The Bahamas has a long, deeply rooted, trust law history originating in its colonial past as a part of the British Empire. While recognising its rich trust law heritage, The Bahamas’ financial services industry continues to develop, modernise and implement initiatives consistent with best practices and a view to addressing the needs of its clientele. In addition to its trust law products, The Bahamas has implemented legislation to enable the creation of private law foundations and private trust companies, the latter of which is subject to light touch regulation by the Central Bank of The Bahamas. However recent amendments have been made to the trust legislation and will be the primary focus of this article.
In keeping with its objective to adhere to best practices, The Bahamas through the Automatic Exchange of Financial Account Information Act 2016 (the “AEOFI Act”) has incorporated into Bahamian law the Common Reporting Standard (“CRS”) created by the Organisation for Economic Cooperation and Development. The AEOFI Act became enforceable on 1stJanuary 2017. The AEOFI Act is supplemented by Regulations, which also became effective in 2017. The CRS regime impacts Bahamian law trusts where there are ties to participating CRS jurisdictions.
While addressing mechanisms to ensure the industry is well regulated and adheres to international standards, modification of Bahamian trust legislation is made periodically to ensure the evolving needs of the industry are met. The Trustee Act 1998, a cornerstone of the industry, was recently amended. An important amendment was a provision concerning the Rule in Hastings-Bass (“the Rule”), as derived from the English Court of Appeal decision in Re Hastings-Bass [1975] Ch. 25.
After the Supreme Court of the United Kingdom decision in Pitt v HMRC, Futter v HMRC [2013] UKSC 25, concerns arose on the application of the Rule. The new section 91C of the Trustee Act seeks to reinstate the Rule in Bahamian law as it had been applied in The Bahamas prior to the Pitt and Futter decision. The provision grants the court the discretion to set aside an exercise of fiduciary power on an application commenced by a beneficiary, trustee, protector, authorised applicant, power holder, the Attorney General or any other person with the leave of the court. The court may also deem an exercise of fiduciary power to be voidable under the section and further empowers the court to adapt its order to the particular circumstances before it.
Other recent amendments to the Trustee Act include (i) clarification of the scope of a release which an outgoing trustee may obtain and (ii) an extension of the protection under a trust instrument concerning the alienation of trust property. While the statutory provision originally restricted the indemnity which could be obtained by a departing trustee, it did not also restrict the release granted to such trustee. With the amendment, the provisions on indemnities and releases to trustees are now uniform in that a trustee is unable to obtain an indemnity or release in respect of liabilities arising from a breach of trust or which the trustee would otherwise not be entitled to a release or indemnity.
The Trustee Act now enables a settlor or donor of a trust to be protected under provisions regarding the inalienability of trust assets. Accordingly, in the event a settlor or donor becomes bankrupt, such provisions can limit recourse to the assets of the trust through the insolvent settlor or donor to meet claims of creditors. While offering further protection to settlors and donors who are also beneficiaries, this provision is subject to the Fraudulent Dispositions Act. Accordingly, a creditor is not precluded by the amended Trustee Act provisions from pursuing legitimate claims under the Fraudulent Dispositions Act.
Finally, the Trusts (Choice of Governing Law) Act 1989 (“TCGL Act”) has also been recently amended. The TCGL Act amendment extends the scope of the Bahamian firewall provisions. Consequently, foreign orders obtained against a beneficiary as a result of a personal relationship are unenforceable against the Bahamian trust.
The recent amendments ensure that Bahamian trust law continue to keep pace with modern developments. Other measures are being considered, including legislation regarding valid and effective execution by a trustee acting for both sides and the use of seals, which would continue the quest to adapt to and address industry changes.
ABOUT THE AUTHOR
Sharmon Ingraham is a Senior Associate in the Private Client & Wealth Management practice group. Her practice includes advice to trust companies on matters concerning trust administration and creation, estate administration, private client wealth management, wills, company law and international commercial contracts.
*Article first published in Trust Bahamas – September 2018 issue.
The information contained in this article is provided for the general interest of our readers, but is not intended to constitute legal advice.Clients and the general public are encouraged to seek specific advice on matters of concern. This article can in no way serve as a substitute in such cases.
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