PRIVATE FOUNDATIONS Like it or not... they’re here! For decades, wealth management practitioners, especially in common law territories, have relied almost entirely on the trust, to service their clients requirements. Such practitioners must, however, in today’s litigious environment, consider with greater care what the most appropriate structure or vehicle to use may be. The assertion that, “I am a trust ractitioner,” the inference being, “take it or leave it, you’re having a trust,” is no longer acceptable. Prudent, detailed knowledge of alternative, lawful ways of structuring a client’s affairs, has never been more important. As we all know, litigation is expensive! Many common law practitioners harbour a prejudice against the utilisation of alternative vehicles, however clients having their affairs managed by such professionals, have a right to expect nothing but the most informed and prudent advice. The decision as to what is the best entity should rest upon the factors relating to a client’s scenario and not prejudice or restricted professional training. The fact is, that a growing number of common law practitioners are waking up to the extensive flexibility and potential, that foundations offer. More and more jurisdictions are considering or enacting foundation legislation and more clients are enquiring about the use and engagement of foundations. Why is this? A trust is a ‘relationship’ that depends upon the relevant parties, namely the Settlor, Trustee and Beneficiary, fully understanding the principles of the relationship. Failure to do so can result in a ‘sham’ and an embarrassing disintegration of the trust. Professor Willoughby observed; “……trusts have all too frequently been marketed as products by people who have not always understood or appreciated the strict legal requirements for the creation and proper administration of valid and enforceable trusts”. A Private Foundation, is a tangible, legal entity, created in compliance with relevant statutory requirements upon the registration of its ‘Charter’ at the Registry. This act of registration creates, under law, an entity enjoying aspects of corporate personality. In short, the foundation actually exists in its own right and is not the figment of a relationship. It is the ‘tangible existence’ of the foundation that perhaps offers the client greater comfort over the trust. With a trust, it rests upon the court to ultimately decide if the trust is valid. This is the only manner by which a trust attains “Absolute Certainty”. The foundation on the other hand establishes its ‘Certainty’ via the process of registration. Whether one likes it or not, the foundation, as with a company, exists as a legal person and is there for all to see. Again, in a similar manner to a company, a foundation may enjoy perpetual existence and can, therefore, be extremely useful within inheritance planning structures. The life of a foundation is stated within its Charter. Families may therefore look to generations well into the future for their inheritance planning. Trust legislation usually places extremely onerous responsibilities upon trustees. Accordingly the manner in which a trustee can or may respond to investment scenarios or opportunities can be very limited. Risk is one word that trustees shy away from. Whilst some may consider this an advantage, the same restrictions do not apply to a foundation council. The manner in which they manage a foundation’s assets is that which has been enshrined in the foundation charter and regulations. It stands to reason therefore that the council have far greater flexibility of operation, management or investment over their trustee cousins. The return on investments for a foundation can therefore be maximised and an agreed risk scenario established with the client. The rights of trust beneficiaries is a notoriously difficult subject. It is undisputed however that they can wield great power and it is a brave trustee who crosses swords with one. The appointment of beneficiaries in a foundation is flexible. There is no requirement to have named beneficiaries at the outset and their rights are that and purely that, which has been enshrined in the foundation regulations. Again the watchword of the foundation is ‘flexibility’. Added to all of this, as with a trust, many foundation jurisdictions permit the inclusion of ‘protector-type’ appointees, the functions and responsibilities of which are again enshrined within the regulations of the foundation. Clients can therefore install their own personal comfort element into the foundation structure if they so desire. It should however be pointed out that one should not dilute the element of control and management of the foundation council unless the consequences of this are fully understood. Some hard-line trustees will argue that foundations are a new comer to the block. Foundations in fact have been around for centuries and their use in the offshore world goes back to 1926. Professor John Goldsworth, in his article entitled “Exegi monumentum aere perennius” 2 stated, “Not long ago, perhaps even five years, foundations were featured in trusts and trustees, as an occasional case note or comment. How things have changed. There seems to be no slackening of innovation or interest in private foundations and we should be thankful that we have an investment vehicle of this calibre to add to our armoury of facilities to offer clients ” Practitioners, be aware, foundations are no longer a figment of your imagination. They have arrived and are here to support your efforts in servicing your clients in the most efficient manner. This useful tool may well open up new markets and opportunities but conversely, ignore it at your peril.

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