Purpose Trusts and Foundations
In physics, it is known as escape speed, it is the speed needed to `break free` from the gravitational attraction of a massive body, without further propulsion.
In offshore world, it is known as `beneficiary-less` bank account, it is the option to `keep low`.
As the name `Purpose` suggests, it is clear that purpose Trusts and Foundations are created in favour of a specified purpose rather than individual human beneficiary or beneficiaries.
Generally common law used to not recognize purpose Trusts established for purposes other than charitable purposes, such as for the relief of poverty, the advancement of religion, the advancement of education, or any other purposes beneficial to the community. English and other common law countries courts have over gone some changes over the years, and now permits for Trusts to be established for non-charitable purposes as well. However the main and real changes are mostly introduced offshore.
The greatest advantage of non-charitable purpose Trusts is clearly that there are no beneficiaries. Trustee will hold the legal ownership, while no one else will hold the beneficial ownership. So these types of vehicles are sort of a `non-owned vehicles`.
Lately non-charitable purpose Trusts have become somewhat popular, as such vehicles can lawfully be used for purposes like international project financing, securitisation transactions, off balance sheet transactions, holding of shares in family companies and many other purposes.
All in all law requires for the purpose to be substantive, such as, planting cherry tomatoes or oak trees, this way purpose is more substantive, nevertheless it doesn’t begin to look like a beneficiary trust. Such purposes are substantive enough, but not charitable and such purposes are not concerned with the form that the funds take or how they are invested, but rather concerned with how they are to be applied. When more substantive purposes are chosen, such as, plating trees on a particular persons land (Re Bowes), or to provide recreation ground for the benefit of employees of a particular company (Re Denley´s Trust Deed ), the Trust begins to look like a beneficiary trust, where the beneficiaries have rights to the benefits, which, perhaps, is not in the interests of the settlor.
Even though the rule for purpose Trusts that comes from common law procedures is somewhat strict, it is possible to flex it in regards to purposes being admitted lawful, bear in mind that offshore purpose Trust legislation was drafted with especially wide flexibility.
There are rather similar functions and reasons for establishing a Foundation or a Trust, the difference is the legal structure. The main difference is that Trusts historically originate from common law countries, e.g., England, USA and India, therefore are mainly used by these countries. While Foundation is a product predominant and understandable by the Civil law countries, e.g., France, Germany, Russia, Spain.
Nowadays Foundations are being created as well in various common law jurisdictions, based on the demand for a multiple tax planning vehicles and different type of tools, in both common law and civil law countries.
Same way as Trusts law evolved in time, Foundation law evolved and Foundations can also be established for a non-charitable purpose. Foundations can be established for same purposes as Trusts, e.g., can be created to hold the shares of family company. Basically Foundation may pursue every purpose that is permitted by law and is not immoral. Foundation can be established for similar purposes, as well as created as pure family Foundations, which means that the funds of the Foundations can serve for the costs of child-rearing or education, the endowment or maintenance of members of one or more families or any other similar family interests.
Purpose of the Foundation is the core, the heart and soul of the Foundation itself, only through the purpose it can be determined how the assets have to be applied to serve its objects.
When establishing Foundation purpose has to be specifically identified, and it is same as with Trusts, the purpose has to be substantive, clear, certain and further the purpose has to be outward-related rather than self-serving. Internal or self-serving purposes are usually purposes, such as the preservation in value of its assets, such Foundations that only concern the form and administration of the assets and upkeep of the foundations existence.
All in all as long as the purpose is outward-related, benefiting some human beings, the purpose itself can be determined in a wide manner.
Purpose Trust and purpose Foundation are somewhat similar, but not same. Non-charitable purpose Trusts and Foundations have quiet specific as well as strict requirements in regards to the purposes that are being set. Mainly and most importantly, purpose Trusts or Foundations, which are non-charitable purpose, which have an end in themselves and cannot show that assets are beneficiary for some external benefit, are way more difficult to be saved.
How to enhance the formula
In order to add a degree of extra insulation, combination of vehicles is possible.
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