Use of Private Family Foundation
If you hold assets in your own name or even in the name of a corporation you could be doing yourself a huge disservice. Setting up an offshore Trust or Private Family Foundation is one of the surest ways that you can avoid harsh penalties and taxes that are imposed by your country, as well as control your own wealth.
It is also a safe way to protect your assets from creditors and a sound asset protection strategy, adding an important layer of protection between your assets and anyone who is trying to seize your wealth. The big advantage of using an offshore Trust, rather than a domestic Trust, is that you can enjoy additional protections that are not available in your home country.
Perhaps it is best to start by defining what a Trust is. It is an equitable obligation that binds a person (called a Trustee) to deal with property owned by him (called Trust property, which distinguishes it from a private property) for the benefit of a number of people (called Beneficiaries), of whom the Trustee may himself be one. Any one of the Beneficiaries can enforce the obligation.
A Private Family Foundation is an independent self-governing legal entity, which has been set up and registered or recorded by an official body within the jurisdiction of where it is set up, to hold an endowment provided by the Founder and/or others for a particular purpose for the benefit of Beneficiaries (which usually excludes engaging directly in commercial operations). It exists without shares or other participation.
Unlike Trusts, Private Family Foundations are separate legal entities similar to a corporation. However, they are generally allowed to carry on commercial activities, such as operating for profit, etc, and they do not have shareholders.
There is no doubt that Trusts have their uses and have many useful purposes and significant advantages.
Perhaps the biggest of these advantages is that Trusts can be used for business purposes, whereas most jurisdictions limit the use of a Foundation to non-commercial uses. Trusts may also be used to purchase property, accrue capital in mutual funds and sign international contracts, in order to facilitate exchanges and avoid taxes. As a result, unit Trusts are particularly popular in both the real estate and financial fields, where investors purchase units in real estate investment trusts REITS and mutual funds or hedge funds.
For the majority of people, however, Private Foundations perform better than Trusts for most common purposes. Their numerous advantages include:
- Foundations are a separate legal entity, unlike Trusts.
- Assets that are placed into a Foundation become the property of the Foundation itself, both legally and beneficially, and are therefore separate from the Founder and any Beneficiaries. The ownership of Trusts is less clear and is split between the Trustee and the Beneficiaries.
- A Foundation provides reassurance to the client that it is an incorporated body with clear statutory laws and regulations that govern it in the jurisdiction.
- There is no question about the validity of a Foundation.
- Foundations are clearly governed by the law in the jurisdiction where they are established. Trusts are similar, but there are questions about where they are managed and controlled, and so which law should apply is not always as apparent.
- Assets can be placed into a Foundation and then its ownership transferred in a number of ways, in order to indirectly transfer the underlying assets of the Foundation. This is not possible with a Trust.
- Private Foundations are better for succession planning. A Trust that is established to take effect after the settler’s death must conform to the formalities of a Will. In contrast, when a Foundation is created to take effect after the Founder’s death, this does not need to conform to the same formalities.
Trust and Private Family Foundations can be used for many purposes, providing a wide range of financial and personal benefits. These include:
- Protecting your home and other assets against creditors and the possibility of becoming insolvent.
- Avoiding Inheritance Tax.
- Protecting your children from future debt or insolvency issues.
- Protecting the assets that you wish to leave to your children from the financial consequences of their future marriages or relationship breakdowns.
- Avoiding potential challenges to a Will (for example, a challenge by a family member who has been omitted from the Will).
- The avoidance of Probate costs on your death.
- Ensuring that assets stay in your family bloodline and continue to be passed down through the generations. This provides reassuring certainty about who will benefit from the assets, not only during your lifetime, but also after you have died.
- Enabling you to sort out your estate before your death, rather than leaving your family with the burden of dealing with it after you have died.
- Ensuring that money is immediately available to your family following your death, and that any Probate delays are bypassed.
Since Trusts and Private Foundations are founded on English common law, it is better if the jurisdiction you choose uses English common law as the basis for their legal system. Although this is not an absolute requirement, it is undoubtedly beneficial.
While the input of the settler/founder is important, the help of a professional is absolutely essential when it comes to taking this final step. There are four key points that typically come up when a settler/founder starts to choose a location for their offshore trust or offshore private family foundation. These are:
- The settler’s/founder’s own preferences
- The maturity and trustworthiness of the jurisdiction
- The settler’s own bank account
- The type of offshore trust or offshore private family foundation that is being started
It is vital that you devise and implement a strategy because both offshore Trusts and Private Family Foundations can encompass any bank outside of your residing country. It is also important to only work with banks that have a high reputation for privacy and non-disclosure, and consider banks that have strong asset protection policies. Make sure that all the documentation is precise when planning an offshore Trust or Private Family Foundation strategy, and the deed needs to be written in such a way as to maintain the control of your assets as all times.
Investigate countries that are known for their dedication to individual privacy, and more specifically to the privacy of their depositors, to see if these jurisdictions meet the desired criteria for your Trust or Private Family Foundation. It is important to remember that Trusts or Private Family Foundations should not be established for short-term purposes. In most cases, the documents will be written to span a specific timeframe.
It is also crucial that you make sure your choice of bank of choice has a proven ability to both avoid asset seizure and ensure non-disclosures to any other jurisdiction regarding your assets.
As in any other financial matter, you are encouraged to carry out diligent research and seek legal advice to ensure that you are working within the legal boundaries of your residing jurisdiction. You need to make sure that you are aware of all the legal aspects surrounding the Trust or Private Family Foundation, as well as the documentation, as the practices and policies of each region is different. This is vital because the future benefits will be considerable. By establishing a well-researched and well-formulated offshore strategy, you will be sure to protect your financial portfolio for years to come.