Private Foundations

 

For clients at the upper end of the high net worth bracket (typically a net worth of at least £500,000 plus – excluding pension assets), Private Foundations are gaining in popularity because of their increased flexibility and privacy over trusts – particularly UK trusts.


Unlike a Trust, a Foundation is a legal entity in its own right - whereas a trust is an arrangement between settlor(s), trustee(s) and beneficiaries. Because a Foundation has legal personality in and of itself, it is easier for it to own property, set up subsidiary companies and open accounts. Because Foundations are incorporated predominantly in offshore financial centres (“OFC”) they also have taxation advantages over trusts – although this aspect is incidental.

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Foundations are now available in quite a number of jurisdictions including:
 

  • Jersey

  • Guernsey

  • Abu Dhabi

  • Gibraltar

  • Antigua and Barbuda

  • Anguilla

  • Belize

  • Cook Islands

  • Isle of Man

  • Labuan

  • Mauritius

  • Seychelles

  • Panama

  • Vanuatu

  • The Bahamas

  • BVI

  • Nevis

  • Liechtenstein

 

Each jurisdiction has its own peculiarities, rules and costs, and the one chosen will often depend on what purpose the foundation is being established for, and how much it will cost in relation to how much money (or value – a foundation can hold anything, not just money) it is going to control relative to its annual cost. Clearly there is no point setting up a Foundation that would cost £4,000 per annum to maintain if it is only going to control £40,000 of assets – the money would be used up in just ten years. Typically the annual cost should not exceed 2% of the Foundation's assets and this is why a Foundation is for higher net worth clients only. 


The correct formation of a Private Foundation, or for that matter a public one - although that will not concern us here, is necessarily a complex process and it would be impossible on this website to go through even a fraction of the matters involved. 


In brief then, and very generally – as it’s different to some extent in every jurisdiction, a foundation comes into being when the Founder (equivalent of a trust Settlor) sets up the Foundation by subscribing his name to the Constitution of the Foundation and registering the Foundation with the Registrar of Foundations in the jurisdiction concerned.


The name of a foundation must usually contain the word ‘Foundation’ and every foundation must have a registered office in the jurisdiction of incorporation. 


Each foundation’s Constitution is comprised of two core documents: the Charter and the Rules of the Foundation. The Charter must contain the name and purpose of the Foundation, a description of its initial capital or endowment and, if it is a foundation with limited duration, the duration must be stated. It may contain anything else that the founder wants to include. This document is generally public (but need not be in Panama) and is therefore generally quite vague. 


The Rules set out the operative provisions of the Foundation and detail the functions of the foundation councillors (equivalent of the trustees in a Trust), the procedures for the appointment, retirement and remuneration of councillors and any guardian (equivalent of the protector in a Trust), and also identify the default recipients (i.e. beneficiaries). The Rules may, and in practice do, specify other matters such as how the assets of the Foundation should be applied and how beneficiaries may be added or excluded. They may also impose obligations on a beneficiary such as a condition of benefitting (e.g. must be sober and of good character) or contain protective measures to terminate (or suspend) a beneficiary’s interest, for example if he or she becomes insolvent.


In summary, Foundations are becoming quite the ‘in thing’ in high end estate planning and due to their many advantages, protections and flexibilities over trusts, should always be considered for larger value estates. 

Initial consultations always free and without obligation