Review of Offshore Jurisdictions (Part 3)
Volume VI, Number 1 – March 1997
REVIEW OF OFFSHORE JURISDICTIONS
Jurisdiction 3: Barbados
With this issue we continue our periodic review of selected offshore jurisdictions. As indicated by the above subtitle, in this issue we will review Barbados.
Barbados, a 166 square mile island, is located in the central Atlantic Ocean 300 miles north of the South American coast. The capital, Bridgetown, is located on the southwest coast. The country’s primary business is tourism. It is an English-speaking common law jurisdiction with adequate communications facilities and professional services. As an advocate of the free enterprise system and a member of the British Commonwealth since its independence in 1966, whose Governor-General is appointed by the Crown, it is considered to be politically stable.
Barbados is also one of the founders of the 13-member Caribbean Community and Common Market (CARICOM) established in 1973. CARICOM seeks the economic integration of its members, as well as the coordination of foreign policy and cooperation in regional issues, such as air transportation, among its members. Barbados has an extensive networks of tax treaties with industrial countries, preventing double taxation on trust income.
IMPORTANT LEGISLATION RAMIFICATIONS
When the Barbadian government adopted the International Trusts (Amendments) Act 1995-19 it entered the arena of offshore jurisdictions offering asset protection legislation. That legislation updated and modified the Trust Act of 1979, which followed the English Trustee Act, 1925, and the Northern Ireland Trustee Act, 1958. The protective trust law adopted by Barbados may be viewed as a very slight improvement on the erosion of the protection historically afforded by the use of the trust. Its attraction is primarily for those seeking to avoid property rules regarding forced heirship, matrimony and bankruptcy, which are inconsistent with the laws of Barbados.
The Barbadian legislation falls short in comparison to some of the other offshore jurisdictions which offer asset protection legislation. For example, the troublesome doctrine developed in many common law jurisdictions (including the U.S.) by which a trust may be declared invalid if the settlor retains too many controls over the trust has not been statutorily renounced in Barbados, as it has been in the Cook Islands.
Therefore, caution is indicated where the settlor will retain or be able to exercise any powers over the trust or trustee (such as he/she would in the role of protector). On the other hand, the doctrine which has developed in trust law over the years by which trust assets may be reached (by a creditor of the settlor) if a settlor-beneficiary utilizes a trust to protect assets from his or her creditors has been addressed. The law of the Barbados, like Anguilla and the Cook Islands, specifically allows the settlor to create and to be a beneficiary of his or her spendthrift trust.
Very important aspects of any offshore jurisdiction’s asset protection legislation are its provisions regarding fraudulent transfers and the recognition of foreign judgments. The Barbadian protective legislation does not clearly provide for the nonrecognition of foreign judgments, except in the case of matrimonial, heirship, or bankruptcy matters inconsistent with Barbadian law. It is, therefore, uncertain whether a Barbadian court would give effect to the judgment of a court of another country. Although the fraudulent transfer provisions of Barbadian law create an obstacle to a creditor proving a claim in Barbados, that obstacle becomes less formidable when the U.S. judgment itself may be recognized.
The statute of limitations for bringing a fraudulent transfer claim is three years from the date of a transfer, which is among the shorter statutes of limitations set by offshore jurisdictions. However, there is no statute of limitations for bringing an action to enforce a foreign judgment in the trust legislation.
Additionally, the exact language of the fraudulent transfer provisions is disturbing. The applicable provision makes voidable a transfer “made with an intent to defraud or at an undervalue” (emphasis added). Most would agree that the use of “or” means that only one of the two elements is necessary to establish a fraudulent transfer. Transfers by a settlor to a trust are often made with no consideration – at an “undervalue”. A redeeming provision is that, unlike under U.S. law where if a transfer is found to be fraudulent as to any creditor, the entire transfer may be undone, under the Barbadian law only the part needed to satisfy the defrauded creditor is voided. Unfortunately, there is no provision, as in the Cook Islands, that if settlor is solvent when the trust is established (or when a transfer is made to the trust), he is deemed not to have the requisite fraudulent intent.
Like most Caribbean jurisdictions Barbados is a party to the Mutual Legal Assistance Treaty (“MLAT”) with the U.S. and Canada. MLAT requires cooperation in the investigation and prosecution of, and the providing of information regarding, certain criminal activities, including fraud, drug trafficking, and laundering money. While MLAT does not cover offenses that are purely tax related, it is very broad in regard to the exchange of information as to “fraud”, “laundering,” and “violations of law relating to financial transactions.”
Moreover, Barbados (unlike the Cook Islands) does have an income tax treaty with the United States, and under the Exchange of Information Article of the treaty, Barbadian authorities will cooperate with U.S. agencies in the investigation of crimes of violence, drug dealing, theft, fraud, embezzlement and other financial and currency violations.
OTHER IMPORTANT LEGISLATION
APTs are exempt from the Rule against Perpetuities, and automatically terminate on the earlier of the date set in the trust or 100 years after creation.
Under certain circumstances, it may be important for an APT to be able to “move” to or from its original situs jurisdiction. Barbados legislation recognizes and implements this requirement by, among other things, allowing a trust to redomicile to or from Barbados; however, unlike the Cooks Islands, the statute does not specifically deem it to have always been a Barbadian trust (no retroactive application).
Barbados is less than an ideal jurisdiction for the establishment of an APT, especially when compared to the Cook Islands.
For nearly thirty years, the attorneys of Donlevy-Rosen & Rosen, P.A. have been leaders in the field of asset protection, authoring books, articles, and research materials for other planning professionals. Contact us to find out how we may better protect your assets.