When it comes to safeguarding your wealth, an offshore asset protection trust is the most powerful tool available. However, the efficacy of these tools varies based on the jurisdiction in which they are established.
One of the more popular destinations for offshore asset protection is The Bahamas. But how does a Bahamas trust compare to other top jurisdictions? In this article, we’ll tell you everything you need to know about trusts in The Bahamas and how they stack up to the competition:
- What Is a Bahamas Trust?
- Key Parties in a Bahamas Trust
- Legal Backbone and History of Bahamas Trusts
- Core Features of Bahamas Trusts
- Benefits of a Bahamas Asset Protection Trust
- Typical Uses for Bahamas Trusts
- How Do I Set Up a Bahamas Asset Protection Trust?
What Is a Bahamas Trust?
A Bahamas trust is a type of asset protection trust established in the Caribbean island nation of the Bahamas. The trust specifically is a legal arrangement where a licensed Bahamian trustee holds and manages assets for beneficiaries under the country’s trust statutes.
Most people use a Bahamas asset protection trust to move ownership of assets out of their personal names and into a separate legal structure that is insulated from lawsuits and creditor claims. Once the transfer is complete, the trust legally owns the assets, which prevents creditors from accessing them after winning a court case against you in the United States.
Key Parties in a Bahamas Trust
A Bahamas trust is made up of three main parties:
- Trustee: A trustee manages a trust based on the instructions laid out in the trust agreement. Trustees are often people living in the Bahamas but can also be a company that is licensed to operate as a trustee.
- Settlor/Grantor: The settlor or grantor is the person who establishes and funds the trust. In the case of an offshore asset protection trust, the settlor cannot withdraw assets at will or make changes to the structure of the trust. The irrevocable nature of the trust ensures that creditors cannot force the settlor to make a withdrawal from the trust.
- Beneficiaries: Beneficiaries include any person or entity that receives a benefit, such as a regular distribution or inheritance benefit, from the trust. Asset protection trusts often include the settlor as a beneficiary so they can retain some access to their wealth.
Legal Backbone and History of Bahamas Trusts
The Bahamas trust system is built on a mix of long-standing English trust principles and local legislation, including the Bahamas Trust Act of 1989 and the Fraudulent Dispositions Act of 1991. These laws were written to make it possible for non-residents to establish a Bahamas trust for asset protection.
The Fraudulent Dispositions Act of 1991 sets a short two-year statute of limitations during which creditors can bring a fraudulent transfer claim forward. After that limitation period expires, it’s extremely unlikely that anyone will be able to lay claim to the assets in your trust.
Core Features of Bahamas Trusts
Bahamas trusts are designed for flexibility, privacy, and long-term protection. In most ways, they’re very similar to offshore asset protection trusts established in jurisdictions like Nevis and the Cook Islands. All three of these jurisdictions place a strong emphasis on keeping assets out of the hands of creditors.
One standout feature of a Bahamas trust is a strong focus on control and oversight. You can appoint a protector with the power to appoint trustees, adjust the proper law of the trust, and direct investments, adding an extra layer of protection to your Bahamas asset protection trust.
However, the most notable feature of a Bahamas trust is the allowance for perpetual trusts. These trusts can exist indefinitely and continue after the settlor’s passing, which makes them ideal for people who wish to pass large sums of money to their heirs.
Benefits of a Bahamas Asset Protection Trust
Here’s a quick summary of a few of the main benefits of a Bahamas trust:
- Short statute of limitations (often two years) for fraudulent transfer claims against a Bahamas asset protection trust.
- Creditors must sue in The Bahamas, under Bahamian law, to win a fraudulent claim case.
- The trust is tax neutral.
Typical Uses for Bahamas Trusts
A Bahamas trust is not only about “worstcase scenario” protection. It is also a flexible planning tool you can plug into many parts of your financial life:
- Professional risk shielding for doctors, attorneys, executives, and others facing high lawsuit risk.
- Estate planning and probate avoidance.
- Holding investment portfolios, private company shares, or intellectual property in a stable, taxneutral jurisdiction.
- Longterm family wealth planning.
How a Bahamas Trust Compares to Other Asset Protection Trusts
Bahamas trusts offer relatively strong protection, but do have a few notable flaws that keep them from being one of the best offshore asset protection trusts.
The first and most glaring issue with using a Bahamas trust for asset protection is that The Bahamas does occasionally enforce foreign judgments through a process called “domestication.” This process essentially takes a court order from one location, like the United States, and turns it into a judgment in The Bahamas. Now, this process is fairly difficult to carry out, and most judgment creditors won’t invest the time and effort required to do it, but it is possible. Top jurisdictions like Nevis and the Cook Islands don’t allow for domestication.
Additionally, a Bahamas trust does not have the same burden of proof for fraudulent conveyance claims. The best offshore trust jurisdictions require fraudulent transfer claims to be proven “beyond a reasonable doubt,” which is the same burden of proof used for criminal cases in the United States. In The Bahamas, creditors need to prove fraudulent intent, which is a high standard but not nearly as strict as what must be proven in the Cook Islands and Nevis. This means that the trust protections aren’t quite as strong as those offered in Nevis and the Cook Islands.
Ultimately, the advantages of a Bahamas trust, like perpetual existence and a high degree of privacy, do make it a useful option for people who value those aspects more than ironclad asset protection. However, if you are purely exploring trusts as a means of safeguarding your wealth, a Bahamas trust is less protective than a Cook Islands or Nevis trust.
Set Up a Bahamas Trust With Help From Asset Protection Planners
If you’ve decided that a Bahamas trust is the right option for you, the team at Asset Protection Planners can help you set up a strong trust plan to safeguard your wealth. We’re also happy to review your needs and let you know if another jurisdiction would serve as a better option.
Schedule a free consultation today to start protecting your assets for the future.
Bahamas Trust FAQ
How do I set up a Bahamas asset protection trust?
You set up a Bahamas asset protection trust by working with an experienced offshore trust creation professional. This person should have a strong understanding of Bahamas trusts and can help you decide if The Bahamas is the right jurisdiction for your needs or if another location is better suited to protect your assets.
Once you’ve located someone who can help you set up a trust, review your goals and risk profile with them. This step will determine how effectively a Bahamas trust can protect you and which tools your asset protection planner will use when setting up your strategy.
After doing the research-focused work, your planner will draft the trust deed and then appoint a reliable local trustee. Your planner will also help you move your assets into the trust to ensure that it provides the maximum level of protection.
After your trust is established, stay in regular contact with your asset protection planner in case any updates need to be made to the trust structure. If an update is needed, the planner will contact you and lay out what exactly is changing and how it impacts your trust.
Here’s a step-by-step guide detailing how to set up a Bahamas trust for asset protection:
- Hire an asset protection planner who is familiar with offshore asset protection trusts.
- Clarify your goals and risk profile with your planner.
- Confirm that a Bahamas trust is appropriate for your needs.
- Have your planner select the basic trust structure and type.
- Appoint a qualified Bahamian trustee recommended by your planner.
- Ask your planner to designate beneficiaries and a trust protector.
- Wait for your planner to draft the Bahamas trust deed and related documents.
- With your planner’s help, execute the trust deed and formally establish the trust.
- Transfer assets into the trust, adhering to the instructions provided by your asset protection planner.
- Make sure to report your taxes to the IRS using appropriate documentation.
- Keep an eye out for communication from your planner regarding any necessary changes to your trust structure.
