Sunday, 31 March 2013

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.

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