International Private Foundation Law

International Private Foundation Law in Europe

International private foundations developed over the last years [1]:

  • Maltese Act XII of 2007 has obtained effect on 1 April 2008;
  • in Jersey Foundations Law was passed on 22 October 2008;
  • in Anguilla the Foundations Act entered into force on 12 december 2008;
  • in Antigua the International Foundations Act became law on 17 january 2009;
  • in Lichtenstein new Foundation Act entered into force on 1 April 2009.

It has been referred [2] the interrelation between international trust and foundation law, with common law countries introducing the civil law concept of private foundation. The first offshore trust jurisdiction to enact private foundation legislation was Saint Kitts in 2003, followed by Bahamas (Foundation Act 2004), Nevis (Multiform Foundation Ordinance 2004), Anguilla (Foundation Act 2008), Malta (Second Schedule to the Civil Code, with effect as of 1 April 2009). New private foundation laws reflect aspects of the law of trusts, among which the protector[3]; they enhance freedom of founders in order to create tailor – made” bylaws, both reserving to himself a control of the foundation, and limiting the rights and powers of beneficiaries: the rights are in personam [4] and the powers are subject to the by-laws [5].

The question is than “why some of the most sophisticated pieces of trust legislation have felt a need to breed this new statutory creature in their legal systems” and the answer is the legal personality, further qualified along the three main headings”:

  •  a more easily understood legal notion;
  •  a more flexible set – up; and
  • a lower exposure to the sham risk”.

Trusts are preferred because of their reduced formalism. Private foundations “appear to couple the advantage of legal personality with the absence of a beneficially entitled shareholder”; they “may be a valid alternative to trusts in all situations where the personal nature of the trustee’s office – with its impounded equitable duties – may prove unsuitable to present – day commercial or wealth management requirements” [6].

The Trust has been chosen for estate planning, thanks to asset protection and ease of management of assets. Practitioners deem that it will remain so for many years, but they know that the Trust is not a “one size fits all solution,” and some clients just don’t warm to the overall concept….Practitioners describe the Foundation as a mix between a Trust and a Company, showing that some advantages of using the foundation will begin to emerge.

Like a company, but unlike a trust, a Foundation:

  • may enjoy unlimited duration and is not subject to the law against perpetuities;
  • is a legal entity in its own right, has a registered office and is registered with the Registrar;
  • enjoys limited liability, enabling riskier types of assets to be managed within the structure;
  • as a legal entity, can own assets in its own name;
  • does not require a change in the legal ownership of its assets as a result of a change in its governing body.

Like a trust, but unlike a company, a Foundation:

  • may have discretionary or vested beneficiaries;
  • it benefits from asset protection legislation;
  • it can be established by will;
  • it may be used to avoid forced heirship in other jurisdictions;
  • it does not form a part of a person’s estate and is therefore not subject to probate;
  • it may have a protector.

Practitioners recommend foundation to the client that wants to achieve the following:

  • maintain confidentiality;
  • have an effective estate plan;
  • maintain an element of management / control of the assets without damaging the integrity of the overall structure;
  • protect their assets from third parties and perhaps family-adverse influences;
  • use a registered “legal” entity to hold and / or administer assets.

Trust are not deemed the preferred solution if emerge that the client: is from a civil law country where the trust concept if not well known; does not feel comfortable using a third party trustee; wishes to maintain an element of control over the assets. Even though the Foundation is a registered entity, confidentiality is maintained by virtue of the Founder’s name not being public information.

Additionally, a nominee Founder can be used to further protect the identity of the actual Founder. This also has further application where the Foundation is used as a holding vehicle. In this case, the Foundation as a registered and legal entity is seen as the shareholder, rather than an individual person. The Founder passes legal title of his / her assets, to the Foundation and this then allows the assets to be managed and maintained on behalf of the beneficiaries, with distributions being made in accordance with the Founder’s wishes. Additionally, the Foundation benefits from asset protection legislation, thus protecting legitimately “settled” assets from any creditor claims.

As a part of the family’s Estate Plan, the Founder may also wish to stay intimately involved in how the assets are invested and distributed. Of course, discussing how a client can maintain an element of control is always a tricky discussion. However, and in the case of a Foundation, the Founder can reserve a number of powers without jeopardising the overall integrity of the structure, and certainly more than are available when establishing a Trust. Taking this one step further, the Founder can also be a member of the Foundation Council, helping direct and manage the Foundation’s assets. Putting these requirements into a practical and real life context, the Foundation has application: as a holding vehicle for shareholding of a Private Trust Company and shareholding of a Family Business (promoting longevity of family ownership and asset protection); as a part of an effective estate plan where a Trust is not the preferred vehicle; where the client wishes to maintain a number of powers and some control over the assets; for Charitable Purposes [7].

Note: Based on Select materials on recent developments concerning the world of Foundations, prepared for the seminar organised at the Institut fuer Auslaendishes und Internationales Privat- und Wirtschaftsrecht- Heidelberg on september 2009.

The Bahamas Foundation

It was introduced with the enactment of The Foundations Act, 2004. As with all legislation, it has undergone some amendments, principally in 2005 and 2007. There is great flexibility under the Foundations Act, 2004 as to who can act is these capacities. For more information on the Bahamas foundations, please see here.

Resources

Notes

  1. J. NIEGEL, Brave New World of Foundations, in Trust &Trustees, Vol. 15, N. 5, July 2009, 260
  2. J. NIEGEL, Laying a Foundation for Europe, Trust &Trustees, Vol. 13, N. 5, July 2007, 1 23 ff.
  3. Saint Kitts, Foundation Act 2003, Part IV- The Guardian; Nevis, Multiform Foundations Ordinance 2004, Part VI- The Supervisory Board; Anguilla, Foundation Act 2008, Part 4- The Guardian
  4. Except in Malta where the Schedule to the Maltese Civil Code title III, art. 33(2) contains the definition of the beneficiaries interest under a foundation as a “movable property”
  5. Saint Kitts, Foundation act 2003, sect 15(2)(b)(iii): the right to obtain “full and accurate information” is “subject to the terms of the articles and by-laws”
  6. P. PANICO, As you like it or measure for measure? Private foundations as an alternative to trusts, in Trust &Trustees, Vol. 15, N. 5, July 2009, 274
  7. T. J. COLCLOUGH, The Bahamas Foundation Revisited, STEP Journal (Vol 17 Issue 4)

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