Forced Heirship: Options in The Bahamas to Address Disposition Concerns
The Bahamas, unlike many other jurisdictions, does not have forced heirship laws. Therefore, persons resident in The Bahamas have complete testamentary freedom. However, the jurisdiction’s wealth management industry realised that this was not true of some of its clientele in other jurisdictions. Accordingly, early in the development of the industry, The Bahamas took steps to address forced heirship and foreign jurisdictional concerns. Legislative measures contained in core statutes for the industry seek to address those concerns and enable personal choice in the disposition of assets. Specifically, the statutory provisions are intended to avoid the imposition of foreign laws and claims arising out of forced heirship and matrimonial proceedings pursuant to such laws.
The statutory provisions encompass a wide definition of “disposition” which includes conveyances, transfers, assignments, leases, mortgages and pledges of property. Additionally, the legislation incorporates within the definition of “heirship right” rights, claims or interests in property which arise as a consequence of death other than claims created by will or other voluntary disposition of the property owner. The definition of “personal relationship” provided in the legislation is also wide in scope to cover cohabiting persons, married and divorced persons as well as familial blood relationships. These measures have been embedded and replicated in the trusts law, the Foundations Act and the Bahamas Executive Entities Act so that the protection of the provisions could be accessed by persons establishing such structures.
With the enactment of the Trusts (Choice of Governing Law) Act, Chapter 179 of the Statute Laws of The Bahamas as amended (“TCGL Act”), in 1989 dispositive freedom was incorporated into the trust law of The Bahamas. The TCGL Act provides that all questions arising in respect of or concerning a trust established under the laws of The Bahamas, whether administered in the jurisdiction or not, were to be determined in accordance with the laws of The Bahamas. The TCGL Act further provided that in determining any question on Bahamian law governed trusts no reference to the laws of any other jurisdiction was required. To support the declaration that the laws of The Bahamas would govern trusts established pursuant to Bahamian legislation, the TCGL Act stated that questions of validity and the capacity to establish a trust are not determinable by the laws of another jurisdiction. Later amendments to the TCGL Act extended the scope of the statute’s provisions to encompass claims arising on the basis of forced heirship and marital rights; such claims must also be adjudicated in accordance with the laws of The Bahamas.
The primacy of the laws of The Bahamas to control and regulate issues and claims in respect of the disposition of property or assets in The Bahamas in trust structures was given further support by the legislature in 2016. At that time the Trustee Act, Chapter 176 of the Statute Laws of The Bahamas, was amended by the insertion of section 79A which reinforces the jurisdiction of the courts of The Bahamas to determine claims where the designated law of the trust is that of The Bahamas. The section reiterates that the jurisdiction of the court is not impacted by the location of the individuals involved. The provision seeks to assure persons that the decision to voluntarily dispose of property in accordance with Bahamian law will be upheld.
In further extension of the freedom of disposition, a governing law provision was incorporated into the statute regulating wills in The Bahamas. In the 2002 iteration of the Wills Act, the legislature addressed the issue of jurisdiction where the testator is not domiciled in The Bahamas. Specifically, the Wills Act enables a testator domiciled outside The Bahamas to validly dispose of all property situated in The Bahamas by a will in accordance with the laws of The Bahamas. Further, by incorporating a declaration specifying the governing law as that of The Bahamas, the testator would effectively and validly segregate those assets from assets outside The Bahamas. The provision extended to non-Bahamas resident persons a level of testamentary freedom over a portion of their estate. Additionally, the recent enactment of the Probate and Administration of Estates Act in 2011 confirms the jurisdiction of the courts of The Bahamas in respect of wills over assets in the country. The Wills Act and the Probate and Administration of Estates Act work in tandem to assist a testator, not resident in The Bahamas, to dispose of assets situated in the jurisdiction and enjoy a measure of freedom in the disposition of those assets.
The governing law provisions of the TCGL Act were integrated into the Foundations Act when that latter statute was enacted in 2004. A primary focus of the Foundations Act is persons in jurisdictions where foundations are more familiar wealth management vehicles than trusts. The inclusion of provisions from the TCGL Act extends protection to assets held in the foundation from claims based on heirship rights and familial relationships. Consequently, Bahamian law governed foundations permit the founders to transfer assets validly into the structure and thereby regulate the distribution of assets without fear that their wishes and intentions would be defeated by forced heirship provisions which exist in their home jurisdictions.
Similarly, in 2011 when The Bahamas introduced a new wealth planning structure, the executive entity, the protections enjoyed under the TCGL Act were embedded in the statute establishing such structure. As with a foundation, pursuant to the Executive Entities Act 2011 (the “EEA”), an executive entity is a legal person upon its establishment and is not owned by any person or persons. The entity is established by charter and may have articles or bylaws to supplement the provisions of its charter regarding its operations. The executive entity may act as a director, trustee, protector, or investment advisor and may hold trust assets. As with Bahamian law trusts and foundations, by including the governing law provisions in section 63 of the EEA, assets held in an executive entity structure are protected against adverse orders from foreign jurisdictions based on heirship rights or matrimonial disputes.
In recognition of the concern that heirship rights and matrimonial disputes could unravel the considered decisions of persons and result in an involuntary distribution of assets, the wealth planning industry in The Bahamas instituted provisions in core legislation to allay such concerns. The above governing law provisions seek to establish the laws of The Bahamas as the exclusive law by which to consider and resolve issues, questions or matters which could arise in connection with trusts, estates, foundations and other structures where the law of The Bahamas has been expressly chosen as the relevant law of those structures. The above mentioned legislation entrenches the freedom to dispose of assets in The Bahamas, unrestrained by the application of foreign law heirship principles or the imposition of orders obtained outside The Bahamas. The governing law provisions also extend to persons not resident in The Bahamas the ability to choose how assets are distributed which will be upheld and supported by the courts of The Bahamas.
ABOUT THE AUTHOR
Sharmon Ingraham is a Senior Associate in the firm’s Private Client & Wealth Management Practice Group where 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.
*Previously published in STEP LATAM Newsletter – March 2019
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.Copyright ©2019 Higgs & Johnson. All rights reserved.