Private islands, private jets…..private trust companies? Barbados’ latest wealth planning innovations provides the luxury of control and flexibility

Barbados has long been a paradise for the discerning members of the global elite. A pristine natural environment offering upscale elegance wrapped in authentic island charm and warm hospitality has long been a part of the allure of the island. In addition to the usual luxuries with which this well-heeled clientele would be familiar: private islands, private jets to name a few, Barbados now provides valuable wealth planning mechanics through its new private trust companies regime. For comparatively nominal fees, a savvy high net worth individual can now constitute his own trust company as an alternative to reliance on institutional trust service providers.

It is not uncommon (and arguably not unnatural) for persons seeking to create trusts in the context of their estate planning to harbour significant anxiety about the prospect of transferring their hard earned fortune to unfamiliar professional institutional trustees in a distant island jurisdiction. Notwithstanding the many assurances from their professional advisers that the trust arrangement which they intend to create is rooted in years of legal history, is considered to be one of the finest creations of English law and that the pedigree of the professional trustee in question is unimpeachable, such persons (or settlors) will often still wish to retain a certain level of control over or in the structure. Private trust companies make this possible.

Private Trust Companies

A private trust company (PTC), as the term is generally used, refers to a company which is incorporated specifically to act as a trustee of one or more trusts in a private context (usually that of a family). It differs from a professional institutional trustee in that it does not offer its services as trustee to the general public and is exempted from licensing requirements.

A settlor (creator of trust) can retain an appropriate level of influence by acting as a director on the board of directors of the private trust company. He or she may also appoint other trusted persons, and legal advisers to the board of directors. They would therefore be assured that the persons who actually have an intimate knowledge of their family’s circumstances will be in the position of exercising the powers of the trustee company.

Under the recently enacted Private Trust Companies Act, 2012-22, a PTC is required to conduct exclusively “connected trust business” i.e. trust business in respect of trusts the settlors of which are connected to each other through the specified relationships of blood, affinity and adoption. A PTC is prohibited from soliciting or receiving assets to be held on the terms of the trust from members of the public.

A PTC is required to be licensed on initial registration and thereafter annually. In addition, it is required to have a registered agent who maintains copies of the trust instrument (and any variation documents) in respect of the trusts of which the PTC acts as trustee at the registered office and which registered agent has an obligation to take reasonable steps to ensure that such PTC complies with all statutory requirements. To ensure that the PTC is properly administered (a critical point in preserving the integrity of trusts of which the PTC acts as trustee), it is required to have at least one director who is appropriately qualified and is resident in Barbados. There are no capitalisation requirements for the PTC and there is a statutory obligation of confidentiality in relation any application made in connection with a prospective PTC and generally in relation to the affairs of the PTC.

A PTC will not be subject to income tax in Barbados, where it is managed by a licensee under certain legislation and its activities are restricted to investment activities. No tax, duty or other impost will generally be levied on a PTC, its shareholders or transferees in respect of any transfer of assets to a non-resident of Barbados or a resident of Barbados licensed under certain legislation.

Rescuing the reserved settlor: Reserved Power Trusts No less important in the context of allaying the fears of anxious settlors is the recently enacted Trustee (Amendment) Act 2012-21 (the “TA Act”) relating to reserved power trusts.

The TA Act makes clear that a settlor may expressly reserve certain powers of the trust to himself or herself without, by virtue of such reservation alone, undermining the validity of the trust. The powers which the settlor may reserve to himself include, amongst others, a power to revoke, vary or amend the trust instrument and a power to provide advice on investment of the trust fund or the selection of investment advisors.

Many prospective settlors will find a great deal of comfort in being able to retain certain powers in relation to the trust and to be able to be directly involved in matters concerning the trust. However, as with all tools, the ability to make such reservation can be a good servant but a bad master; and care should be taken in drafting the instrument to ensure that all relevant considerations, including in relation to tax, are borne in mind.

Conclusion

The challenges of striking the balance between accommodating appropriate control by a settlor without jeopardising the trust or creating adverse tax implications are real and must remain a critical consideration in the context of wealth planning.

Barbados’ recent legislative amendments in relation to trust and corporate law are therefore a welcome addition to the tools available to such persons and will, no doubt, serve to increase its attractiveness and relevance in the context of international wealth planning structures.

Originally published in the Business Barbados 2016

If you have any questions in relation to the foregoing, please do not hesitate to contact Melanie Jones, Partner and Tara E. Frater, Partner