3. Trusts
A. Introduction
Any resident or non-resident may settle assets in a Barbados
trust. The trustees hold the assets as legal owner, subject to the
trust instrument and laws of Barbados. The trust instrument may
specify the trustee's duties and discretion. It also controls the
distribution of the trust fund, which can take place before or
after the settlor's death. The trust instrument may provide for the
appointment of a protector to oversee the responsibilities of the
trustee and may confer other powers on the protector.
A trust is arguably the most secure of all vehicles available to
investors to protect their assets. There is a high duty of care
imposed by law on a trustee and a degree of flexibility inherent in
the establishment of a trust and its administration. Trusts can
also provide a certain amount of mobility, enabling settlors and
beneficiaries to avoid threats of a military or political nature.
Settlors and beneficiaries can obtain additional protection against
asset seizures and freezes, restrictive exchange control and tax
regulations, and general risks of publicity associated with
substantial wealth.
For almost 20 years in Barbados, tax advisors and other
professionals have used trusts in effective tax planning and wealth
management for high-net-worth persons and in facilitating
commercial transactions.
B. Most Frequently Used Trusts
Various laws governing trusts facilitate creative tax planning
for international tax planners: the TA, the ITA, and the IFSA.
I. Domestic Barbados Trust
Where the trustee is a Barbados resident individual or company,
and where the trust deed does not specify that it is an
international trust, it will be considered a domestic trust.
Domestic trusts are generally entitled to treaty benefits. This
substantially reduces or even eliminates tax in the other treaty
jurisdiction. Domestic trusts have the following features:
- the majority of trustees must be Barbados residents
- the trustee can be an individual or a trust company licensed
under the Financial Institutions Act 1996-1
- worldwide income is taxable
- expenses are subject to value added tax (VAT) in Barbados
- exemption from exchange controls may be received if the trust
has foreign assets, non-resident beneficiaries, and deals primarily
in foreign currency
- perpetuity period of 80 years, and
- no registration or filing requirements.
Ii. International Trust
One of the principal benefits of the international trust is its
asset protection provisions. To qualify as an international
trust:
- at least one trustee must be resident in Barbados
- the settlor must be resident outside Barbados
- the beneficiary must not be a resident of Barbados (with
certain exceptions)
- the trust instrument must specify that the ITA applies
- no immovable property is owned in Barbados
- income derived within, or remitted to, Barbados is taxed in
Barbados
- VAT is zero-rated, exempt from exchange controls, and Barbados
withholding tax
- perpetuity period is up to 100 years, and
- registration is required but does not become publicly
available.
The ITA also provides for the establishment of non-charitable
purpose trusts, which may have no named or ascertainable
beneficiaries. One of the key attractions of the purpose trust is
that it need not be set up for charitable purposes and may
therefore be established for a group that does not otherwise meet
the criteria of a charity. The purpose trust may be used in many
diverse business transactions.
Iii. Offshore Trust
An offshore trust is created when the trustee is licensed under
the IFSA. The settlor and beneficiaries must be resident outside
Barbados and the trust assets must consist solely of foreign
currency or securities. The offshore trust is exempted from all
Barbados taxes, duties, and exchange control requirements.
The IFSA provides protection to beneficiaries by requiring the
trustee to keep all assets held in trust separated from its other
assets. Furthermore, a trustee may maintain one or more common
trust funds and invest the assets held in those trust accounts in a
common trust fund. The trust instrument and any co-trustee must
give explicit permission for this investment.
There are no registration or filing requirements for an offshore
trust, so confidentiality is easily maintained. The perpetuity
period of the trust can be up to 80 years and income can be
accumulated for the perpetuity period.
C. Proper Law Of A Trust
The 'proper law' is the law of the jurisdiction stated in the
trust instrument. If not expressly provided for, it is the
jurisdiction with which the trust had its closest connection at the
time of its creation (meaning place of administration,
situs of assets, residence of trustee, and fulfilment of
trust). The proper law is central to any trust since it applies to
the administration of the trust, its construction and validity. The
proper law may be changed provided the other jurisdiction
recognises such a change.
Provided the trust is established pursuant to the terms of the
ITA, any question of whether Barbados law governs the trust, or
that fails to be decided in the disposition of trust property, will
be determined solely under the laws of Barbados. The laws of
another country may govern the trust so long as that is expressly
provided in the trust instrument. The ITA stipulates that the
Barbados courts may not set aside or vary an international trust
pursuant to the laws of another jurisdiction in respect of marital,
succession, or creditor rights.
Barbados is party to the Hague Convention on the Law
Applicable to Trusts and on their Recognition, 1 July 1985,
which seeks to establish common provisions on the law applicable to
trusts.
D. Trust Administration
I. Maintenance And Advancement
It is preferable that the trust assets be managed in Barbados.
If not, it is important to ensure that they are in a jurisdiction
that recognises trusts and applies similar rules of private
international law to Barbados. If the assets are held in a
jurisdiction where trusts are not recognised, or where different
international laws are applied, then a judgment creditor may
succeed in enforcing judgment directly against the assets in that
jurisdiction.
One of the primary duties of the trustees is to make trust
assets productive by purchasing investments from which income
and/or capital appreciation might be expected. The power to invest
can be made explicit in the trust instrument or the trustee can
rely on the provisions of the TA. The majority of trust companies
in Barbados have specialised expertise in asset management and are
able to fulfil their obligations with ease.
Where the power of maintenance and advancement is not
specifically provided in the trust instrument, the trustee can turn
to the TA for guidance.
Ii. Variation Of A Trust
The TA provides for the variation of trusts in relation to trust
management, administration and arising beneficial interest. The
court has a restricted inherent jurisdiction to sanction departure
from the terms of the trust instrument where an 'emergency' not
provided for in the trust instrument arises in connection with the
administration of the trust.
E. Confidentiality And Disclosure
Stringent provisions have been included in the ITA to ensure
that trustees maintain confidentiality of all international trust
documents and any other person involved in the administration of
the trust. It is an offence punishable by fine and/or imprisonment
for a person or a body corporate (in the majority of cases, the
trustee) to make or assist in making a report, return, notice or
other document that contains an untrue statement of a material
fact, or omits to state a material fact.
F. Rights Of Creditors
I. Transfers Into Trust
The ITA provides for the popular asset protection trust. Under
the legislation, a disposition of property made with intention to
defraud a creditor, or which is transferred for less than its
value, may become ineffectual if an affected creditor pursues an
action.
Ii. Limitation Period
The creditor has a legal requirement to prove their case. The
case must be brought within three years of the property
disposition.
G. Provision For Private Trust Companies
I. Requirements
Private trust companies (PTCs) are not popular in Barbados,
principally because Barbados possesses a body of corporate trustees
with expertise in the administration and management of trusts. A
PTC may be established under the Financial Institutions
Act (FIA).
Ii. Fees
The requirements under the FIA are stringent and the capital
requirements are very high. Therefore, the trust assets would have
to be substantial to justify the costs of forming and operating a
PTC.