Trusts and Foundations

The idea underlying the trust institution began to take shape during the Roman Empire, under the influence of the Church, a period in which trusts were used to fulfill the needs of communities, as opposed to individuals or families.

In the modern era, the use of these legal tools began in Western Europe in the third decade of the 20th century, in countries like Liechtenstein, which was historically considered a neutral state to allow royal families to protect their wealth at times of war. Since then, the use of trusts has become popular around the world and can now be established in many countries around the world.

Under this age long instituation, there are two types of legal vehicles, one is Foundation, a legal entity created by the jurisdictions following the civil law, and the other is Trust, a contractual relationship which creates an affinity for assets and exists in the common law states.

What is a Foundation?

In contrast to companies, foundations are discrete legal entities that have no shareholders, partners or owners of any kind. They are generally established to realize the goals of the foundation founder (individual or company). 

The very earliest foundation models were implemented during the Roman Empire on edict of the Church, a period in which foundations were formed to address the needs of communities, not individuals or families. 

In the modern age, use of foundations is evidenced in West Europe during the 1920s to manage the inheritance of estates of the Lichtenstein wealthy. Thus the royal families of this historically neutral state could protect their riches in times of war. Since then foundations have become popular around the world, and today there are numerous foundations scattered from Austria to Holland, Panama, Seychelles, the Isle of Man and many more. 

The desires of the foundation founder are settled in the foundation's statute or regulations submitted with the foundation registration documents. Generally, these terms state the foundation purpose, conditioned on this goals being reasonable and implementable, legal and in accordance with the ethical and legal mandates of public policy. The beneficiaries of the foundation need not be mentioned directly in this document. 

Foundations can be established for a predetermined period of time or indefinitely; they are set up for charity, to realize family goals, and in some cases for commercial reasons. Foundation objectives may even be “mixed” – meaning for the benefit of an individual or group, for a single cause or a combination of several. The foundation's assets and goals are managed by a foundation council which can be an individual or a group. In some foundations a protector/enforcer is also appointed to insure that the council is indeed working to the benefit of the foundation.

Foundations constitute an important tool that should be considered when planning future ownership of family or corporate assets, and particularly when there is no option of establishing a trust. 

Foundations resemble companies in several respects, but also provide protection of assets and the possibility of continued ownership of assets usually provided by trusts. 

Common reasons for establishing Foundations:

  • Foundations can be tailor-designed to address the needs of individuals, groups or families (such as passing assets from generation to the next);
  • Foundations allow individuals to concentrate ownership of assets around the world in one location;
  • Foundations are an important tool for possessors of assets and for capital gains purposes in various countries around the globe; 
  • Foundations provide wealth protection – whether commercial, political, economic or family-related; 
  • Foundations help dictate terms of inheritance in a way that reflects individual desires and not according to local laws or relevant inheritance laws in his/her birthplace;
  • Foundations protect confidentiality of information – for example, names of founders or people appearing in its registration documentation need not be submitted for documentation in public records;
  • Foundations help maintain control of companies and other legal entities;
  • Foundations separate voting rights from the economic benefits produced by the asset;
  • Foundations are a way to realize philanthropic and charity goals;
  • Foundations are a way to maintain art collections.

Types of assets protected by Foundations: 

  • Shares and options in private and commercial companies
  • Investment portfolio
  • Tangible assets and intellectual property
  • Bank deposit
  • Life insurance policies
  • Additional assets  

:Office holders

  • Founder
  • Council
  • Protector/Enforcer
  • Beneficiary

What is a Trust?

Generally, trusts are established when the trustor (Party “A”) chooses to hand over the right or title to an asset to a trustee (Part “B”), who will them possess that asset and manage it for the benefit of a beneficiary (Party “C”). In most cases the asset being entrusted to the trustee will become over time their own personal possession (with full ownership rights), although sometimes the trustee remains merely the possessor.

For the most part, trustees are appointed to manage the asset, to distribute its profits or pass them to the beneficiary according to internal settlements decided on during the establishment of the trust.

The manner and methods of the trustees’ management are set forth in the trust contract that may be in the form of a deed of trust, a declaration of trust, or an agreement of trust. The trustee is obligated to act according to agreed conditions. Trusts can be formed through contracts and in some cases in by the behavior of the parties.

People are used to associating the concept of trusts with English common law and its principle of equity, but some claim that it harkens back much farther and is even mentioned in the Talmud.

Different countries have different kinds of trusts; for example, the Isle of Man accepts trust agreements in cases of life insurance, pensions, and in inheritance and others.

Assets given over to a trustee’s care may be tangible or intangible (such as intellectual property). The trust may be for public or private purposes, provide the trustee greater or lesser discretion, and may serve a single beneficiary.

The Advantages of Maintaining Assets Through Trusts:

  • Trusts may be tailored to suit the needs of an individual, group or family (such as passing assets from generation to the next);
  • Trusts allow individuals to concentrate assets in various locations under one management;
  • Trusts are an important tool for rentiers and for capital gains purposes in different countries;
  • Trusts provide wealth protection – whether commercial, political, economic or family-related;
  • Trusts help dictate terms of inheritance in a way that reflects individual desires and not according to local laws or relevant inheritance laws in his/her birthplace;
  • Trusts protect confidentiality of information – for example, in many areas deeds of trusts need not be submitted for documentation in public records;
  • Trusts are important for planning employee options, benefits, retirement plans, insurance policies and other special financial settlements.

Types of Assets Held in Trusts:

Most trusts are established when beneficiaries choose to giver over care of assets to a trustee, and there are no restrictions on the type or quality of asset being entrusted.

  • Intellectual property and tangible property
  • Investment portfolio
  • Bank deposits
  • Life insurance policies of beneficiary
  • Additional assets

Office holders:

  • Settlor (often called “Grantor”, “Trustor” or “Creator”) 
  • Trustee 
  • Beneficiary 
  • Protector 
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