Trusts and Foundations as Asset Protection Instruments

The risks of circumstances arising where a client’s assets come under “attack” from creditors, raiders, regulatory bodies, law enforcement, or political and economic challenges require proactive prevention.

To address these risks, there are Trust and Foundation institutions, as well as private LLCs that, while not specifically designed for this purpose, can effectively handle asset protection. They allow you to legally distance yourself from your assets. Since you technically own nothing, it becomes impossible for ill-intentioned parties to make claims against you.

It’s important to understand that there are no universal tools for protecting property. Each method is designed for specific goals and offers varying levels of protection.

Below, we’ll explore the differences between two instruments: Trusts and Foundations.

Offshore trust: what is it?

In simple terms, it’s an act that transfers legal rights to personal property (assets) from the settlor to a trustee, who is obliged to manage the property for the benefit of the beneficiary.

Why do people open trusts?

There are several reasons why individuals choose to invest personal capital in an offshore jurisdiction:

• Confidentiality of ownership
  You can manage your money, real estate, licensing rights, etc., anonymously.
• Asset protection
  It provides stability against political and economic crises, creditor claims, and hostile actions.
• Inheritance transfer
  The provisions regarding the mandatory share in inheritance do not apply to trusts. Claims from potential heirs are not accepted.
• Tax planning
  In most jurisdictions, trusts are exempt from taxes, allowing you to remain in the shadows while enjoying robust protection from these jurisdictions.

How to register an offshore trust?

The main steps (which may vary depending on the jurisdiction) in are:

1. Decision-making and choosing a jurisdiction. The primary criterion for selection is the level of confidentiality and the existence of Trust legislation in the country. Nevis, for instance, does have such legislation and registering a trust in this jurisdiction in a combination with an LLC might be the solution that you are looking for.
2. Choosing a name. This step isn’t the most critical, but it’s necessary. The name is registered in the registry of the controlling authority.
3. Providing information about the settlors and the purposes of the Trust. You need to provide details about the trust’s settlor, beneficiaries (preferably more than one), silent owners (trustees), and the guarantor.
4. Hiring a trust accountant, investment consultant (if your trust’s purpose is investments), and a lawyer.
5. Providing notarized copies of the documents of the settlor and beneficiaries. This includes proof of residence (like a utility bill) and a bank recommendation.
6. Preparing and signing documents.
7. Registering the trust in the jurisdiction. An offshore trust can be created through an oral or written application. It’s highly recommended to do this in writing.

The goals pursued when creating a trust influence how it is established.

• “Living trust” operates during the lifetime of the beneficiary of the trust management.
• Trust against waste legally comes into effect after the owner’s death.

Key management elements of a Trust:

• “Settlor”
• “Trustee”
• “Beneficiary”
• “Guarantor”

The settlor is the individual who transfers assets to the trustee for management. The trustee adheres to the trust’s charter and strictly follows it. The guarantor carefully monitors compliance with all points of the trust declaration. The beneficiary is the entity that receives benefits from the trust.

In jurisdictions where trust institutions are not provided for, offshore foundations serve as an alternative, also designed for protecting savings.

What is an offshore foundation?

Many investors view foundation institutions as excellent tools for capital protection, addressing a whole range of tasks, including tax-related ones.

Experience shows that in jurisdictions where Trust institutions contradict local laws, offshore foundations are adopted for top-notch asset protection.

What is the purpose of creating an offshore foundation?

The primary distinction between a foundation and a trust lies in its legal status – a legal entity.

The organization operates under its legal name and does not belong to any private individual, allowing it to conduct full-fledged business activities, represent itself in court, open bank accounts, and be a shareholder in its own companies, including offshore ones. Foundations are created for various purposes: philanthropic (charitable) and investment. They help build holding structures and manage significant capital. However, they are most commonly used for protecting private assets. Just like trusts, there’s a founding act for the Foundation, ensuring safe management of the beneficiaries’ assets.

Who can benefit from using an offshore foundation?

Private individuals, family members, corporations, and philanthropic organizations are our regular clients. There are various ways to profit from the organization. Here are some advantages of such legal entities:

• Organizational and legal structure – a legal entity. This allows for full commercial or non-commercial activities with third parties on behalf of the foundation.
• Registering the organization under Anglo-Saxon law in offshore islands can guarantee the protection of your assets and optimize taxable profits while maintaining a sufficient level of confidentiality.
• The period for filing claims on assets from ill-intentioned parties is one year.
• Developing public relations and enhancing the image when organizing charitable activities.

Key differences between a foundation and a trust:

• A foundation is an independent legal entity and bears legal responsibility for its actions, unlike a trust, which is essentially an “Act” formalizing the relationship between the settlor and the trustee regarding the beneficiary’s assets.
• A foundation must be registered in the state registry.
• All information about a Trust is strictly confidential: it provides 100% anonymity for the beneficiaries. Meanwhile, a private Foundation, being a legal entity with a name and identification number, has private data that can be either public or anonymous, depending on the jurisdiction.
• The trustee of a Trust, despite strict adherence to the trust agreement, retains the right, in a private case, to act at their discretion. Members of a foundation’s board must operate in the foundation’s best interests and fulfill their duties according to its charter.
• According to Trust rules, the settlor can be the ultimate beneficiary. Foundations do not have beneficiaries, and all assets belong to the foundation itself.
• Foundations do not have a limited duration. The succession of trusts typically does not exceed 150 years.
• The operation of a foundation can begin without asset transfer. Assets for a trust must be transferred immediately upon registration.
• Typically, a trust is a commercial organization with profit as its ultimate goal. A foundation can be organized as a non-profit organization.
• The minimum contribution for a foundation is usually around $10,000.
  There are no minimum amounts set for trust founders. Assets can be transferred at any value.

In conclusion, assets managed by either a trust or a foundation are equally protected and not subject to claims from third parties, except in cases of direct evidence that the assets were acquired through criminal means. Among the additional advantages, all the benefits of offshore zones where trusts and foundations are registered for property and tax planning can be highlighted.