Bahamas Executive Entity
Financial professionals in The Bahamas will have another tool in their kit if draft legislation for the Bahamas Executive Entity(BEE)becomes law next year.
BEE, if implemented, will allow professionals to get around some of the problems with existing wealth preservation structures utilizing trusts, foundations or private trust companies. One of the international law firms involved in the drafting of the legislation, Lawrence Graham LLP, providedGuardian Businesswith a summary of the draft legislation.
A high net worth(HNW)or ultra-high net worth(UHNW)client seeking to preserve his/her wealth and manage succession issues often encounters specific challenges, according to the summary. If that client chooses a trust structure, he or she must decide who will occupy the key roles of trustee, protector or enforcer–each representing significant control over the assets in the trust, for example.
Such an individual may choose a family member or trusted associates to vest these powers in, but concerns may linger about the concentration of power in those individuals. Putting the power in the hands of a few family members may also present succession issues–families do not always get along.
“Whilst working on dynastic trust structures for our clients, we developed the concept of the Executive Entity, which is designed specifically to carry out executive functions in wealth preservation structures,”the summary from Lawrence Graham LLP read.
Executive, administrative, supervisory, fiduciary, or office holder powers and duties are some of these executive functions. They would also include the roles of protector, enforcer or private trust company(PTC)shareholder, and ultimately could even include the role of trustee, though that would require other legislative changes, according to the summary.
One key aspect of the entity is that while being designed to carry out executive functions, it would only hold sufficient assets to properly carry out those duties. The entity is not designed to hold any assets beneficially for persons in succession, or for a purpose, according to the summary.
Holding assets for a specific purpose is a feature of purpose trusts, which are frequently used to own the shares of PTCs. When this model is used, professional trustees must be brought in at the highest levels of the structure to act as trustee and enforcer, the summary said. The previously mentioned issues this creates are therefore circumvented by the BEE.
Another key feature of the BEE would be that it would be self-owned, with no shareholders, beneficiaries or enforcer, according to the firm. The founder of the entity would be able to appoint those best suited to serve on its board, who would enjoy the benefit of limited liability. The summary went on to add that those officers enjoy confidentiality protection and did not need to be disclosed.
Structures holding family businesses could benefit from the BEE’s capability to ensure that best practice corporate governance principles are in place after the death of the BEE’s founder, which could avoid damage from any family conflict which may follow. According to the summary, binding processes can be built into the BEE’s structure documentation to accomplish this by providing checks and balances and spreading power across various levels.
According to Lawrence Graham LLP, BEE could be used to strip away unnecessary layers from trusts, resulting in the BEE paying for itself in a short time if it is brought into existing trust structures. Stability and continuity in wealth structures would also be promoted by the BEE, according to the firm, as the roles of protectors, enforcers and asset allocators are institutionalized under the BEE.