BARBADOS

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.


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© 2012 Society of Trust & Estate Practitioners