These two offshore financial services are the most commonly debated since they provide many benefits but are very similar in nature. Here we will discuss what each service is as well as their advantages and disadvantages to help you decide which would be best suited for you.
What is an offshore trust?
An offshore trust is a fiduciary relationship formed in an offshore jurisdiction in which a “settlor” transfers assets to a “trustee” for the benefit of a “beneficiary” or “beneficiaries”.
Offshore trusts are mainly used to ensure that assets in heirship are exempt from any legal seizures that may be implicated against the settlor’s assets in their home jurisdiction. However, offshore trusts can be developed at any time and for many other reasons than just fulfilling a will.
Trusts are not a legal entity but rather a legal obligation that is agreed upon among two parties (the settlor and trustee) for the benefit of a third party (beneficiary).
There are three minimum certainties that must be present in every trust that makes them valid:
- “Certainty of Intention” which clearly states his intention of establishing the trust and grant the trustee with legal control of the assets.
- “Certainty of Subject Matter” which clearly states the assets that will form the trust.
- “Certainty of Objects” which clearly states for whom the trust was created and who will receive any subsequent assets held in the trust.
There are many other factors that make up a valid trust; but without the three abovementioned certainties, the trust will be invalid.
What is a private foundation?
A private foundation is an independent self-governing entity that is set up and registered by an official body within the jurisdiction of where it was set up in order to hold an endowment provided by the founder and/or others for a particular purpose for the benefit of beneficiaries. Private foundations do not have the ability to engage directly in commercial activities and does not allow member to hold shares.
What are the main differences between an offshore trust and a foundation?
- A private foundation is an independent self-governing legal entity; while a trust is a legal obligation between two parties.
- A private foundation is registered and publicly recorded to the government; while the specifics of a trust are not normally readily available to the public.
- The assets of a private foundation are placed into the foundation on behalf of the beneficiary and not in the custody of any one person; while the assets of the trust are placed in the custody of a trustee on behalf of beneficiaries
- Trusts may be used for certain commercial activities while a foundation cannot.
How are trusts and foundations similar?
- Both are set up for the benefit of their beneficiaries.
- Neither have shareholders, only beneficiaries.
If you want to find out more about how an offshore trust or private foundation can work for you, contact the Belize offshore experts at ICS.
