About Foundations
The concept of a foundation is nothing new. Foundations are rooted in Roman law, which has meant that foundations are more familiar to inhabitants of Civil Law jurisdictions than those of Common Law jurisdictions.
Liechtenstein was the first jurisdiction to introduce the modern foundation in 1926. Other jurisdictions, such as Panama, Austria and most recently Jersey have enacted their own legislation. Foundations have been introduced in Jersey-not as a replacement for trusts, which are well established on the island, but as a new vehicle for wealth management, particularly for those for whom the trust is an unfamiliar concept, where transparency is necessary, or where a degree of control which is not permitted with trusts is required.
What is a foundation?
A foundation is a combination of a company and a trust. It has a separate legal personality and is able to hold its own assets and contract with third parties. It does not have shareholders and, since it is a registered entity, It offers the certainty of a certificate of registration akin to a company.
Foundations provide certain potential advantages over both companies and trusts. They can act as a holding vehicle and provide an orphan or independent structure. They also assist high-net-worth individuals with global asset management, by dealing succession and inheritance planning and wealth preservation, ensuring assets have their management and control in a tax neutral jurisdiction.
What are the advantages of a foundation?
Foundations have several benefits:
- They can be constructed in a way that allows clients greater control over assets, unlike traditional discretionary trusts without the fear of creating constructive management and control
- They simplify and enhance the transparency of wealth-holding structures
- They achieve a balance between transparency and privacy
- They are more widely known and accepted to those clients from civil law jurisdictions where the concept of trusts is not well recognised.
What can foundations be used for?
Foundations can be used for:
- Asset and family protection
- Charitable or non charitable purposes
- Inheritance planning
- Collection of royalties
- Owner of real estate
- Pre-nuptial agreements
- Investment holding
- Holding insurance, investment and policies
- Pensions
- Umbrella or corporate holding structures
- Holding assets for estate planning purposes
- Retaining and preserving specific assets including the holding of wasting assets
The legal differences between a foundation and a trust
While many similarities between trusts and foundations do exist, their concepts and structures differ in several ways.
A trust is a relationship between the person establishing the trust and the trustee. It has no legal personality. The principle of trust is established because the settlor wishes to be separated from ownership of assets and places them under the control of others who have powers to manage them. At the same time, beneficiaries are identified to enjoy the privilege of receiving the benefits of such assets.
A foundation takes away the burden of the three certainties as required to create a valid trust, namely the certainty of intent, the certainty of subject matter (namely beneficiaries) and the certainty of objects (assets). The foundation, by its very nature dispels any possible questions of uncertainty of the appropriate entity and is created when the Founder executes a document, known as a 'Charter', which is then filed and registered at the public registry. 'Certainty' is created with the absolute peace of mind of all of the parties.
