Foundations / Trusts

A trust or foundation enables assets that individuals do not wish to have included in their estate to be held by a legal structure. This system enables the Grantor (person behind the structure) to make arrangements for the beneficiaries in complete confidentiality.

It can therefore be used to transfer the ownership of your assets.

A trust is irrevocable if the Settlor (person who set it up) is unable to cancel it without the consent of the trustee (person holding and managing the assets on behalf of the Settlor).

A trust is discretionary if the Trustee is authorised to determine the beneficiaries and the amounts they receive; in other words, the settlor loses control of the assets and capital transferred to the trust. The settlor can, of course, indicate how s/he wishes the trusts and assets to be used in a “Letter of Wishes”, together with any conditions to be met to receive the trust (coming of age, academic achievement, etc.). In addition, s/he can still include specific provisions in the trust deed but the trustee will always have the final say and decision-making power in a discretionary trust.

There is however the possibility of appointing a Protector to oversee the actions of trustees or board of trustees. This protector may be granted powers enabling him or her to dismiss and appoint trustees, include financial and legal consultants in decision-making, and even to have the right of veto during trust distributions.

Advantages of Trusts or Foundations

Trusts or foundations enable operation in a non-taxed environment. This means that it is generally possible, if operation is conducted successfully, to increase the value of assets owned by a trust or foundation by combining tax incentives (possible non-taxation of earnings and capital gains).

Many civil law systems in mainland Europe, Japan and Latin America have restrictive rules regarding inheritance. Offshore trusts and foundations can be effective in avoiding complaints from heirs while at the same time enabling beneficiaries chosen by the grantor to enjoy a tax-free system. In addition, trusts and foundations can provide more discretion for wealthy individuals in comparison with legal solutions in their own countries.

Offshore trusts and foundations can also protect assets in the best possible way. In fact, trusts or foundations come under the jurisdiction in which they were incorporated and from where they are managed, and therefore protect a grantor’s assets against any legal proceedings.

Making the right choice

Trusts and foundations are among the most effective and flexible structures. Obviously the legislation governing them is complex and there are many problems that need to be considered carefully, for example, knowing whether these structures are recognised in the country of residence or not, banking secrecy laws, domiciliation regulations, taxation, the place of administration, the location of assets held by the trust or foundation, the residence and nationality of the beneficiaries and trustees, and the place and legislation of the place where the trust/foundation is established. Choosing competent trustees is also important as they have a real fiduciary duty as regards the beneficiaries. Choosing the right jurisdiction is also essential as banking systems, privacy laws and taxation can have a major impact on the effectiveness of the trust or foundation.

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