Directed trusts
Termination of interest of beneficiary upon trust being challenged
Arbitration
Comment
The Trustee (Amendment) Act 2011 has strengthened the law relating to trusts and their administration by clarifying and expanding sections of the principal act and by making substantive amendments that have introduced new provisions.
Directed trusts
Section 81(a) of the act provides that where a trust instrument contains a provision that an investment power is to be exercised by a trustee on the directions of another person (referred to in the section as the "power holder"), the trustee will not be liable for any loss arising from acting in accordance with those directions.
This section:
- gives the settlor the ability to have more control over the trust's investment strategy (eg, allowing him or her, or his or her appointed investment adviser, to give instructions to a trustee); and
- relieves the trustee of the duties of monitoring and being responsible for investments in which they may not have expertise.
Termination of interest of beneficiary upon trust being challenged
Section 87(a) confirms the validity of no-contest clauses. It also specifies that if the trust instrument so provides, the interest of a beneficiary will terminate upon the validity of a trust (including the validity of any disposition of trust property) being challenged "in whole or in part, in any court within or outside The Bahamas", whether the challenge is brought in good faith or with reasonable cause.
Settlors now have certainty that such clauses will have the desired effect.
Arbitration
Section 91(a) provides for a trust instrument to allow for any dispute or administration question to be determined by arbitration and that the Arbitration Act shall apply to trust arbitrations, in accordance with the provisions of a new schedule to the principal act.
Sections 91(b) sets out the powers of the arbitration tribunal, except to the extent that the trust instrument provides otherwise.
The benefits of an arbitration procedure are clear and give the settlor the option of avoiding lengthy and costly litigation.
Comment
These innovative provisions show the Bahamas' continued commitment to provide for clients and reinforce its position as a leader in the area of private wealth management.
For further information on this topic please contact Arthur Seligman at Lennox Paton by telephone (+1 242 502 5000), fax (+1 242 328 0566) or email ([email protected]).