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Estate planning and Asset Protections with Offshore Trusts and Foundations

Trusts and Foundations
Foundations and Trusts are two of the main weapons in asset protection and estate planning. Both of them enable the endowment of an estate to be administered according to the wishes of a Settlor or Founder, and in favour of the appointed beneficiaries. In both structures once the assets are transferred, they cease to be part of the Settlor or Founder's estate, and goes on to be administered by the Trustee in one case and the Foundation Council in the other.

While the spirits of the private interest Foundation and the Trust are similar, and frequently both are used together for asset protection and estate planning, there are also some differential features to consider. For instance, a Foundation is based on Civil Law, and it is constituted by means of a public legal document, and filed with a Government entity. Trusts, on the other hand, are based on Common Law, and are established through a private contractual document that does not need to be filed with a public entity.

As a reminder, the difference between Common Law and Civil Law is that the former is based on common knowledge, therefore subject to diverse court interpretations and rulings, while the latter is based on codes, written documents, and it takes a legislative action to modify it. Civil Law is less flexible than Common Law.

Documents that establish a Foundation and a Trust also differ. For instance, a Foundation charter needs not elaborate on the rights and obligations of the Council, while a Trust deed has to be very specific and clear regarding the rights and obligations of the Trustee.

In a Foundation assets are placed to the Foundation's name at the time of the transfer, while in a Trust, it is the Trustee who receives the assets to his or her name.

The rights and obligations of the Settlor and Founder also differ. A Founder retains in general more rights than a Settlor. For instance, the Foundation Charter grants the Founder the liberty to remove or change members of the Council without effect on the estate. Since the Foundation Council reports to the Founder and/or beneficiaries, these can control the operations of the Foundation through the Council, and if it were the case, even bring legal action against said Council.

This is different in the case of a Trust, where the Settlor loses all rights as soon as the estate falls under administration of the Trustee. The Settlor of a Trust cannot change the Trustee unless a breach of the specifications of the Trust deed, or contractual Trust document, has taken place. If this situation took place, the estate would need to be transferred to the new Trustee. In a Trust, there is a document called the "Letter of Wishes", whereby the Settlor expresses how he or she would like to see the assets administered in favour of the beneficiaries, but the Trustee actually has no obligation to comply with these wishes. The beneficiaries are the only ones entitled to bring legal action against the Trustee, not the Settlor in this case.

As for administration fees, those of an estate in a Foundation are low, while in a Trust, the Trustee fees depend on the value of the estate: the heftier the estate, the bigger the fees.

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Successful asset protection and estate planning structures are able to combine these two entities in order to achieve the goals and objectives of individuals. We hope this information has been useful and if we can be of further service, please feel free to contact us