Sunday, 31 March 2013

What Foundation Vs Trust legal use and Purposes Case Study #1

Case Study #1 

How Tragedy and Human Weakness Can Endanger Your Life's Work

Richard was a fairly wealthy man you can. He had three beautiful adult children, all of whom were married to great partners. He himself had been married to the same women for 35 years. At the age of 57, Jacque, his still young and beautiful wife, had a car accident that disfigured her face so badly that even plastic surgery did very little to restore her once beautiful countenance.

Richard and Jacque were accustomed to a life that included socializing with what I call "the beautiful people." Some of Jacque's friends were starlets and quite notable individuals. With the disfigurement resulting from the accident, she never seemed to feel comfortable in the same circles. Jacque went into a deep depression over this and her Dr. put her on prescription medications for anxiety.

Unfortunately, her withdrawal from the social circles left her home with her feelings and she started turning to alcohol and eventually cocaine as an escape from all her unfamiliar life. She started herself in a cycle of being up and down, depending on how much of what substance she had in her. The only time she ventured out of the home was to make a trip to the drive-thru liquor store or to see her "dealer." This was devastating to Richard. He couldn't comfort her and she was spinning out of control.
 Soon came another car accident - Jacque was inebriated, at fault, and she caused injuries to the other parties. With a DUI charge under her belt, Richard, fearing that the worst was yet to come, set up an asset protection plan making their three children equal beneficiaries.

About eight months passed, Jacque had sought help for her substance abuse and was attending depression class , AA meetings and had been sober for almost six months. Even though her license had been suspended due to accident number two, she still drove to her meetings occasionally, whenever Richard or a friend couldn't drive her.

She still struggled with depression but was making what "seemed" like progress. Until one night on her way to a meeting, she decided instead to stop and get a single wine cooler. Tragically, this led to a four-hour relapse and ended in a third automobile accident and the bills soared, as well as the legal fees for her defense and the lawsuits from the victims and their insurance companies.
This story doesn't get any better.
Three months later, Richard left town on a business trip and Jacque, so deep in her guilt, shame, depression and loneliness, spent the next four days on a cocaine binge which ended in a cardiac arrest. Richard returned from his trip to find his once lovely wife sprawled out on the floor, drugs and paraphernalia scattered about their home.
Suspecting foul play, Richard immediately called the paramedics…but it was far too late. Once they pronounced Jacque dead, Richard called his oldest son to break the news. The next five hours or so must have been very difficult with the police swarming his home gathering evidence.Sixteen hours later, when the first of his three children arrived at the estate, Richard was also dead…his son found him in his study…with an empty bottle of his wife's prescription Klonopin, a half bottle of Kelt Petra "Tour du Monde" on the table in front of him and in his lap…a picture of him and Jacque on their 25th wedding anniversary trip.This story made the local news and the media had a heyday with it… but none of the judgment creditors were able to access any of Richard's wealth, nobody except his children, because he had set up an ironclad asset protection plan.

This is a story that is so tragic that it's hard to say there were any winners. This story does show the frailty and unpredictability of life. The ONLY positive thing here is that the children weren't further tortured by a long and arduous probate period or watching their parents estate be gobbled up by greedy litigants. The painful loss of both parents was excruciating enough for them.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype: Winston.wambua

What Foundation Vs Trust legal use and Purposes

Trusts are a legal concept developed in common law jurisdictions, the laws and principles of which are found in statute and judicial decisions.

Foundations are a civil law concept, primarily governed by the statutory laws of the relevant jurisdiction.


A Trust is created when a person (the settlor) transfers property to another person (the Trustee) to deal with that property for the benefit of a third party (the beneficiary). The trust is not a legal entity and therefore does not have legal personality. It is a private arrangement between the trustees, settlor and beneficiary ies. There is no requirement to register a trust.

There is a split in legal ownership of the trust assets, whereby the trustees legally own and hold the assets in their own name but for the sole benefit of the individuals or institutions designated as beneficiaries in the trust deed.
The trust is governed by the terms of the trust deed. A non-binding letter of wishes might also be issued by the settlor to guide the trustees.
The beneficiaries are defined in the trust deed. They may be natural persons, companies or charities. The beneficiaries may include the settlor.
A trust may be revocable or irrevocable. The' duration of a trust is sometimes limited by the governing law, although some trust jurisdictions have abolished their rules relating to maximum duration (perpetuity). Charitable and purpose trusts may be of unlimited duration.

A foundation is a legal entity with legal personality. For a foundation to exist, the [name/ details] of the foundation as well as its statutes have to be registered with the Foundation register in the jurisdiction in which the foundation is incorporated.

Assets donated by the founder to the foundation arc owned by the foundation in its own name. These assets may be held directly by the foundation or consist of shares in an underlying company.  Assets are then endowed to the foundation which is governed by regulations issued according to the desires of the economic founder

Generally speaking, beneficiaries are designated by the founder in a separate document or by-law. They may be natural persons, companies or charities. The founder may also be a beneficiary.
Where there is a civil law mandate, the foundation ran be dissolve and liquidated on the instructions of the launder. A foundation may be set up for an unlimited period of time.


The control and administration of the trust assets is exercised by one or more trustees in accordance with the terms of the trust deed and the Jaw of the trust. Trustees may be individuals or corporations
In founder may the power of control and administration belongs  to the foundation board, which is appointed by the founder. Such board can comprise individuals or corporate members.
Once the trust has been settled, the settlor no longer has any rights in respect of the trust. Unless these are reserved expressly by the trust instrument. The settlor may express his wishes in a non-binding way as to how the discretionary powers of the trustees are  to be exercised.

The founder may maintain control over the foundation through a written mandate. The founder frequently acts as principal and instructs the foundation board on all relevant matters.
The foundation board is required to act in the interests of the founder and the beneficiaries.
The trustee, as the legal owner of the assets, has a fiduciary duty to act in the best interests of the beneficiaries. A protector or other advisor may be designated in the trust deed, which will also designate such person’s powers and/ or duties. Any person may be granted a proxy by the foundation.
A Foundation may have a protector or advisory board with similar powers to those used in a trust context.


Bankable and non-bankable assets can be held by a trust.  There is no minimum amount as long as there is an asset of some value. Bankable and non-bankable assets can be held by a foundation.  The minimum amount usually required is CHF 30,000. The trustee is legally responsible for the management of the assets and must art in the best interests of the beneficiaries.
The trustee is liable to the beneficiaries if it fails to carry out its duties. The- extent of the trustee's liability, if in default, varies between jurisdictions and may be limited to a certain extent by the terms of the trust deed. The usual standard is liability for gross negligence or willful default.
Management is usually restricted as to who may act as a member of the foundation board. Directors of the Foundation do not owe direct fiduciary duty to the beneficiaries and must act in accordance with the by-laws.  The trustee ran carry out any commercial activities and makes any investments as long as they arc in the best interests of the beneficiaries. Distributions made by the trustees must comply with the conditions set by the trust deed and take into account d1e wishes of the settlor.
Distributions are typically made in accordance with the instructions of the founder and regulated through the by-laws.


Trusts are mainly used as a vehicle to hold business and personal assets for estate and tax planning purposes as well asset protection (e.g. in case of divorce, incapacity, political risk etc.). Trusts may also be created lor charitable purposes. Forever,  a trust. May be used to facilitate commercial transactions such as purchases of real estate, opening and administering bank accounts, investing in stock markets and mutual funds,  and the entering into of international agreements.

Foundations are also created for succession purposes but less frequently used for tax planning. A private foundation is not suitable for the pursuit of commercial purposes. A foundation can only be run in a commercial manner if this facilitates the attainment of its non-economic purpose or when required for the preservation or administration of assets. Foundations may also be used to manage and administer the distribution of money and family properties, for philanthropic or ecclesiastical purposes, or to be the holding entity that operates as the corporation's owner.


Trusts are private arrangements between the settlor and the- trustee and trustees are subject to a duty of confidentiality. The beneficiaries are only known internally and are not registered anywhere. The assets are often held in the name of an underlying company which is owned by the trustees. The beneficiaries usually have a right to information relating to the trust's documents and the accounts. This may be more restrictive in some jurisdictions and may be restricted to some extent by the trust deed.
Total anonymity is guaranteed through a foundation. Although the statutes are registered, the regulations and therefore the beneficiaries are only known internally. The beneficiaries' rights to information can be limited or in special cases excluded.


Trusts can easily be transferred between common lawful jurisdiction as the governing law of the trust can usually be changed felon one jurisdiction to another without room much difficulty. Moreover, changing the place of management  is not normally a problem.
Foundations are generally tied to one civil law jurisdiction and therefore, although the possibility of transferring a foundation to another jurisdiction exists, it is more restrictive than with trusts. In addition, the articles and by-laws may limit this flexibility.

For case Study regarding  “What Foundation Vs. Trust legal use and Purposes “ visit

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype Winston.wambua

Saturday, 23 March 2013

Capital Flight introduction

Capital flight is notoriously hard to define precisely. Many people agree that it involves the deliberate and illicit disguised expatriation of money by those resident or taxable within the country of origin. According to a 2005 book on the subject, capital flight generally means "an outflow of capital that is not part of normal commercial transactions from a country where capital is relatively scarce." As a result of capital flight, domestic resources available for development and for financing public services are reduced.  Capital flight also depresses economic activity and has a negative impact on long-term growth rates.
Tax evasion is often the motive for the flight of capital and the two are implicitly linked. But other reasons exist too -- such as  seeking a secure location for cash resources, avoiding local currency risk, or avoiding other legal obligations within the state from which capital flight takes place. (These might, for example, relate to inheritance laws.) For these reasons, capital flight would remain a problem even if there were no tax incentive implicit within it.

What is certain, however, is that capital flight impacts negatively on capital-scarce economies: the loss of domestic savings leads to lower levels of internally funded investment, and the loss of tax revenues flowing from those savings leads to lower revenues available for public spending on health, education and public infrastructure.  Additionally, use of external borrowings to finance government deficits imposes a debt servicing burden which impacts heavily on economic growth and social stability and attractiveness to investors. It is also important to remember that the tax loss from capital flight is likely to be greater than that from domestic tax evasion of initially similar value. This is because in the case of domestic tax evasion the money stays in the country and generates at least some tax revenue (for example sales tax or VAT when it is spent in the local economy) whereas capital that has fled offshore is not invested locally and does not generate local tax revenue.
Capital flight has certain characteristics that help distinguish it from normal monetary and resource flows. These are:
Flight capital is domestic wealth permanently put beyond the reach of appropriate domestic authorities. Much of it is unrecorded due to deliberate misreporting;
Because no (or little) tax is paid on wealth that is transferred as capital flight, it is associated with a public loss and private gain.
Because tax evasion is illegal and subject to criminal sanction in most countries, the management of flight capital is a form of money laundering. Offshore secrecy arrangements play a crucial part in the laundering process by enabling the origin and ownership of the capital to be effectively disguised.

It must be stressed that legal, well-documented and reported flows of wealth on which proper taxes have been paid are a perfectly legitimate part of everyday commercial transactions and do not constitute capital flight. Legal international payments include those where:

The source of the wealth being transferred abroad is legal;
The outflows represent fair payment in a commercial transaction;
The transfer of wealth does not violate any laws of the country relating to foreign exchange or capital control;
The taxes due on the capital being transferred have been paid in the country of their origin;
The flows constitute a part of the official statistics of the country involved and are properly reported, documented and recorded

While capital flight often occurs through similar channels to those used for the legitimate transfer of funds, it does not meet some (or all) of the characteristics listed above. Much of the capital flight that occurs in West Africa, for example, involves cash and other portable valuables, including gemstones and high value metals, being smuggled across national boundaries.  Trade mis-pricing is an alternative way of shifting capital across national boundaries, particularly when large sums are involved.  Trade mis-pricing can be conducted in a number of ways, including mis-invoicing, transfer mis-pricing, re-invoicing through an apparently unrelated trading partner in an offshore territory, and other fraudulent invoicing practices.  Abnormally high priced import transactions are used to reduce the taxable profits in the country of import.  They can also facilitate money laundering and can be used to disguise illegal commissions hidden in the inflated prices.   Investigation of these types of fraudulent activities is made significantly more difficult by the opaque offshore structures used to disguise the identities of the different parties to the transactions.
A 2005 book contains some interesting history:
"The neglect of capital flight in current debates is striking given the attention it received at the 1944 Bretton Woods conference, (which) is said to have laid the foundations for today's financial order and many reformers today talk of the need for a 'renewed Bretton Woods vision' The Bretton Woods architects saw the regulation of capital flight as a key pillar of the international financial order they hoped to construct."

The two principal Bretton Woods architects, Harry Dexter White and John Maynard Keynes, were principally worried about large-scale capital flight from war-devastated European countries to the US, destabilising them and turning some of them towards the Soviet bloc. They recognised the difficulties in exerting capital controls, and they addressed these with a further proposal, as the book explains:

"They argued that controls on capital would be much more effective if the countries receiving that flight capital assisted in their enforcement. In their initial drafts of the Bretton Woods agreement, both Keynes and White required the governments of receiving countries to share information with the governments of countries using capital controls about foreign holdings of the latter's citizens. White went further in his draft to suggest also that receiving countries should refuse to accept capital flight altogether without the agreement of the sending country's government. Both of these proposals were strongly opposed by the U.S. financial community which had profited from the handling of flight capital in the 1930s . . . in the face of this opposition, the final IMF Articles of Agreement contained watered-down versions of Keynes' and White's roposals. Co-operation between countries to control capital movements was now merely permitted, rather than required."
The replacement of one word with another has had nothing less than catastrophic consequences for the world's poor.
Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype Winston.wambua

Wednesday, 20 March 2013

Cyprus going bankrupt

Just when though article by Riegert, Bernd .The decision in Cyprus, to reject a bailout offer from the EU and the IMF was a mistake. It is a step further to eventually leaving the eurzone and could cost Cypriots even more
Parliament in Cyprus has made a grave mistake. Rejecting the conditions for an aid package from the eurozone and the International Monetary Fund (IMF) will have far-reaching consequences, not only for Cyprus itself, but also for the other 16 members of the euro currency area. The willingness to give the ailing banks and the nearly bankrupt state some 10 billion euros in emergency loans had been a generous offer by the EU and IMF.

But the parliament in Nicosia was under pressure from angry small savers, and subsequently followed an almost absurd logic. Yet, the bailout conditions were not about putting Cyprus under foreign rule, or imposing German interests. It was about keeping Cyprus afloat - the tiny state will be bankrupt by June.

Living beyond their means

The part that the Cypriots themselves would have had to contribute was some 5.8 billion euros and that was an appropriate share. That this amount was to be shouldered by bank clients and investors is an agreement by EU states, including Cyprus.

It is now obvious that the country, for years, has lived beyond its means. The business model to attract foreign capital with low taxes and lax controls on the banking sector went bust last summer. That is when the government in Cyprus asked for international help because the partly state-owned banks were in serious trouble. The national debt was threatening to spiral out of control - and that situation has not changed, despite what at first glance seems like a victory for angry bank customers.

 If the eurozone wants to keep Cyprus in the currency union, there has to be urgent negotiations with Nicosia. There is time until June to find a solution when the country will issue it's next batch of government bonds. It is difficult to conceive that eurozone finance ministers over the weekend had such poor judgment about the reaction their offer would cause in Cyprus. Poor management and communication mistakes were made by the EU.

Taxes  instead of levy on deposits?
The only option for the Cypriot government now is to get the money in some different way. Instead of a levy on every bank client's deposits, there could be drastic tax increases. But, should Nicosia fail to implement these as well, the country's troubled banks would go bankrupt, leaving small savers to bear losses considerably more significant than the 6 to 10 percent they would have had to pay with a levy.

If banks, and therefore also the state, go bankrupt, Cyprus would have to leave the eurozone. The 800,000 Cypriots would then have to find a new currency and work hard to get on their feet again. A new currency would most likely be dramatically depreciated and would lead to a great deal of money being lost.

Should Cyprus have to leave the eurozone, trust in the currency union on international financial markets would be seriously shaken. The debt crisis in Spain or Italy might also be reignited. Investors' trust in those two countries is already stretched thin.

Faith in Cypriot banks, most likely, is already lost. Starting Thursday (21.03.2013), when the country's banks reopen, private banking customers will try to withdraw their funds in cash from their accounts. That could quickly lead to banks going bankrupt - and it could be contagious. That's why Cyprus is "too big to fail" – even if, compared to other eurozone countries, it is tiny. Eurozone finance ministers now have to come up with a new plan as to how a country that goes bankrupt could exit the currency union.

Unpredictable risk
Should the eurzone try to save Cyprus, no matter what, it would signal to other ailing countries that they do not have to take their reforms and austerity measures all too seriously anymore. That would undermine the entire idea of eurzone bailouts and put the bloc's credibility on the line.

Parliamentarians in Cyprus have stood up to the mighty European Union, but the price they will have to pay for it is hard to gauge. It could be very high - a lot higher than the initial contribution which, after al,l would also have asked foreign bank customers to pay their share. The current celebrations on the streets of Cyprus are unlikely to last very long.

Analyst Robert Halver of the Baader Bank said the fear is that depositors throughout the eurozone might view the Cyprus experience as reason to start withdrawing their funds from bank accounts. Such a run on banks could create a new crisis for European governments, now in the third year of their debt crisis.
"What has been done in Cyprus is an experiment," Halver said. "If the population has to, in the form of their savings, contribute to rectify the mistakes that have been made in Cyprus, then there is a danger that in other countries people will decide, at the breakfast table, to withdraw their money. If money is withdrawn on a great scale, if we have a bank run, then we see the return of the bank crisis."

Russian President Vladimir Putin on Monday called the proposed levy "unfair, unprofessional and dangerous."  Russian banks and corporations have billions of dollars in Cypriot banks.

Cypriot media say it is unlikely lawmakers will agree to the terms set in the bailout. 
President Nicos Anastasiades said in a televised address to the nation Sunday if parliament does not approve the levy, Cyprus faces bankruptcy and the possible exit of Cyprus from the eurozone.

Winston Wambua

For more information please contact me on

Mobile +971553350517


Skype Winston.wambua