And now for something “slightly” different. For those Monty Python fans out there, a quick apology. I’m not going to be taking a “pythonesque” look at the Bahamas Foundation, and for those who don’t know who Monty Python is, bear with me.
Historically, and when we as practitioners think of estate planning, asset protection and ease of management of assets, the first “tool” that comes to mind nine times out of ten times is the tried and tested Trust. Regardless of which International Financial Centre (“IFC”) is chosen, the Trust has been the staple diet of a majority of practitioners for years, and will remain so for many years to come. However, as we all know, the Trust is not a “one size fits all solution,” and some clients just don’t warm to the overall concept. We’ve all been there, and once a client says a Trust isn’t for them, it’s difficult to find another solution fitting the bill.
For those practitioners among us that have faced this situation, I’d like to say, “And now for something slightly different.” Allow me to re-introduce The Bahamas Foundation (“the Foundation”) as a viable alternative planning tool.
Since its birth in 2004, it’s fair to say the Foundation has been under utilised by both local and international practitioners. Is there a reason for this? For starters, the Trust is, and will continue to be the main tool used by practitioners in this area. Nonetheless, there are certainly opportunities for the Foundation to form an integral part of this planning, or indeed be considered as an alternative to “old faithful.” The aim of this article is to re-visit the Foundation, highlighting its benefits and uses from a practitioner’s perspective.
##The Basics Revisited.##
The Bahamas Foundation was introduced with the enactment of The Foundations Act, 2004. As with all legislation, it has undergone some amendments, principally in 2005 and 2007, and has become a key tool in the practitioner’s “Bahamas Tool-Kit.” The Foundation has many applications (which will be explored later in this article), and is able to be used for private, commercial and charitable purposes.
As with a Trust and a Company, the Foundation has a slate of key positions that can, or indeed must, be filled. The main players are:
• Founder (like the Settlor of a Trust)
• Foundation Agent (created via the 2007 Amendment Act)
• Foundation Council (similar to a Board of Directors or Trustee)
• Protector or Protector Committee
There is great flexibility under the Foundations Act, 2004 as to who can act is these capacities. As an example, the Foundation Council does not have to be comprised of Bahamas resident members, nor does the office of Protector have to be provided by a Bahamian. Rather, the only caveat is a Bahamas based service provider must act in the capacity of Secretary or Foundation Agent. This service provider, by virtue of acting in this position, also provides the Registered Office of the Foundation.
The Foundation’s governing document is the Foundation Charter. As with a Trust Deed or Articles of Association of a Company, the Foundation Charter sets out the parameters within which the Foundation must be managed and governed. As an example, and importantly, the Charter deals with Founder retained powers; appointment and removal of the foundation’s officer(s), foundation council members, protector(s), beneficiaries; investment powers; dispositive provisions and provisions regarding the amendment and revocation of the charter.
The Foundation Charter can also be supplemented by the addition of Foundation Articles. The Foundation Articles can be used to provide further information around the identity of the beneficiaries, how and when they can benefit and the regulation of any governing body of the Foundation.
Once the documentation has been prepared, registration is a straight-forward process. In essence, the Secretary or Foundation Agent provides a synopsis of the Foundation Charter (the Founder’s name is not disclosed) to the Registrar General’s Department, along with a statement that the Foundation will maintain a minimum asset value of US$10,000, and the Foundation complies with all the provisions of the Foundation Act, 2004. The Registrar General will then issue a Certificate of Registration.
##Is it really “Eco-Friendly?”##
It doesn’t have a catalytic converter, and I wouldn’t recommend using it to get to work in the mornings, but the Foundation can certainly be called the “hybrid vehicle” of the estate planning world. Don’t worry, I’m not going to launch into a series of car metaphors, but rather show that the Foundation is a unique mix between a Trust and a Company. Here are a few examples for consideration, and once reviewed, some clear advantages of using the Bahamas Foundation will begin to emerge:
Like a company, but unlike a trust, a Foundation:
• may enjoy unlimited duration and is not subject to the law against perpetuities;
• is a legal entity in its own right, has a registered office and is registered with the Registrar General of The Bahamas;
• enjoys limited liability, enabling riskier types of assets to be managed within the structure;
• as a legal entity, can own assets in its own name;
• does not require a change in the legal ownership of its assets as a result of a change in its governing body.
Like a trust, but unlike a company, a Foundation:
• may have discretionary or vested beneficiaries;
• benefits from The Bahamas’ asset protection legislation – the Fraudulent Dispositions Act;
• can be established by will;
• may be used to avoid forced heirship in other jurisdictions;
• does not form a part of a person’s estate and is therefore not subject to probate;
• may have a protector.
This of course is all fine, and I’m sure looks good. However, taking these views and applying them in practical terms is key.
##Benefits and Practical Uses##
As practitioners, we’re often faced with a client wanting to achieve a variety of objectives. As with all client wishes, some are achievable, some are not, and some can be achieved with a compromise.
With the above in mind, and in general, we can all relate to the client that wants to achieve the following:
• maintain confidentiality;
• have an effective estate plan;
• maintain an element of management / control of the assets without damaging the integrity of the overall structure;
• protect their assets from 3rd parties and perhaps family-adverse influences;
• use a registered “legal” entity to hold and / or administer assets.
As noted earlier, our initial thoughts will likely lean toward the Trust as the preferred solution. However, in speaking with the client, it may emerge that the client:
• is from a civil law country where the trust concept if not well known;
• does not feel comfortable using a 3rd party trustee;
• wishes to maintain an element of control over the assets.
If this is the case, the Foundation could be a good fit. Taking each of the requirements in turn:
Even though the Foundation is a registered entity, confidentiality is maintained by virtue of the Founder’s name not being public information. Additionally, a nominee Founder can be used to further protect the identity of the actual Founder. This also has further application where the Foundation is used as a holding vehicle. In this case, the Foundation as a registered and legal entity is seen as the shareholder, rather than an individual person.
An effective Estate Plan can be put in place by virtue of the trust-like nature of the Foundation. As with a Trust, the Founder passes legal title of his / her assets, to the Foundation. This then allows the assets to be managed and maintained on behalf of the beneficiaries, with distributions being made in accordance with the Founder’s wishes. Additionally, the Foundation benefits from The Bahamas robust asset protection legislation, thus protecting legitimately “settled” assets from any creditor claims.
As a part of the family’s Estate Plan, the Founder may also wish to stay intimately involved in how the assets are invested and distributed. Of course, discussing how a client can maintain an element of control is always a tricky discussion. However, and in the case of a Foundation, the Founder can reserve a number of powers without jeopardising the overall integrity of the structure, and certainly more than are available when establishing a Trust. Taking this one step further, the Founder can also be a member of the Foundation Council, helping direct and manage the Foundation’s assets.
Putting these requirements into a practical and real life context, the Foundation has application:
• as a holding vehicle for shareholding of a Private Trust Company and shareholding of a Family Business (promoting longevity of family ownership and asset protection);
• as a part of an effective estate plan where a Trust is not the preferred vehicle;
• where the client wishes to maintain a number of powers and some control over the assets;
• for Chartable Purposes.
Of course, these are but a few examples of where the Foundation can be used, but certainly helps highlight the Foundation’s versatility.
It’s clear that the Bahamas Foundation truly is a hybrid vehicle, and is a viable alternative to a Trust in the right circumstances. It has applications as a stand-alone vehicle or as a part of an overall structure, and when used appropriately, can be an extremely useful tool.
By Timothy J. Colclough, LLB (Hons), MSI, TEP
Assistant Vice President, Head of Business Development & Custody
Butterfield Bank (Bahamas) Limited
Article originally published in the STEP Journal (Vol 17 Issue 4)