Trusts and foundations
Prerequisites for creating a private foundation
The most urgent issues affecting any owner of significant personal assets, are as follows:
1. Confidential ownership and control of the property;
2. Succession of property to a limited circle of persons (heirs) avoiding possible consequences of application of forced inheritance procedures;
3. Restriction of access to the owner’s and his/her future heirs’ property by potential creditors;
4. Completion of the inherited property transfer procedures with minimal tax consequences;
5. Legal distance between the owner and the assets, while the owner still having the desired level of control and management.
The most effective way of legal asset management in order to answer the above list of questions is to establish a private foundation: a special organizational and legal form for managing the assets, and, using the foundation’s organizational benefits, ensuring the transfer of assets on inheritance basis or by making payments in favour of third parties (beneficiaries) for the needs determined by the assets proprietor.
There are diverse ways of possible use of foundations, ranging from opening of anonymous accounts and ending with the establishment of a complex inheritance procedure. Due to the legislation’s independent position it is legally possible to separate certain assets from the benefactor’s personal property: to pay for education and training, to pay for any equipment, for the maintenance of one or more families specified in the documents. Information about the existence of the established foundation is not publicly available, so the foundation is an excellent way to preserve the investor’s anonymity.
A particular major advantage of the foundation is its provisions for the inheritance of a physical person’s assets according to his/her will only, excluding possible effects of other heirs applying forced inheritance regulations, if the status of the heirs as such is determined by the laws of the residence (e.g. Russia). Registration of succession procedures through a private foundation also facilitates avoiding the respective tax liabilities.
There are a number of criteria influencing the decision to register one or another legal structure. Here we will consider in more detail the features in favour of the registration of a foundation.
1. First of all, the Foundation may preserve property values in the event of the death of its founders.
2. In addition, the anonymity is preserved when the property shares in the Foundation are transferred (it may prove very important in case of political and economic instability in the investing person’s country).
3. Also it is convenient that the granted property shares are converted into a separate and independent foundation.
4. The existence of the Foundation is continuous. After the death of the founder the granted assets will continue their operations without division of property, payment of shares, repayment of debts etc.
5. The division of the assets among the beneficiaries is always possible, in accordance with conditions established by the founders, contrary to the inheritance regulations.
6. Moreover, the assets deposited in the Foundation are protected from the tax burden in the founder's country. The only annual tax to be paid by a Liechtenstein Foundation is capital tax.
7. Overcoming of potential currency restrictions.
8. It is possible to set specific conditions that are stipulated in the statute of the Foundation.
Foundations (German Stiftung, English Foundation, French Fondatión, Italian Fondazione) represent a set of certain assets managed for the benefit of the beneficiaries. The foundation is an independent legal entity, managed by the Foundation's Board. It should be noted that the establishment of private foundations is allowed in Panama, Austria, Liechtenstein and Luxembourg only. This article covers the issues relating to the foundations established under the laws of Liechtenstein and Panama as these jurisdictions allow the most efficient (without significant restrictions) use of the benefits of such legal structure.
The mission of the foundation is, above all, the ownership and management of assets. Family foundations, i. e. serving to manage the assets of members of one family, are widely applicable. Commercial activity is permitted only as an ancillary business of the foundation. The main functions of the foundation are: protective for the assets (in particular, from potential creditors of the founder) and testamentary. The latter function involves the transfer of a part of the assets to the foundation with the appointment of the successor as beneficiary of this foundation. Thus the founder may avoid the compliance of certain formalities as well as some taxes on succession. In addition, it is possible to bypass the inheritance laws requiring established proportions in postmortem distribution of assets, which may be contrary to the wish of the testator.
The main bodies of the foundation are its founder and the Board. At the request of the founder the Guarantor of the foundation may be appointed, who shall supervise the business of the foundation after the death of the founder. As a rule, the foundation becomes a legal person upon its registration in the public register. There, in particular, the information on its board members, rather than the beneficiaries, is registered. However, for certain types of foundations, particularly, family foundations, which do not carry on even ancillary business, such registration is not required; it is enough to file the Foundation Establishment Agreement only, the contents of which is confidential.
Based on the foregoing, the Foundation is a universal arrangement for both safe-keeping and re-distribution of assets in accordance with the wishes of the foundation’s benefactors.
The Foundation may allocate the funds into bank deposits, shares, bonds, grant interest-bearing loans and perform other similar operations, contributing to the conservation of the foundation assets value.
To carry out the supervision function the Protector of the Foundation may be appointed. It should be pointed out that the participation of Russian physical and legal persons as founders, beneficiaries or other parties in relations arising from establishment or management of a foundation in Panama and Liechtenstein, does not contradict to the laws of the Russian Federation and, in particular, the Law ‘On Currency Regulation and Currency Control’.
Advantages of Foundations
1.1. Since a foundation has been established, the founder does not appear as the owner of one or several bank accounts. Therefore there is no direct relationship with the bank and formally the founder is merely an agent.
1.2. The laws of both jurisdictions allow establishment of a foundation by the intermediary person (the founder’s proxy or, more often, a trustee) and the name of the Founder does not appear in any official documents.
1.3. The beneficiary or beneficiaries of the foundation are appointed by Internal Regulations, which, as follows from the name, are for internal use only.
1.4. The governmental authorities are informed of the foundation’s name, initial subscribed capital, official address, incorporation date and the names and addresses of an official representative and Board members of the Foundation.
2.1. According to the Internal Regulations, the Founder may be appointed as the sole beneficiary of the Foundation for his/her life. Moreover, the founder (as a member of the Board of the Foundation) is the only person who has the right to amend the Internal Regulations at any time.
2.2. According to the provisions of agency contract, the Board members may act on instructions of the Founder only for the duration of his/her life.
2.3. Intentions of the Founder are guaranteed to be accomplished after his/her death by execution of the Internal Regulations of the foundation.
Internal Regulations of the foundation may be changed by the founder at any time; consequently they may be adapted to new life circumstances or situations at any time.
4.1. The Founder may provide in the Internal Regulations on how the capital or assets of the Foundation shall be distributed after a considerable period of time.
4.3. In the event of the premature death of the main beneficiary, i.e. Founder, the Board of the Foundation may be asked to act as «guardians» for those beneficiaries who are minors at that time. .
Significant experience of LEXMANS CORPORATE SERVICES on registration and maintenance of private foundations makes it possible to use all the advantages of this organizational form fully and efficiently, taking into account all the wishes of clients.