Offshore Trust vs Offhshore Foundation

Offshore trusts and offshore foundations are excellent tools for managing and shielding wealth. Offshore trusts and foundations established in sound offshore jurisdictions help in guaranteeing wealth accumulate in a tax free environment and protected from reporting requirements by strict privacy and confidentiality legislation.

However, the concepts of offshore foundations and offshore trusts tend to be confused by people due to their similarities in functions although offshore trusts and foundations differ in the way they are structured. Firstly, an offshore trust vs. offshore foundation is based and formed according to Common Law, whereas the concept of offshore foundations derives from civil law countries. Whereas upon offshore trust registration a person or corporate entity’s assets are transferred to a settlor who manages the assets on behalf of the trust’s trustee, in the formation of an offshore foundation, the foundation is transformed into an independent legal person. An offshore foundation vs. an offshore trust, thus, is not owned by anyone, whereas the trustee of an offshore trust is its legal owner. In this way an offshore foundation vs. an offshore trust provides a higher degree of asset protection since no one can lay any claims on the assets of the foundation. Furthermore, a foundation vs. a trust puts forth clearly defined provisions which limit the legal claims that can be made against the founder of an offshore foundation. In an offshore trust, there are no such clauses.

In addition, where the control of a trust vs. a foundation is concerned, the administration of a trust is in the hands of the settlor, who acts according to the trust deed, but the control of a foundation lies with the foundation council. With regards to the latter, offshore trusts do not have councils, but a trust protector may be appointed to oversee the administration of the trust’s assets by the settlor and to ensure that the interests of the trustee are being met.

The legal personality of an offshore foundation makes it capable of signing contracts, opening and controlling bank accounts and making investments in mutual funds, companies and stock markets, without having to implicate the foundation’s founder, council or beneficiary since none of these have legal claim over the foundation.

Trusts vs. foundations are commonly used for achieving privacy due to the fact that wills are public documents and can be scrutinized by members of the public. By putting one’s estate in an offshore trust, family and personal privacy are maintained whilst wealth can be transferred by forming a trust which in this case substitutes a will.

Despite those fundamental differences, offshore trusts and foundations are exempt from wealth and other taxes that would be levied against them if they were established as onshore entities. As long as assets are kept in a trust or foundation, tax to be levied is deferred until the time that the trust or foundation is set to be dissolved, although foundations can be established to be perpetual. Taxes such as inheritance and death tax can also be avoided by transferring the assets of the trust or foundation to its beneficiaries or by selecting new beneficiaries in the event of the passing of any. Trusts and foundations may also be used for charity reasons.

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