall be the proper law of the trust and to change the forum for the administration of a trust. Hence, in the case of a trust governed by the laws of The Bahamas, if the trust deed so provides, the settlor or a protector of such trust can change the governing law for the administration of the trust, provided however that section 5(1)(b) of the Trusts Choice of Governing Law Act, Chapter 179 Statute Laws of The Bahamas, 2000 Revised Edition (“Choice of Governing Law Act”) is satisfied. Section 5(1)(b) of the said Act provides that if the trust deed permits a change in the governing law of the trust, such law may be changed from The Bahamas if the new governing law would recognize the validity of the trust and the respective interests of the beneficiaries.

In the case of trusts whose current governing law is not The Bahamas, the question of whether such a trust can change its governing law to The Bahamas would have to be determined based on the provisions of the trust deed of such trust and on the laws of the current jurisdiction of the trust; however there is no restriction in Bahamian law that would prohibit a trust from changing its governing law to that of The Bahamas. In fact, section 5(1)(a) of the Choice of Governing Law Act provides that if a trust deed permits the governing law of a trust to be changed, such law can be changed to The Bahamas if such change is recognized by the governing law previously in effect.

Section 5(2) of the Choice of Governing Law Act states that, “a change in the governing law shall not affect the legality or validity of, or render any person liable for anything done before the change.”

Pursuant to section 4(2) of the Choice of Governing Law Act a term of a trust which expressly declares that the laws of The Bahamas governs the trust, shall be valid, effective and conclusive regardless of any other circumstance. Moreover, pursuant to section 4(3) of the Choice of Governing Law Act a term of a trust that the governing law is the law of The Bahamas or that the laws of The Bahamas shall be the forum for the administration of the trust is conclusive evidence, subject to any contrary term of the trust, that the settlor intended the laws of The Bahamas to be the governing law of the trust and is valid and effective accordingly.

Is the jurisdiction governed by the Hague Convention on the Recognition and Enforcement of Trusts and, if not, to what extent are foreign trusts recognised?

The Bahamas is not a signatory to the Hague Convention on the Law Applicable to Trusts and there is no legislation specifically dealing with the recognition of foreign trusts in the Bahamas. As a result, the common law position prevails and the validity, effect and interpretation of a foreign trust will be determined in accordance with the proper law of the trust as defined in the English case, Duke of Marlborough v Attorney-General [1945] Ch 78.

What powers are there for beneficiaries to seek replacement of trustees?

The beneficiaries of a trust may seek replacement of trustees under an express power in the trust instrument, or under section 48 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition. Pursuant to Section 48, the court may appoint a new trustee when it is found inexpedient, difficult or impractical to do so without the assistance of the court.

How are vacancies as trustees filled and what is the normal number of trustees who are appointed to a fixed interest or discretionary trust?

Section 42 of the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition provides a mechanism for the appointment of a new trustee upon a trustee dying, becoming incapable of acting as trustee, being a minor, refusing to act or otherwise requiring to be discharged from the trusts or powers conferred on him, subject to the restrictions imposed by the Act on the number of trustees. While the Trustee Act, Chapter 176 Statute Laws of The Bahamas, 2000 Revised Edition does not provide a restriction on the number of trustees serving in relation to a type of trust, there is a limitation placed on the number of trustees appointed to a trust holding real property. Section 41, limits the number of trustees to no more than four persons. Notably, the restriction on the number of trustees does not apply, in the case of land vested in trustees for charitable, ecclesiastical or public purposes or where the net proceeds of the sale of land are held for like purposes.

Section 42 provides that either (i) the person(s) nominated for the purpose of appointing new trustees by the trust instrument; or (ii) if there is no such person able and willing to act, then the surviving or continuing trustee or trustees for the time being or the personal representatives of the last surviving or continuing trustee, may appoint a one ore more persons by deed to be the new trustee or trustees of the trust. Such person or persons appointed as the new trustee are not required to be resident in The Bahamas, moreover, the persons exercising the power may appoint him or herself as trustee of the trust.

Under the law, what criteria are applied to persons licensed to deal with international trusts to determine whether they are ‘Fit and Proper’ persons to undertake this work according to the law?

Section 3(2) of the Banks and Trust Companies Regulation Act, Chapter 316 Statute Laws of The Bahamas, 2000 Revised Edition (the “BTCRA”) provides that no trust company shall carry on trust business from within The Bahamas, whether or not such business is carried on in The Bahamas, unless it is in possession of a valid license granted by the Central Bank of The Bahamas (the “Central Bank”). Trust business is defined as, “acting as trustee, executor or administrator.” Trust company is defined as “any company carrying on trust business.”

Pursuant to section 4(2) of the BTCRA, an application for a license to conduct trust business shall be in writing, in English and shall contain the information and accompanying documents prescribed by the Banks and Trust Companies (Licence Application) Regulations, Chapter 316 Subsidiary Legislation of The Bahamas, 2000 Revised Edition (the “Licence Application Regulations”), and in addition, the following factors will be considered:

(a) whether the applicant is a fit and proper person or company to carry on trust business;

(b) the nature and sufficiency of the financial resources of the applicant to provide continuing financial support for the trust company;

(c) the soundness and feasibility of the business plan;

(d) the business record and experience of the applicant;

(e) whether those who will operate the trust company will do so responsibly and whether such persons have the character, competence and experience for operating a trust company; and

(f) the best interest of the financial system in The Bahamas.

Pursuant to the Licence Application Regulations, the following is, in large part, the information that applicants for a licence to conduct trust business are required to provide to the Central Bank, in order for the Central Bank to determine if such persons are ‘fit and proper’:

a) in the case of a “corporate applicant” (as defined in the said Regulations), the name of the applicant or in the case of a “group applicant” (as defined in the said Regulations), the name of each individual making the application;

b) for corporate applicants, the address of the head office of the applicant (including its mailing address);

c) for group applicants, the business and personal address of each individual (including a mailing address);

d) the proposed corporate name;

(e) address of the proposed office in The Bahamas;

f) for a subsidiary, branch or representative office applicant, the purpose of opening the subsidiary, branch or representative office as the case may be;

g) for a group applicant, the purpose of opening the trust company;

(h) a description of planned business activities in The Bahamas;

(i) where the applicant is a body corporate, the following


(a) history, activity, present structure and organization;

(b) annual reports (including audited consolidated financial statements) of the applicant for the three consecutive financial years immediately preceding the date of the application;

(c) unaudited consolidated financial statements of the applicant as at the end of the most recent quarter prior to submission of the application, certified by a director or senior officer; and

(d) two original references from a financial institution in a form satisfactory to the Central Bank.

(j) for corporate applicants, particulars concerning the composition of the direct and/or indirect ownership structure of the proposed licensee, including an organizational chart showing the structure of the direct and/or indirect share holdings analysed according to the holdings of voting rights and/or shares;

(k) in the case of a group applicant, the following:

(a) date of formation, history, present structure and organization of the group applicant, and details of all business activities of the group;

(b) detailed comments regarding the position within the group, of any dominant member(s) of the group;

(c) current statement of assets and liabilities for each member of the group, certified by public accountants, which should be prepared no earlier than three months prior to the date of the application.

(l) in the case of a corporate applicant, the following is required:

(a) names and background information of all direct or indirect shareholders who represent individually or as a group 5% or more of the voting rights and/or shares of the applicant at the time of the application;

(b) a certified and duly authenticated copy of the certificate of incorporation (or other similar document) and the constitutive documents of the applicant;

(c) an organizational chart showing the structure of the direct and indirect shareholding of the applicant;

(m) in the case of a group applicant, the following is required:

(a) details of the proposed shareholdings of each individual shareholder;

(b) curriculum vitae for each shareholder, incorporating, inter alia, educational background, professional education and training;

(c) two original character references and two original financial references.

(n) information on the composition and organization of the board of directors and management of the applicant;

(o) for each director or member of management, a curriculum vitae (to include, inter alia, educational training, professional education and training), two original character references, one original financial reference and an original police certificate or other original certificate confirming that the person has not been convicted of a serious crime or any offence involving dishonesty; and

(p) details of the source of funds to comprise the initial capital of the applicant.

Jillian Chase-Jones and Nadia J. Taylor, attorneys practicing in Private Client Wealth Management are the co-contributors of the Trust World Survey for The Bahamas. Samantha Knowles-Pratt, now no longer with the firm also helped to contribute.

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