Differences Between an Offshore Trust and Foundation
Offshore Trusts and Foundations are those entities organized or placed abroad. As offshoring has become more popular, various countries have begun constructing their laws to be as ambitious as possible and making the requirements to establish and maintain these entities as easy as they can be. As expected, wealthy individuals and companies have begun choosing countries with the most attractive and convenient laws. Though they differ in explanation, there are many correlations between the two corporate entities as they share many of the offshore benefits, financial services and management structures.
What is an Offshore Trust?
An Offshore Trust formed to place assets of property ownership onto the name of a trustee, who holds it for the gain of its intended beneficiaries. An Offshore Trust allows for a piece of property owned by one party for the gain of another. A foreign Trust is the best offshore format for asset protection as it shields the beneficiary from the assets that are placed in the Trust, keeping the structure at arm’s length. Trusts are entities set up under common law to hold assets for beneficial parties by an individual or group of people, to be administered by a trustee in the country of agreement.
What is an Offshore Foundation?
Offshore Foundations are the civil law entity like of the common law Trust and work along much the same lines as a Trust. An Foundation used for several activities including personal, commercial or charitable purposes. However, its modern use has associated with its tax savings benefits, estate planning, and wealth protection. A Foundation has coincidence of a regular corporation and the asset protection features of Trust. It also benefits being free from all local taxation if it does not conduct any transactions or business locally.
Differences Between a Trust and Foundation
Some fundamental differences should be pointed out. There are subtle differences, and they largely depend upon the type of Trust and Foundation and the location of the structure.
Trust
- Does not need to be registered
- Trust deed is not public, and it can be confidential
- Split between ownership of assets and assets itself
- Assets are to place in the Trust
- The Trust is not a legal entity, and so rights fall upon the trustees
Foundation
- Needs to be registered to exist
- Foundation itself owns the assets
- Does not need assets to place in Foundation
- Foundation can sue and can be sued in its name
- Foundation Charter is public
Trust vs Foundation Comparison Table
| Trust | Foundation | |
| Description | A three-party relation where one party, we call as grantor, settlor or trustor, has another party “trustee” hold assets for the gain of another party, we call the “beneficiaries.” Depending on the trust purpose, one party can hold one or more of the three roles. | A foundation is a non-profit organization, usually gives support to others directly or to other charities. Some foundations engage other activities besides grantmaking. |
| Legal Origin | Common law (England) | Civil law (mainland Europe) |
| Who Originates the Organization? | The settlor (Trustor) | Founder |
| Founding Document | Trust deed | Charter |
| Manager | Trustee | Board of Directors |
| Ownership Type | Beneficial interest | Has no owners |
| Manager Role | Role of trustee – Follows terms of the trust – Administers trust according to the trust agreement – Making decisions that follow trust guidelines – Preparing or delegating creation of records, statements as needed – Communicating with beneficiaries – Answering questions of beneficiaries | Role of board of directors – Decides its organizational direction – Make sure it follows its mission. – Establishes the ethics standards – Monitors its results – Insures responsible management |
| The Benefits | The benefits of having Trusts can look in two different perspectives: preventing liabilities and protecting assets. An offshore Trust protects and even increases assets through the following: – International Diversification – Reduced taxes – Privacy and flexibility – Business opportunities – Sustainability | Some of the benefits having offshore Foundations are the following: – Barriers to Entry – The Ability to Build and Accumulate Capital – Business Restrictions |
| Publicly filed? | Certificate of trust but not the trust itself | Publicly filed similar to a corporation |
| Common Types | – Asset protection (offshore and domestic) – Estate planning (living trust or inter vivos trust) – Real estate (land trust) – Personal property (automobiles, household goods, etc.) – Charitable – Special needs (for those with disabilities) | – Independent (Usually funded by individual or family) – Corporate (Funded by a corporation but is a separate legal entity. Often corporate officers manage and may give endowments) – Operating (Purpose may be research, public benefit, etc. Most funds or grants go toward purpose stated in its charter). |
Foundation vs. Trust – Which is Better for Asset Protection?
So, what is better for asset protection from lawsuits, a foundation or a trust? The trust with the strongest case law histories and statutes. There is a short statute of limitations on fraudulent transfer of one to two years. This means that once you transfer assets into the trust and the requisite time passes, the courts will not entertain challenges to the transfers into the trust. Plus, even if the asset conveyance challenge happens immediately, the opponent must show the transfer was done to deny that particular creditor access to trust funds. Moreover, the creditor must prove its case beyond a reasonable doubt.
Similarly, with a foundation, in order to enjoy asset protection, you will need to have council members who are outside your country of residence. You may hold the manager role initially. But when problems arise, like the trust, you will need to turn over the reins to a person or group of people in the country where you formed the foundation. Otherwise, when the judge says, “give me the money,” you will have to comply.
