In short: What is an offshore Foundation?
A Foundation is an independent body / legal entity that has its own rights and obligations. The fundamentals of an offshore Foundation include a Charter Regulations, Protector, Council, Beneficiary and Founder. The Regulations of a Foundation contains the rules which are used to govern the administration of the Foundation and is similar to the deed of a Trust and often referred to as the Letter of Wishes. The Foundation is controlled by the Protector and administering the Foundation’s assets is the responsibility of the Council. A Beneficiary is the person or entity that will inherit the assets. The content of a Foundation is usually created by the Founder and instructed either directly whilst living, or through a will upon his death.
In general, offshore Foundations have no owners which means that their assets cannot be seized and can only be distributed or transferred to the Beneficiaries, in accordance with the provisions of the Charter.
While the Roman Empire was crumbling the Catholic Church was the first to utilize the concept that we now refer to as a Foundation. The Church was considered a “Divine Foundation” with the various organizations within the Church having legal control over its “patrimony”. Foundations were initially conceptualized for communal purposes. They were not utilized for private purposes such as serving the interests of individuals or families.
The concept of the “Private Interest Foundation” did not come about until 1926 when the Principality of Liechtenstein created the “Law of Persons & Companies” which first established the concept of the “Family Foundation” for the benefit of one or more members of a family.
The Panama Private Interest Foundation came into existence in 1995, modelled on Foundation Regulations in the Principality of Liechtenstein.
Then followed the birth of Foundations in many other countries including the Seychelles and Jersey in 2009, followed by The Isle of Man in 2011 and Guernsey in 2012.
Panama is the home for over 400.000 Foundations and Corporations.
Jurisdictions covered by Anglo
Anglo are experts in establishing Foundations in a number of European jurisdictions inside as well as outside the European Union, and in jurisdictions outside Europe. These comprise:
The Foundation has a Founder, a Council, a Protector and Beneficiaries. Below is an explanation of the role each of them plays in the Foundation:
The Founder is the person or entity that establishes the Foundation and transfers his/hers or its assets to the Foundation. That person may be a nominee, or legal entity (including companies, trusts or even another Foundation) for purposes of anonymity.
The Foundation Council
The Foundation Council serves the same purpose as the board of directors in a company. The Council must consist of one or more persons (legal or natural), known as Councillors. It can appoint and remove its members and Beneficiaries, dispose of assets, re-domicile or dissolve the Foundation. The Regulations broadly define the powers and roles of the Councillor. The Councillors can hold meetings anywhere in the world. The minutes of the meetings are required to be maintained.
A Founder and / or a Protector may be a Councillor, provided that the Founder / Protector is not the sole Councillor. They manage the business and affairs of the Foundation.
A Foundation can appoint a Protector if provided for in the Charter or Regulations. A Founder, Councillor or Beneficiary may be appointed as the Protector, the exception being that a sole Councillor or sole Beneficiary cannot act as Protector. The provisions in the Charter will determine the limits and extent of the Protector’s role and actual responsibilities. Duties could include the appointment or removal of Council members or any other specific duty which the Founder would want the Protector to perform. The power of the Protector is laid down in the Charter.
The Founder can define Beneficiaries or class of Beneficiaries in the Charter and Regulations. Councillors can appoint Beneficiaries if Beneficiaries have not been appointed by the Founder. The Founder can be sole Beneficiary provided that another Beneficiary is present at the time of the Founders death / legal incapacity.
Name of the Foundation
The name of the Foundation is basically a matter of free choice. Words and phrases supplementing the basic name may refer personally to the Founder or to Heirs or Beneficiaries, or to the registered office of the Foundation, or may be pure fantasy, provided that the name as a whole is not misleading, immoral or illegal. The name must include the word “Foundation”.
Purpose / Object of the Foundation
The Foundation brings in new dimensions to asset protection and wealth preservation needs, which also form a major part of tax planning strategy. The main purposes for setting up a Foundation are:
- Wealth / Asset Protection / Inheritance / Succession Planning
- Protection of family business and to provide continuity to next generation
- Protection of defenceless persons incapable of managing their assets, such as minors and disabled
- Provide assistance for family members or other persons (support for studies, housing, starting a business etc.)
- For use as a sophisticated substitute to wills / testaments
- Can be used to hold shares / royalties / bonds / bank deposits / real estate or other valuable assets such as art collections
- Can be used to hold intellectual properties
- Can be used to hold life insurance policies
- Realizing the wishes of the Founder on a confidential basis
- Separating the assets of the Foundation from those of the Founder and thereby protecting the Foundation’s assets against attacks by third parties
- A nominee Founder is permitted
- The person who endows the Foundation need not be the Founder
- An excellent vehicle for maintaining investor anonymity
- Founder has power to assign his rights, power and obligations to another person, who then will
be treated as Founder.
Founder can reserve rights in the Foundation:
- Investment activities of the Foundations
- Amendment of the Charter or Regulations
- Appointment or removal of a Councillor
- Appointment or removal of any supervisory person
- Rights, entitlements and restrictions of a Beneficiary
- Addition or exclusion of a Beneficiary
- Dissolution of the Foundation
- Protection against foreign rules of forced heir ship
- Commercial activities are not generally permitted but a Foundation can own a commercially-driven company
Before the process of establishing the Foundation can commence, certain KYC information and a number of documents are required:
- Proposed name of the Foundation
- Name and address of the Founder
- Objects of the Foundation
- Assets of the Foundation
- Council and its powers
- Power of the Protector
- Notarised passport of Founder, Protector, Councillors and Beneficiaries
The Founder then provides a Letter of Wishes, which specifies exactly how the Foundation assets should be handled or distributed upon a triggering event such as the death or incapacity of the Founder. It will also deal with entitlement to distributions by the Beneficiaries. This is a key element requiring considerable consideration and time to prepare. There is no specific format for the Letter of Wishes, but the more exact it is, the better. The Letter Wishes can be held privately. Generally most people prefer to maintain the Letter of Wishes privately, so that the Beneficiaries and the Protector remain anonymous and private.
The content of the Letter of Wishes transfers into the Foundation Regulations. These are the bye-laws governing the Foundation and as such are usually drafted to suit the Founder’s requirements including those set out in Letter of Wishes. Regulations are a private document, not required to be filed with any Registry.
The Foundation Charter is the constitutional Foundation document to be filed with the Public Registry. This contains details such as the name of the Founder and the objects / purpose of the Foundation, its duration, assets of Foundation, registered agent and address and any rights that the Founder would want to reserve for himself, the appointment of the Protector and his role as well as the responsibilities of the Councillor(s).
KYC information and the preparation of Letter of Wishes are provided and drafted in close collaboration with Anglo, whose guidance is critical.
Foundation Regulations and Charter are subsequently prepared by Anglo’s qualified Lawyers in the chosen jurisdiction.
International Foundations vs Trusts
There are some significant differences between international Foundations and Trusts which often determine the choice of financial vehicle.
|Offshore Foundations||Offshore Trusts|
|A Foundation has an independent legal identity and holds assets in its own name||A Trust does not have a separate legal identity from its Trustees|
|Council members of a Foundation contract in the name of the Foundation||Trustees contract personally in their own name|
|Consolidations and mergers are possible||Trusts cannot be merged|
|Lifespan is indefinite||Lifespan is limited|
|A Founder can assign / reserve rights, obligations and power in the Charter||A Settlor in a Trust cannot do that|
|A Foundation is managed by the Council and is required to maintain minutes of its meetings||Trustees manage the Trust and are not required to hold meetings|
|The Foundation Charter is a public document while the Regulations remain private||Trust deeds are private because a Trust is a private agreement not a legal entity|
|The powers of a Foundation Council are generally more limited than those of a Trustee||Trustees have unlimited power over the Trusts’ assets|
|Foundations have their origins in civil law||Trusts have their roots in common law|
All these differences are highly important to a person who wishes to set aside his assets to benefit his dependents in the future, but at the same time retain direct control over those assets during his lifetime. For many people handing over their assets irrevocably to a trustee is not an option.
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