Understanding the Differences Between Offshore Trusts and Offshore Foundations
You’ve determined that one of the best ways to protect assets for the future is to establish financial accounts offshore. The next question that comes to mind is what sort of account serves your purpose best? One option you want to consider closely is including an offshore trust or an offshore foundation in your financial planning.
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Both approaches are excellent ways to ensure your assets are managed properly and benefit those you wish to remember as part of your estate planning. They even have some similarities that may make you wonder if one is inherently better than the other.
Along with understanding how offshore trusts and foundations are alike, it helps to know how they differ. Here are some key points that you need to keep in mind.
Registration Needs
No matter what international location you choose, establishing a foundation will involve ensuring it’s appropriately registered with the government. The process for registration may vary slightly from one nation to the next. Generally, there are specific forms to submit that identify the nature of the foundation, the board that will direct it, and copies of other foundational documents such as by-laws.
By contrast, an offshore trust does not have to be registered with a government. Just as offshore checking and savings accounts must follow a country’s banking laws when being set up, the same is true for a trust. You deal directly with an institution to set up the trust rather than dealing with a government agency or department.
Incorporation as a Legal Entity
You will need to establish them as a legal entity for foundations. The process can differ slightly from one international setting to the next, but it resembles setting up a corporation. What’s different is that there are no investors, and there’s a management board rather than a board of directors coupled with an executive team.
If you decide a trust is the most practical solution, there are no worries about incorporation. You’re establishing an account and authorizing a trustee to manage assets you choose to place in the trust. This includes disbursements to a beneficiary based on the regulations that you have in the trust arrangement.
Public Versus Non-Public
As an incorporated entity, some of the documentation related to the foundation will be a matter of public record. Specifically, the foundation charter will be public. Depending on the jurisdiction where the offshore foundation is established, other documents may also be available to the public.
If you decide that an offshore trust is the best solution, there is no need for there to be any type of documentation made available to the public. In fact, there are countries where it’s possible to structure a confidential trust account. This is particularly important if you prefer to protect your identity and the beneficiary’s identity.
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Transferring Assets
It’s possible in most offshore locations to establish a foundation without any immediate need to pledge assets to the new legal entity. You certainly have the option of setting up the foundation, opening an offshore checking account, and funding with an opening balance. There’s also the ability to set up the trust and begin transferring cash and other financial assets to the new entity later.
Offshore trusts operate in a slightly different manner. You will need to pledge assets for the trust when it’s established. Depending on its structure, you won’t have any issue transferring more assets into the trust later. This makes it possible to launch the trust with a minimum of assets and then add to it over time.
Legal Ownership of Assets
Keep in mind that a foundation is a legal entity. As such, it will own the assets that you choose to transfer into it. In all ways, the managers who oversee the foundation have the authority to do whatever is necessary to protect those assets. While it’s true that there is the option for the managers to consult with you, most offshore locations would not require them to do so.
A trust account is a different matter. It does not actually own the assets that are held. Instead, it’s the means for managing those assets, hopefully in a way that your goals for the trust are met.
For example, you can set up the trust, act as the grantor to fund it with assets, and designate yourself as the trustee for the remainder of your life. You can also designate a trustee to replace you. The right of management rests with the trustee that you name and remains so until or unless the trustee can no longer serve for any reason.
Legal Actions
Since a foundation is a legal entity, it makes a difference in how any legal action is handled. A foundation can take legal action against a person or another legal entity. At the same time, it’s possible for individuals, companies, or other types of legal entities to sue a foundation.
With a trust of any type, there is no legal entity to initiate a lawsuit. Any legal action that occurs involves the trustee. That means the trustee can sue another entity under their name. Others can also sue that same trustee. The ability to sue the trust account itself is not legally possible in most nations where offshore trusts are offered.
Revocability Issues
Foundations can be structured so that they are revocable or irrevocable. The status can be documented in the articles of incorporation as well as in the foundation charter. Be aware that a failure to make a clear distinction may result in the foundation being considered revocable since there is no evidence to the contrary.
The situation is the opposite when it comes to a trust. Like a foundation, a trust may be set up as revocable or irrevocable. In fact, you will have to declare which option you want when the trust is established. It’s not unusual for a trust to be considered irrevocable if it’s not expressly identified as revocable.
Offshore Options for Asset Protection
Keep in mind that there is more than one type of offshore foundation. The same is true for trust funds. That means you need to know more than just the similarities between offshore trusts and offshore foundations.
It’s also important to consider the particulars related to the type of foundation or trust that you think is the best fit.
Award-winning Caye International Bank in Belize can help you understand the offshore financial options available to you for asset protection. Contact our team today; it won’t take long to narrow the range of choices and ultimately settle on the solution that’s right for you.
If you enjoyed reading this, here are some additional articles:
Offshore Dynasty Trust Explained
3 Offshore Resources That Should Be Part of Your Financial Planning
About The Author
Luigi Wewege is the President of Caye International Bank, headquartered in Belize, Central America. Outside of the bank, he serves as an Instructor at the FinTech School in California, which provides online training courses on the latest technological and innovation developments within the Financial Services industry. Luigi is also the published author of The Digital Banking Revolution, now in its third edition.
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