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Trusts find their origins in equity; foundations in statute. Trusts
date as far back as the Roman times while foundations have a more recent
history.
A trust is fundamentally an agreement, created by deed, between a settler
and trustee for the benefit of one or more beneficiaries. A foundation,
on the other hand, is its own legal entity. Both, nonetheless, are fundamental
tools in estate planning.
Trusts were initially established primarily for estate planning. Foundations
were initially created for the purpose of providing protection for assets
as well as preserving confidentiality at the time of the Second World
War.
Foundations have been available in several civil law jurisdictions,
starting in Liechtenstein in the late 1930s, moving to other European
countries in years to come and more recently to non-European jurisdictions,
where trusts are not as well known, frequently misunderstood and not
always acceptable. The Bahamas now is the first premier Common Law jurisdiction
to introduce foundations.
There are, no doubt, many purposes for which trusts or companies are
currently used and for which foundations may also be used. Foundations
may be used for estate and tax planning, asset protection, preserving
family wealth and confidentiality, segregation of assets and establishing
charities. When there are purposes for which a company is better qualified
than a foundation, a company could be set up as a subsidiary of the
foundation to meet that requirement.
While there are many similarities between foundations and trusts, there
are characteristics which are unique to foundations. Many of the distinguishing
features result from the fact that a foundation constitutes a hybrid
between a trust and a company, having several aspects in common with
one or the other.
Similar to a trust, a foundation can be established by will or by charter,
executed by a founder who may be a natural or legal person. By way of
the charter, a founder may reserve powers to itself such as the ability
to revoke the foundation, amend the charter itself or add or remove
beneficiaries.
A foundation may have beneficiaries. Beneficiaries may be named at
the time of the foundation’s establishment, or the charter may
provide the procedures for naming them at a later date. Vested beneficiaries
are entitled to be notified of their interests and to receive a copy
of the charter and accounts.
A foundation can also have a protector. The protector can play an active
or passive role depending on the foundation’s charter. For example,
the protector may have the authority to appoint and remove foundation
council members or his consent may be required before the foundation’s
council moves forward with certain changes.
Under the Foundations Act, a foundation may be avoid forced heirship
in other jurisdictions and is subject to well-established creditor protection
provisions. In addition the foundation’s charter may include in
terrorem provisions and restrictions against alienation.
Like a company, a foundation, as a distinct legal entity, enjoys limited
liability and unlimited duration. It must be registered and have a registered
office. A foundation may also redomicile in another jurisdiction and
a foundation established in another jurisdiction may redomicile in The
Bahamas.
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