Trusts and Foundations are used for very similar purposes and there are various aspects of these structures which are alike. However, there are crucial differences between the two and each is very unique in its own right.
In brief, a Trust may be defined as a legal arrangement whereby a person transfers ownership and control of assets to a Trustee to hold and manage on behalf of Beneficiaries or for a specific purpose. A Foundation may be described as a self-governing legal entity which is managed by a Foundation Council which is set up by a Founder following the registration of the Foundation for the benefit of Beneficiaries or for a specified purpose.
Both are regularly used for the efficient holding of wealth, asset protection and succession planning purposes.
Liability Of The Trustee / Council
In a Foundation, it is the Council who has powers to manage the assets. Comparably, in a Trust, the Trustees manage the assets in accordance with the terms of the Trust.
Trusts are private arrangements and the Beneficiaries are only known internally. Likewise anonymity is provided by a Foundation. Although the statutes of a Foundation are registered, the regulations detailing the Beneficiaries are only known internally.
A Foundation is a separate legal entity which may hold assets, whereas a Trust is not a separate legal entity and the Trustees must therefore hold the assets vested in same.
Reservations Of Rights & Powers
In a Trust, it is unlikely that the Settlor will reserve rights and powers. However, in a Foundation, it is more usual for the Founder to reserve certain rights and powers.
In particular jurisdictions a Protector is required to be appointed to a Foundation. However, trust law does not require that a Protector must be appointed.
The governing law of a Foundation is the state of registration, whereas the governing law of a Trust is chosen by the Settlor in the Trust instrument.
Testamentary Trust / Foundations
A Foundation may be created to take effect after the Founder’s death and so the formalities of a will are not required. However, a Trust which intends to take effect after the Settlor’s death must conform to the formalities of a will.
Both a Trust and a Foundation can present several opportunities, benefits and advantages for individuals and firms. Although they are similar and can be used for similar purposes, the differences between the two are important and should be considered when planning a structure to manage assets.
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