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Offshore Trust vs. Private Foundation Comparison

This comprehensive compare and contrast table of the trust and foundation helps you decide which device better responds to your demands. Our goal is to help you see the facts, features and characteristics of these offshore entities in a side-by-side format.

Offshore Private Foundation Offshore Trust

Legal Background

Originating from Civil Law

Originating from Common Law

Jurisdictions We Recommend:

Nevis, Panama

Nevis

What is it?

A foundation is a legal entity with some features of a corporation and a trust.
It is similar to a corporation as it is a legal entity that can enter into contracts, can have bank accounts and can be used for a wide range of investment (and limited commercial activities) The foundation has no shareholders, instead, there is a management body (board) .
The foundation is similar to a trust in that it offers excellent asset protection, as legal ownership of assets is passed onto the foundation and can be used for efficient estate planning.

A trust is a legal obligation or relationship between the settlor (the person who creates the trust) and the trustee (the person in charge of the trust) and the beneficiary (the person who receives benefits from the trust).

Types of Foundations and Trusts

There are three main forms of foundations:

  • Charitable Foundations are set up for the sole benefit of approved charitable causes or charitable organizations. These causes or organizations must be specified in the main foundation document.
  • Private Foundations , also called Private Interest Foundations are used for succession planning in place of a will. Used also for personal asset protection to protect assets from potential threats such as spouses and creditors.
  • Corporate Foundations are used by corporations to manage employee based schemes (pension plans, retirement plans)

There are four main types of international trusts:

  • Charitable Trusts are set up specifically to benefit charitable causes or organizations. These trusts may have access to beneficial tax treatment depending on the local laws under which the trust operates.
  • Non Charitable or  Purpose Trusts are set up to provide asset protection (the assets are transferred to the trust and not attached to owner).
  • Trusts are used for estate or succession planning in the absence of a will (which costs money to settle).
    A trust can dispense its assets entirely according to your wishes.
  • Spendthrift Trusts are trusts set up to protect the beneficiaries from themselves. When, for whatever reason, (illness, addiction, and bad habits) the beneficiary is incapable of managing his own financial affairs, the spendthrift trust prevents unwarranted squandering of assets.

Purposes and Uses

The purposes of a foundation may be drawn up as broadly as the Founder wishes, but generally used for:

  • Asset protection: At some point you may want to protect your assets from excessive taxation (death taxes, inheritance taxes), from settlements against you arising from divorce or lawsuits, from political instability.
  • Estate planning: To avoid forced heirship (which is where the law (not you) decides who inherits). When your foundation is created the assets are out of reach, and not subject to heirship ruling. Moreover, a foundation can be used in place of a will. You have control over how your estate is divided and avoid hefty probate costs and save time.
  • Estate planning privacy : The terms of a will are public; the terms of a foundation are not. You may use a foundation to divide your assets without the public ever having access to your instructions.
  • Investment purposes  — The foundation can be used as a vehicle for commercial and investment activity.
  • Charitable purposes: Foundations are often used for philanthropic, humanitarian, educational or other similar purposes, or used to manage assets for such purposes.

The purposes of a trust may be drawn up as broadly as the settlor wishes, but generally used for:

  • Asset protection: At some point you may want to protect your assets from excessive taxation (death tax, inheritance tax) and from settlements against you, arising from divorce or lawsuits. NB: In this case, the settlor of the trust cannot be the trustee, as the assets belong to the trustee and become open to claims.
  • Estate planning : To avoid forced heirship (which is where the law (not you) decides who inherits). When your trust is created the assets are out of reach and not subject to heirship ruling. In addition, a trust can be used in place of a will. You have control over how your estate is divided and avoid hefty probate costs and save time.
  • Estate planning privacy : The terms of a will are public; the terms of a trust are not. You may use a trust to divide your assets without the public ever having access to your instructions.
  • Spendthrift protection : To protect beneficiaries from themselves.
  • Investment purposes : Although the trust is prohibited from commercial activity, the trustee can invest on behalf of the trust
  • Charitable purposes : Trusts are sometimes used for philanthropic, humanitarian, educational or other similar purposes, or used to manage assets for such purposes.

How is it Established?

The Nevis or Panama Foundation is established when a founder (the person who gives the assets) registers the particulars of the Foundation charter (Panama) or the Declaration of the Memorandum of establishment (Nevis) at the Public Registry. Unlike the trust, there is no immediate requirement to transfer the assets to the foundation for it to be valid.

In Nevis, the trust is established when the settlor (the person creating the trust) prepares a Trust Deed also known as Deed of Trust or Declaration of Trust and transfers assets (of any kind) to the trustee for the benefit of the beneficiary. In order for the trust to be valid, the assets must be transferred to the trust.

Elements (may vary by jurisdiction)

Founder, management body, beneficiary, foundation charter, assets/property, secretary, registered agent and office, By-laws, guardian, supervisory board

Settlor, trustee, protector, beneficiary, trust deed, assets/property, registered agent and office
Letter of Wishes/Memoranda of Wishes

The Founder:

  • The person or a corporation that forms the foundation and then transfers assets to the foundation.
  • In most jurisdictions the founder may also be a beneficiary or a council/board member
  • The name of the founder is on public record
  • Nominee founders are permitted. A protector will be appointed to exercise full powers over the foundation, freeing the nominee founder (who is provided by the agent) of any responsibility or liability.
  • Foundations can have more than one founder
The Foundation Council (Panama) / Foundation Board (Nevis):
  • The body managing/administering the foundation. This board/council has a moral and legal obligation to the foundation to carry out the objectives and purposes of the foundation and directs the administration of assets in the foundation
  • Minimum number of members is one and there is no maximum number of members
  • Members can be individuals or a corporate body
  • CCP Inc. provides services such as sole corporate council/board

The Beneficiary:

  • The person(s) or group of people who benefit from the foundation.
  • The founder can identify the beneficiary by name, by class or by relationship.
  • Beneficiaries can be living, or not yet born. For example the beneficiary can be a relationship “my grandchildren” regardless of whether they are born or unborn at the time of creating the foundation.
  • Is not an owner, and has no claim over the endowment until he/she is given their entitlement/settlement.

The Foundation Charter ( Panama) / Memorandum of Establishment with Consent Schedule (Nevis):

This is the official document forming and governing the foundation. This document may contain:

  • The name of the foundation
  • The name and addresses of the founder
  • Type of foundation (e.g. Multiform — Nevis only)
  • Name and address of registered agent
  • The initial capital or value of assets to be transferred into the foundation
  • The name(s) and address(es) of the foundation council member(s)
  • The purpose, the objectives and goals of the foundation (must be possible, reasonable, moral, and legal)
  • Names of other officers where applicable (protector or guardian or secretary)
  • The life of the foundation (foundations normally have indefinite life, but may be limited in duration)
  • The responsibilities of council/board
  • May also include provisions for
    • Preparation of by-laws
    • Appointment of guardian
    • Designation of beneficiaries
    • Other lawful provisions
    • Whether foundation is revocable or not
    • Arbitration clauses

The charter may be amended during the life of the foundation. The documents kept by the registrar are private and cannot be inspected, copied or viewed by anyone, unless that person is authorized by the council or board member.

The Certificate of Establishment (Nevis, Panama): The document issued by the registrar showing proof of existence. Contains only the date of registration, name of foundation, agent name and address and registration number.

Assets:

  • Normally called the endowment and are the assets/property endowed (put into/donated/gifted) to a foundation.
  • The endowment does not have to be cash, and can include real and intangible assets such as real estate, copyright, patents, jewellery, art, insurance policies, or shares in a company.
  • It is possible to increase the endowment at anytime, and by persons other than the founder.

The minimum value of endowment for Nevis and Panama Foundations is US$10,000.

Secretary:

  • Nevis foundations MUST have a secretary ( may be non-resident )
  • CCP Inc. provides reliable, professional secretary services.

Registered Agent / Registered Office : All international foundations and trusts need to have a local registered agent and a local address.

By-laws: This is an optional and private document that specifies how the foundation is to be managed. This is not filed for public scrutiny. The By-Laws of a foundation may include instructions for the management board that pertain to the management, distribution or application of assets.

Guardian or Protector or Supervisory Board: Guardians are optional safeguards’ or positions in the foundation. They serve as watch dogs’ of foundations and may be granted more powers than the management board. It is a position that can be held by the founder (so that the founder retains ultimate control).

The Settlor:

  • The person(s) or a corporation that creates the trust and transfers assets to the trust.
  • The settlor may also be a trustee, a beneficiary or a protector.
  • The settlor may be referred to as trustor, donor, creator, grantor or founder

The Trustee : The person(s) or company managing the trust. Generally, the trustee has a fiduciary (a legal, financial and ethical) responsibility to the beneficiaries, and a trustee has a broad range of powers. The trustee can buy, sell and invest on behalf of the trust, although his role can be limited by the settlor.

  • Minimum number of trustees is one.
  • Maximum number of trustees in Nevis is 4
  • Members can be individuals or a corporate body
  • The trustee may be a settlor, a beneficiary, or the protector of the trust.
  • Note: Some jurisdictions have more specific conditions for the appointment of trustees
  • In Nevis at least one of the trustees must be either a corporation incorporated under the Nevis Business Corporation Ordinance or trust company doing business in Nevis
  • A trust can add or remove trustees as set out in the Trust Deed or Declaration of Trust

NB If the settlor of a trust is a trustee, asset protection coverage diminishes or gets lost since the settlor reverts to becoming the legal owner of the assets. In Nevis at least one of the Trustees must be a trust company in Nevis or an ordinary Nevis company.

The Beneficiary:

  • The person(s) or group of people who benefit from the trust.
  • The settlor can identify the beneficiary by name, by class or by relationship.
  • Beneficiaries can be living, or not yet born. For example the beneficiary can be a relationship my grandchildren’ regardless of whether they are born or unborn at the time of creating the trust.
  • Is not an owner, and has no claim over the endowment until he/she is given their entitlement/settlement.

The Trust Deed /Deed of Trust /Declaration of Trust: The official document that creates the trusts. It may contain:

  • The name of the trust
  • The nature and purpose of trust;
  • Name(s) of trustee(s)
  • Name of protector(s) (if any)
  • The duties and powers of the trustees
  • Powers of trustees on commercial and investment activities
  • Date of settlement
  • Specifics of the trust property
  • If this is a revocable trust, the content may be changed, amended or altered during the life of the trust.
  • The final trust certificate issued by the registrar shows only the name of trust and the date of trust.

Assets: The assets/properties that are transferred to a trust can take on any form, real or intangible. Examples of trust assets are: cash, real estate, copyright, patents, jewellery, art, insurance policies, or shares in a company. The details of the assets must be specified, e.g. emerald ring. There is no minimum amount of assets to be placed in a trust at inception or to remain in the trust during its existence, but we recommend a minimum investment of US$10,000

Secretary: There are no requirements for a secretary for  the Nevis trust

Registered Agent / Registered Office: All international foundations and trusts need to have a local registered agent and a local address.

Letter of Wishes/Memorandum of Wishes : In addition to the trust deed, the settlor can write a private letter of wishes which spells out exactly what the trustees can do. This is a private letter between the trustee and settlor.

The Protector: Protector is optional. The protector is an officer with the power to direct the trustee in matters relating to the trust. Protectors can be given powers to appoint or dismiss trustees, or overrule their decisions. The protector can be a settlor, trustee or a beneficiary of the trust. Though this set up is not recommended for asset protection because ownership of assets reverts to the settlor.

Powers & Legality:

A foundation is a legal entity formed by registering a document called the Foundation Charter or Declaration of Establishment. As a legal body, it can be sued or can sue, enter into contracts and agreements with companies or persons, open bank accounts and conduct commercial activities.

Under common law, a trust is NOT a legal person in its own right. Therefore, the trust cannot be sued or take legal action as a corporation or a foundation can. A trust can open a bank account.

Revocable or irrevocable?

Foundation may be revocable or irrevocable.

The revocability of the trust is up to the Settlor, but a trust will be deemed irrevocable if it is not expressed as revocable.

Who has legal ownership of assets?

The assets owned by the foundation are independent of the founder. Once they are transferred to the foundation, these assets no longer belong to the founder, but belong to the foundation only. This means that the endowment cannot be seized, or subject to any claims or legal actions on the founder, or the beneficiaries.

The trustee is the manager of assets, held for and on behalf of beneficiaries. Once they are transferred to the trust, these assets no longer belong to the settlor. This means that the endowment cannot be seized, or subject to any claims or legal actions of the settlor or the beneficiaries.

Who is accountable?

The foundation council members answer to the foundation.

The trustees ultimately answer to the beneficiaries or trust protector.

How is the entity managed?

The foundation is managed by a board or council made up of one or more persons; corporate bodies are permitted.

The trust may have a protector, but the trustee and settlor have overall charge of the assets as defined by the trust deed/letter of wishes or the memorandum of wishes.

What about commercial and investment activity?

Foundations are not really intended to carry out day-to-day- commercial activities, but it can undertake investment and commercial activity as set out in laws of the foundations.
If you need to conduct daily business activity, we recommend you use an offshore company that is owned by the foundation to carry out all of your commercial activities. Of particular good use is the Nevis Multiform Foundation which is a foundation that can change its form (type) at any time to suit objectives. For instance, if initially you need a foundation to protect current assets, but also need to continue to engage in commercial business activity, then a company foundation is suitable. If after a few years you have achieved the commercial objectives, you may then convert that company foundation to a trust foundation to meet your estate planning and asset protection needs.

Investment activity is permitted, but scope can be limited by jurisdictional laws or the letter of wishes. In Nevis, there is a specific section that outlines the authorized investment activities that the trustee can undertake. Although the provisions are broad, they are specified.

Limitations/Restrictions

Other than the limitations placed on the council members in the laws and declaration there are no specific restrictions placed on the foundation.

Other than the limitations placed on the trustees pertaining to investment activity, there are no specific restrictions placed on the trusts.

Maximum duration of entity

A foundation can be established for an indefinite period. But there are cases when the duration of the foundation can be more specific and set to a specific number of years.

Trusts are established for a definite period, generally 100 years. Charitable Trusts may have indefinite periods.

Type of assets (that can be put into entity)

Any kind

Any kind

Liabilities

Foundations have limited liability hence the personal assets of the beneficiaries and members of council are protected. The Founder no longer has legal claim to assets.

The trustee is wholly responsible for the liabilities of the trust, unless there is a protector who accepts that liability.

Naming the entity

The Foundation Name must end with the English word or translated equivalent for “Foundation” or the abbreviation FDN; the name must first be approved by jurisdiction; may include the name of the founder.

No name restrictions but must include the word “Trust”.

Information entered on the register/ on public record:

Only a limited amount of information is placed on public record- the name of foundation, date of establishment, registration number, name of members and the endowment value.

The trust’s name, name of Trustee and the registered office address (identity of settlor is not recorded)
The deed is not filed.

Maintenance requirements

Entities must be renewed each year. A certificate of good standing is available as evidence that the entity is still in existence, has all files up to date, has paid all fees and penalties required under the act.

Can I move my foundation to another jurisdiction? Is re-domiciliation permitted

Nevis or Panama foundations are allowed to move from jurisdiction in which they are set up, and move to another jurisdiction that permits relocation. All three jurisdictions allow relocation and accept continuation of foundations to another jurisdiction.

Nevis trusts may move to other jurisdictions.

Are there other requirements (agent and client)?

Regulation requires the agent’s compliance Know Your Client (KYC) provisions and as such you must provide:

  • two notarized forms of picture identification including a passport
  • one bank reference
  • one professional reference
  • proof of residential address

All information exchanged is confidential and there are laws to protect your confidentiality.

Advantages of Entities

Foundations in Nevis can choose to have disputes settled through arbitration rather than go through courts. Clients can have matters resolved in a confidential and efficient way, and have the option to select the method and place of dispute resolution.

Arbitration settlement -Proceedings (legal but non-criminal) relating to trusts in Nevis are heard in private and no details are published without court permission.

Anti forced heirship: In some jurisdictions the state determines the settlement in the event of death. Under the foundation laws in Nevis, the state will not be in a position to determine the settlement of assets held in a foundation as the assets do not form part of the decease’s estate.

Anti forced heirship: In some jurisdictions the state determines the settlement in the event of death. Under trust laws the state will not be in a position to determine the settlement of assets held in a foundation as the assets do not form part of the decease’s estate.
Avoids probate at death.

A creditor who wants to bring a court action against a foundation or its founder or the member or the beneficiary must first purchase a bond (between $25,000 and $50,000) and deposit it with the Minister of Finance/Registry to cover all costs should the action prove unsuccessful.

Before any creditor can bring actions against a Nevis trust, that creditor must pay a bond of US25, 000 as a security deposit.

Nevis Multiform foundations can take on one of several forms (trust, company, partnership and ordinary private foundation) and can convert from one form to another at any time, without cause or penalty. A foundation with intended commercial activity has the flexibility of choosing the best type of entity.

  • Quicker distribution of assets
  • Reduce or eliminate estate taxes
  • Inexpensive and easy to set up
  • Difficult to contest
  • Offers Peace of mind
  • Prevents courts control over assets

All Inclusive Trust Package from — $1,540!
All Inclusive Foundation Package from — $1,340!
All Inclusive Asset Protection Packages from — $!