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Trusts, foundations and charities
Are trusts legally recognised in your jurisdiction? If so, what types are available and most commonly used?
Yes, trusts are legally recognised in the Bahamas. Trusts are generally available and discretionary trusts are the most commonly used form. Trusts are commonly used for estate planning and asset protection purposes. The Trustee Act (Chapter 176 of the Statute Laws of the Bahamas) also provides for reserved powers trusts, directed powers trusts and purpose trusts. The foregoing trusts may be discretionary or non-discretionary.
There are many reputable trust companies available to assist with trusts in the Bahamas. Alternatively, where a settlor wishes to do so, or circumstances require it, a private trust company may be established under the Banks and Trust Companies Regulation Act (Chapter 316 of the Statute Laws of the Bahamas). The private trust company can thereafter serve as trustee of the Bahamian law-governed trust.
What rules and procedures govern the establishment and maintenance of trusts?
The requirements to establish a valid trust primarily arise out of the common law of England and include the following:
- To create a valid trust, the intended settlor must be at least 18 years old and of full mental capacity. The property that is to be entrusted must also be capable of being disposed.
- The individual must also have the intention (also known as ‘certainty of intention or words’) to create a trust. The intention to create a trust must be specific and intention can be determined from a person’s conduct, as well as particular language that the individual may use.
- A valid trust must have a subject matter, or property, that is to be held in trust. Where there is no property underpinning the structure, the proposed trust will fail or be found invalid.
- The individual creating a trust must also identify the persons or class of beneficiaries intended to benefit from the trust structure. Where a beneficiary has not been listed or specified in the trust instrument, the proposed trust will fail or be found invalid.
- Trusts of real property or established under a will must be contained in a valid document. In the case of a will trust, the will must comply with the requirements for the creation of a valid will under the Wills Act (Chapter 115 of the Statute Laws of the Bahamas). While it is possible for an individual to create a trust of personal property without documentation or other formalities, in modern trust practice trusts of personal property are also detailed in writing. Trusts may be established using either declaration or settlement forms of trust. A declaration of trust must be executed by the trustee, while a settlement of trust requires the instrument to be executed by the settlor and trustee.
The perpetuity period is also a relevant component in the establishment of a valid trust. A 2004 amendment to the Perpetuities Act (Chapter 114 of the Statute Laws of the Bahamas) extended the perpetuity period in the Bahamas to 150 years. It is also possible under the laws of the Bahamas to have a trust of unlimited duration. In December 2011 the Bahamas enacted the Rule Against Perpetuities (Abolition) Act, removing the requirement for a perpetuity period for trusts created after December 31 2011. Where it is desirable to do so, an application may be made under the Trustee Act (Chapter 176 of the Statute Laws of the Bahamas) to the Supreme Court for a perpetuity period designated in a trust instrument to be extended up to 150 years.
How are trusts taxed in your jurisdiction?
Given the tax regimes utilised in the Bahamas, apart from an initial trust duty of $50, there are no taxes assessed on trusts. Additionally, under the provisions of the Trustee Act, trusts where the beneficiaries are treated as non-resident for Exchange Control purposes are exempt from any income, capital gains, estate, inheritance, succession and gift taxes. Where the beneficiaries are non-resident for Exchange Control purposes, the trust is also exempt from rates, duties, levies or other charges.
Foundations and charities
Are foundations and charities legally recognised in your jurisdiction? If so, what forms can they take?
Yes, foundations and charities are legally recognised in the Bahamas. The Bahamas has a Foundations Act (Chapter 369D of the Statute Laws of the Bahamas). Since the enactment of the Foundations Act, foundations are formed under the provisions of the act. Foundations may be formed for private or public purposes.
There is no corresponding charity legislation in the Bahamas. However, charities may take the form of charitable trusts, charitable foundations, companies limited by guarantee or non-profit entities. Charitable trusts are created in accordance with general trust law in the Bahamas, while charitable foundations adhere to the requirements of the Foundations Act. Charities taking the form of companies limited by guarantee or non-profit entities adhere to the requirements of the Companies Act (Chapter 309 of the Statute Laws of the Bahamas) and Regulations promulgated under the Companies Act.
What rules and procedures govern the establishment and maintenance of foundations and charities?
Foundations are required to adhere to the provisions of the Foundations Act in order to be recognised as a foundation duly established under the laws of the Bahamas. Parts II and V of the Foundations Act principally deal with the establishment and registration of foundations in the Bahamas.
There is no statute or regulation that governs or regulates charities in the Bahamas presently. To be recognised as a charity, the entity must be within the parameters of the charitable classifications identified in Commissioners for Special Purposes of Income Tax v Pemsel  AC at 543 and adopted by the Bahamian Court of Appeal in Attorney General v Royal Trust Company  BHS J No79 (which was upheld by the Privy Council in Attorney General v Royal Trust Company (1983) 34 JCPC). Specifically, charities must be established for:
- the relief of poverty;
- the advancement of education;
- the advancement of religion; or
- for other purposes beneficial to the community not falling under any of the preceding heads.
How are foundations and charities taxed?
While foundations and charities may be required to pay annual registration fees to their respective registries within the Department of the Registrar General, the earnings and/or assets of the foundation or charity are not generally taxed. Where a foundation or charity owns real property or otherwise consumes goods or services, that ownership or consumption may be taxed under the Real Property Tax Act or the Value Added Tax (VAT) Act accordingly. It is also possible for charities to be exempted from the payment of VAT.
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