The Tribune

By NEIL HARTNELL

Tribune Business Editor

ROYALFIDELITY Merchant Bank & Trust yesterday said its newly-launched insurance trust was the first such specific product to enter the Bahamian market, aimed at ensuring life insurance policy proceeds were "used as intended".

Michael Anderson, RoyalFidelity's president, told Tribune Business that the product was designed to place the proceeds from life insurance policy payouts into a trust structure, where a trustee - acting in accordance with the late policyholder's 'Letter of Wishes' - ensured the monies were distributed as intended.

The structure, the investment bank head explained, was intended to prevent family disputes and squabbles from erupting over the life insurance proceeds. Families are frequently torn apart by disputes over money in a relative's estate, and the Bahamas is not immune from this.

Designed for life insurance policies with a minimum value of $250,000 or more, Mr Anderson said there had been "a very good turnout" of 40-50 Bahamas-based insurance agents and brokers to the estate planning tool's launch earlier this week. He added that RoyalFidelity had also received "a fairly good response" from agents making phone inquiries, the investment banking hoping to sell its product through these intermediaries.

"We've launched our new insurance trust product," Mr Anderson confirmed to Tribune Business. "What we're basically trying to do is get people, if they've got an insurance policy worth over $250,000 on their life, to understand the risks and put it into a trust. There's the risk of insurance proceeds from the policy not being used as intended.

"We're saying set up a trust so that the insurance proceeds from your policy can go into a trust, and the trustee can address where the money is spent.

"It takes out the question of what happens with your money, and leaves it in the hands of the trustee through the Letter of Wishes. The trustee then carries out your intent."

Among the benefits of an insurance trust structure cited by Mr Anderson were that it could prevent beneficiaries, such as minor children and/or their guardians, from squandering the life insurance policy proceeds.

Trustees could bring their professional expertise to bear in the management/administration of the proceeds, he added, with the policyholder also - even in death - able to control both how the funds were spent and distributed, and long-term ownership of the assets. RoyalFidelity has been planning the structure for six months.

"We're trying to get people to understand that trust products perform a suitable service in the Bahamas market," Mr Anderson told Tribune Business.

"I think the risks are real, the issues are still out there. A number of people at the [insurance agent] meeting saw the risks and understand it better. It's just a question of take-up. There's this general hesitation that stops people taking action. We're interested to see whether people see the risks, and whether they change their behaviour...... A lot of people end up in situations where the money does not go where it was intended."

Such situations cited by RoyalFidelity were families where there were so-called 'outside children', a common occurrence in the Bahamas; plus children who fought with each other frequently; children with special needs; and cases where the deceased policyholder had been married more than once.

The Bahamas-based investment bank added that insurance trusts could also help beneficiaries avoid probate, and ensure that policy proceeds went to fund the long-term education of under-age child beneficiaries.

Mr Anderson, meanwhile, acknowledged that one potential barrier the insurance trust had to overcome was the perception among Bahamians that trusts, in general, and other estate planning tools were the preserve of foreigners and the wealthy.

"Trusts in the Bahamas are generally seen to be an offshore issue where they are used to avoid tax and other aspects," he told Tribune Business. "There's a large need for the Bahamian people, and not necessarily wealthy people, to understand that trusts resolve a number of estate planning issues for them.

"We've been growing our trust business over the last 10 years, and after some early adaptive pains, it started growing. Part of the problem is that people see trusts as a product for the wealthy and foreigners."

And Mr Anderson added: "We think there are a number of people out there who have policies far in excess of $250,000. It's just whether they want to determine that the monies are distributed in the way that they'd like.

"I think people have previously used trusts to put insurance policies in, but I think this is the first time it has been sold as a trust for an insurance product, an insurance policy."

Suggesting that creating an insurance trust could lead to bigger things when it came to Bahamian estate planning, Mr Anderson said: "This is really being sold as a way to start and set up trusts in a relatively inexpensive way.

"They can put the policy into it, and as time goes by they can put more assets into it, and start expanding their participation in trusts as they see the benefits to them. I think it's the first time it's been sold as a trust for an insurance policy."