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Choosing Between an Offshore Trust or a Foundation

Thursday 14 July 2016

Offshore trusts and foundations have a variety of purposes and offer a range of different solutions for the safe management of assets. As an individual, a trust or foundation could offer you a way to ring-fence valuables or cash, as well as helping to ensure that your assets will be transferred according to your wishes in the event of your death.

If you’re seeking to protect wealth, or ensure that it is protected and secured, choosing the right structure is key. There are crossovers between offshore trusts and foundations, and there are some very distinct differences. We recommend that you seek professional advice from a regulated provider, but this article should serve as a simplified guide.

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Foundation Basics

Like a limited company, a foundation has special status in law. It operates in a way that is similar to a company in that it is a separate legal entity to its founder. It can have its own bank account, hold assets and it can sign contracts in its own name. The Foundation can also be used for business activity in limited cases.

Legally, the foundation owns all of the assets placed into it, which protects them from court claims and other eventualities. There are no shareholders of a foundation, but instead the assets are held for the benefit of the beneficiaries, much like a trust.

A foundation can be managed by as many people as is deemed appropriate, and these people – called council members, can be hugely varied. They can be individuals, or generically named groups. This makes a foundation very flexible. For example, someone using a trust or foundation as a part of their will could include unborn children as beneficiaries, as well as naming their spouse. In this respect, a foundation is a useful tool that is essentially future proof.

Foundations have to be formally registered and at incorporation a ‘charter’ must be lodged with the Registrar. The Charter is a public document but it is possible to restrict certain information from being public.


Trust Basics

When you set up a trust, you are creating an agreement between the creator (settlor), manager (trustee) and beneficiaries. The settlor and beneficiaries can be the same person.

The Letter of Wishes guides the Trustees as to how the asset will be retained or distributed if the settlor passes away. Optionally, a fourth party – the protector – may be nominated, which is usually a trusted advisor or family friend.

A trust isn’t a separate legal entity but it can conduct its own business in much wider terms than a foundation. So when a trust holds assets it does so in the name of the trustees whereas a foundation does so in its own name. Jersey property must always be held via an underlying company for both a foundation and a trust.

As well as offering family financial planning, trusts can also be set up to protect the asset from being dwindled away by an individual who is perhaps not the best at financial management. Unlike a foundation, a trust must be set up with assets in place but this in the first instance is as little as £100. However, it does not need to be registered publicly, so is a more private form of asset management.


How To Choose Between Trusts and Foundations

Both foundations and trusts can be set up as part of estate planning in a will and both have beneficiaries. They can both have bank accounts and hold a wide range of assets but neither can have shareholders as a company would.

For many investors, from an individual’s perspective, the distinction will come down to how good their knowledge of a trust or foundation is or the potential activity for the structure. Jersey has long provided the offering of trusts but a foundation is more familiar to civil laws jurisdictions.
Getting Help

Setting up an offshore trust or foundation is a decision that will protect and secure your assets for many generations. Regardless of the vehicle that is best for you, Alex Picot Trust is here to advise and support you. For more information, and bespoke advice tailored to your situation, contact us today at mail@alexpicottrust.com