With the recently passed Purpose Trust Bill, 2004, The Bahamas has added another dimension to the jurisdiction’s trust business.

The most interesting feature of purpose trusts is the fact that benefits are for a purpose rather than persons or entities, and there is no one to whom beneficial entitlement in the trust property is vested.

*"There are many estate planning exercises and other commercial transactions that can legitimately and properly take advantage of this kind of structure,"* says The. Hon. Alfred Sears, Attorney General.

These uses include:

* The holding of shares of a private company, which is expressly authorised by the Act. In this structure, the settlor and members of his family and his advisors may be appointed directors of the private trust company and thereby assume some responsibility for the management of the trust. This is often useful when the assets of the trust are of an unusual nature.

* A trust which has both philanthropic and charitable purposes.

* Asset purchase or financing transactions to provide security for an entity which finances the purchase or to keep the asset and corresponding liability from appearing on the purchaser’s balance sheet.

* Separating voting from economic control.

* Temporary avoidance of controlled foreign corporation rules.

* Debt Subordination to provide ranking of priority among creditors.

* Discretionary trusts to perpetuate a particular corporate governance philiosphy.

*"As a financial product, trusts have proven to be resilient, flexible and popular with institutions and high net-worth individuals engaged in commerce and business throughout the world,"* the Attorney General says. *"There can be no doubt that as one of the premier international financial centres in the world, The Bahamas must maintain a modern statutory framework to govern trust business in this country."*

The Attorney General points out that four Acts heretofore have formed the principal planks of the legislative platform for trust business in The Bahamas.

*"A major step in this process occurred in 1998 when the Government passed The Trust (Choice of Governing Law) Act,"* he says. *"Another significant legislative development was the passage in 1991 of The Fraudulent Disposition Act which, inter alia, facilitated the creation of Asset Protection Trusts. The Perpetuities Act came into force in 1995 which permitted the adoption of a fixed trust period of up to 80 years which, through recent amendments to the Act, has increased to 150 years. A further market demand was met in 1998 when The Bahamas passed The Trustee Act.

"The enactment of the Purpose Trust Act complements and enhances this statutory regime."*

##Legal Background ##

A purpose trust is a specific type of trust which is established for a non-charitable purpose and does not have specific ascertainable beneficiaries. Under common law, in order to create a trust, there must be certainty of intention, certainty of property, and certainty of persons or objects. There is also the requirement that the trust must be enforceable by or on behalf of a beneficiary or object. Under this requirement, a trust for purposes which are exclusively charitable was recognised as it could be enforced by the Attorney General.

*"The conventional view is that all other purpose trusts were invalid to the extent that they did not have ascertainable beneficiaries and/or charitable objects,"* says the Attorney General. *"There were limited circumstances in which the courts upheld the validity of certain non-charitable purpose trusts. However, these cases have been widely characterised as "anomalous and exceptional" and there is no judicial authority to suggest that such exceptions will be extended."*

While a small group of dissenters may exist, the widely accepted view is that under the common law it is generally not possible to have a valid purpose trust (other than one for exclusively charitable purposes). *"The primary objections were that the purpose(s) of such a trust are uncertain and there was no one to enforce them,"* says Minister Sears. *"With this legal backdrop the Government decided to create legislation to validate purpose trusts."*