The recently passed International Trust (1995) Act has had its first amendment to eliminate a potential problem with respect to the provisions as to the Canada Barbados Double Taxation Treaty and as a result of this amendment has been proclaimed into law with effect from December 7th 1995.

The amending Act makes two changes to the Act. The first of these is section 4 of the Act which deals with the application of the Act, which is deleted and replaced by the following:

4(a) "any trust created after the commencement of this Act which complies with paragraph (c) of subsection (1) of section 2 where it is declared in the instrument creating the trust that this Act applies thereto; and

(b) any trust created before the commencement of this Act which complies with paragraph (c) of subsection (1) of section 2 where the trustees within ninety days after the commencement of this Act by deed declare that this Act applies to the Trust."

The effect of this Amendment is that it is now necessary for the Trust instrument to specifically declare that the Act applies to it. In addition for Trusts already established there is a ninety day period, which has nearly expired, for a decision to be made by the Trustees whether they wish to come within the provisions of the Act.

By far the more significant amendment is to Section 29 (5) and (6) of the Act. By this amendment an international trust is deemed not to be domiciled in Barbados for the purposes of Section 17 of the Income Tax Act. The effect of this amendment is that a Trust is taxed similarly to an individual who is resident but not domiciled. Tax is levied on income that is earned in Barbados or remitted to Barbados and it is thus possible to structure the Trust in such a manner to minimise this tax.

The significance of this amendment is that it allows an International Trust to take advantage of the benefits of the Canada Barbados Tax Treaty which are only available if the individual or corporation is subject to tax by either country.

Creditor Protection

With the enactment of this piece of legislation the common law rule as laid down in Re Butterworth, ex p. Russell (1882) 19 Ch.D.588 has been replaced by the provisions of section 20 of the Act. At common law once a person transferred assets out of his control with the intent of putting these assets outside of the reach of creditors, then that transfer could be avoided at the instant of a creditor even if that creditor was not existent at the time of the transfer. Section 20 of the Act stipulates that the creditor must have been in existence at the time of the disposition to be able to have the transfer set aside. The creditor still must prove that the transfer was made with an intent to defraud and must make his claim within three years of the transfer which clearly places the burden on the creditor seeking to attack the transfer.

Barbados is now an ideal location for persons seeking to establish creditor protection trusts once the potential creditor does not exist at the time of the transfer to the trust with the removal of this common law rule. For our purposes we will refer to such trusts as creditor protection trusts rather than asset protection trusts which can be considered as trusts set up for the purpose of protecting not only against creditors but also against taxes and to avoid forced heirship provisions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.