Introduction

In the complex world of managing assets and planning your estate, choosing the right type of legal structure is really important for keeping your wealth safe and making the most of it for your family over generations. While trusts have been the traditional choice in many countries, foundations have emerged as a new and interesting option.

This article will explore what foundations are – they’re a kind of legal setup that’s a bit like both companies and trusts, but they work in their own unique way and have their own purpose. We’ll look at the special role foundations play in organizing wealth and planning how it’s passed down, their benefits for international estate planning, and we’ll consider Samoa foundations as a specific example. This will give you a fresh way to think about managing your assets and planning your legacy in today’s interconnected world.

What are Foundations?

Foundations are a relatively new idea in countries that use common law, where trusts have traditionally been used for holding assets and planning how they are passed down. On the other hand, countries that use civil law have been using foundations for similar purposes for a very long time, going back to the Middle Ages.

A foundation is a legal entity that is officially registered and serves different purposes in organizing wealth and planning for the future. It’s different from both a company and a trust, although it has some things in common with both. Importantly, foundations don’t have shareholders or ‘owners’, and they don’t necessarily need to have beneficiaries (people who benefit). This unique feature is why foundations are increasingly being used as the main structure to hold assets. They effectively separate assets from a person’s personal wealth, which means these assets are not considered part of the person’s estate when it comes to inheritance tax.

Foundations are sometimes called ‘orphan structures’ which makes them particularly useful in situations where you might otherwise think of using charitable trusts, purpose trusts, or companies limited by guarantee. They are flexible and can be used for both charitable goals and non-charitable goals. For example, wealthy families might use them for succession planning by transferring assets into a foundation. The foundation then holds these assets for the benefit of the people the family has chosen as beneficiaries.

Because they are set up as separate legal entities, foundations have their own identity and legal standing, similar to companies, but without shareholders. They hold assets and are responsible for their own debts in their own name, for the benefit of beneficiaries. They must be created with one or more legal purposes. Foundations are generally not allowed to carry out commercial business activities, except for activities that are necessary and related to their purposes. However, any company that is owned by the foundation can conduct commercial activities.

To create a foundation, a “Founder” starts by transferring assets to it. These assets then become the property of the foundation. Unlike trusts, foundations are structured in a way that allows the Founder to keep some control over the foundation. This control can continue even after the Founder passes away, ensuring that the foundation can exist indefinitely.

Setting up a foundation can be very helpful for protecting assets, especially when planning for the future and passing on wealth. It provides a structured way to manage assets, which is very important for avoiding disagreements within families and making sure wealth is transferred smoothly across generations.

Differences Between Foundations, Trusts, and Other Legal Entities

Foundations are different from other legal setups like companies and trusts in several important ways. These differences include what they are set up to do, how they are controlled, where their money comes from, and how they are taxed.

• Purpose: What these setups are mainly for is quite different. Companies are usually created to do business and make profits for their owners (shareholders). Trusts are set up to manage assets for the benefit of someone (the beneficiary or beneficiaries). Foundations, however, are usually created for charity or to do good things, focusing on supporting different causes or helping society.
• Control: How these setups are controlled is also different. Foundations are managed by a board, like a board of directors or trustees. Companies are run by a board of directors and officers who make decisions about how the company is run. Trusts are controlled by a trustee, who is responsible for managing the trust’s assets according to the trust agreement and for the benefit of the beneficiaries.
• Funding: Where the money comes from for these setups is also distinct. Companies can raise money by selling shares or other financial securities. Foundations usually get their money from donations from the people who set them up (founders) or other donors, and they might also get grants from other organizations. Trusts are funded when the person creating the trust (the settlor) transfers assets into the trust.
• Taxation: How they are taxed is also different. Companies usually have to pay corporate income tax on their profits. Trusts might have to pay income tax or estate tax depending on how they are structured and what kind of assets they hold. Foundations, on the other hand, might not have to pay tax on some of their activities, especially if they are related to their charitable or good causes.

In short, foundations are a special kind of legal setup that allows individuals and families to support causes that are important to them. Besides their charitable aspect, foundations can also offer potential tax advantages and ways to protect assets, which makes them different from companies and trusts in terms of their purpose, how they are run, how they get funded, and how they are taxed.

Why Use Foundations for International Estate Planning?

Foundations can be really helpful for planning your estate across different countries, especially when it comes to privacy, planning for the future, protecting your assets, and managing taxes. Here are some of the main advantages:

• More Privacy: One of the biggest benefits of using a foundation for estate planning is that it’s more private. You don’t have to publicly register your wishes for how your assets will be managed and given out, which keeps things more confidential.
• Dealing with Different Country’s Laws: In some places, like the UAE, the courts might not recognize inheritance rights from other countries if you’re still alive. A foundation can help protect your assets from claims based on these foreign laws.
• Planning Your Estate for the Long Term: Foundations are great for planning your estate to last for many years. They are designed to keep going even after you pass away, making sure your family members or others you choose are taken care of according to your wishes.
• Planning for Succession: Foundations are very useful for planning who will take over your assets, especially personal wealth, business ownership, and other possessions. They provide a clear way to make sure your assets and control of them are passed on smoothly according to your plans.
• Reducing Personal Net Worth for Legal Reasons: If you put assets into a foundation, it can make your personal wealth appear less. This can be a smart move to reduce potential legal risks, as those assets are no longer directly in your name.
• Growing Your Investment Income: Foundations can be used to build up income from investments like annuities, interest, royalties, dividends, and other returns. This can be good for growing and managing your wealth.
• Recognized in Many Countries: Foundations are recognized as legal entities in both common law and civil law countries. This makes them a flexible tool for estate planning that involves different countries.
• Planning for Inheritance Tax: Foundations can be a good way to plan for inheritance taxes. By holding assets in a foundation, you can structure things to potentially lower the amount of inheritance tax that needs to be paid.
• Separation of Voting and Economic Benefits: Foundations allow you to separate who controls assets (voting rights) from who benefits financially (economic benefits). This can be important for managing family businesses or large estates where you want to divide control and financial benefits among different people.
• Protecting Your Wealth: Overall, foundations offer strong protection for your wealth. They help ensure your assets are safe from outside claims and are managed the way you intend, giving you and your family security for the future.
• Putting All Your Global Assets Together: If you have assets in different countries around the world and want to manage them together, a foundation can be a good central structure. This makes management simpler and ensures your diverse assets are governed in a consistent way.
• Protection from Uncertainty: Foundations can also help protect your wealth from different kinds of uncertainty, whether it’s political, economic, or within your family. The stability and legal protection of a foundation can be very valuable for safeguarding assets against unpredictable events.

Using foundations in international estate planning can be a complete way to protect your assets, keep things private, plan for the future effectively, and manage taxes in the best way. This makes them a very helpful tool for people with significant assets in multiple countries.

Downsides of Using Foundations for International Estate Planning

While foundations can be a really useful tool for planning your estate across countries, they also have some downsides that you need to think about carefully. Here are some potential disadvantages:

• Costly to Set Up: It can be expensive to establish a foundation. You’ll need to hire lawyers and accountants to set it up correctly. Dealing with different legal rules in various countries can also increase the initial costs.
• Ongoing Costs: Foundations also have costs that continue over time. These can include yearly fees, regular legal and accounting bills, and other administrative costs to keep the foundation running and following the rules. These ongoing expenses can be significant, especially for foundations that are complex or operate in multiple countries.
• Not Very Flexible: Foundations are usually set up for a specific purpose, like charity, which can make them less flexible than other legal structures. Once a foundation is established, it can be hard to make big changes to how it’s organized or what it’s meant to do, and it might involve complicated legal processes.
• May Need to Share Information Publicly: Depending on where the foundation is set up, you might have to publicly share certain information. This could include financial details, information about who benefits from the foundation, and what assets it holds. This openness can reduce the privacy that some founders want.
• Limited Ways to Invest Money: Foundations often have rules about how they can invest their assets. They usually need to invest in ways that fit with their purpose and follow legal requirements. This can limit the types of investments they can make and might affect how much money the foundation can earn.

These downsides show that it’s important to plan carefully and think things through before choosing a foundation for international estate planning. It’s crucial to weigh these potential challenges against the benefits that a foundation offers, considering your specific needs, goals, and the types of assets you have. It’s a good idea to talk to legal and financial experts who specialize in foundations and international estate planning to help you make an informed decision.

Samoa Foundations for International Estate Planning

Samoa offers a modern and effective way to plan your estate internationally using its foundations, which are set up under the Foundations Act of 2016. These foundations are a newer option for managing wealth offered by Samoa’s international finance center. They are legal entities whose structure is defined by their own rules and charters. To create a Samoan Foundation, you need to register it with the Registrar of International and Foreign Companies, following the International Companies Act of 1988. The foundation itself directly owns the assets put into it.

Running a Samoan foundation is managed by a Council, and sometimes there’s also a Supervisory Person overseeing things. Officers handle the everyday administrative tasks. A key feature of Samoan foundations is that they must have a licensed Samoan Trust Company as their local representative, called a Resident Agent. These foundations can be set up for different reasons, whether for individuals, charities, or other purposes. Samoa also allows for special types of foundations, like Charitable Foundations and those that are combined with a Limited Partnership.

When it comes to public access, Samoa’s registry of foundations is in two parts. Part A is public and has general information. Part B is private and contains confidential documents filed under the law. This split helps balance the need for some openness with the desire for privacy.

One of the main advantages of Samoan foundations is that they are protected from inheritance rules in other countries. This means the foundation’s assets are protected and distributed as the founder intended, no matter what inheritance laws might exist elsewhere. Samoa also has a helpful option for foundations to move there from other countries. Foundations set up in other places can apply to be recognized as Samoan foundations. This flexibility is especially useful for people looking for a good place to set up their estate planning.

Overall, Samoan foundations are a comprehensive and flexible solution for individuals and families who need sophisticated ways to protect their assets, plan for the future, and manage wealth internationally.

Conclusion: Let Us Help You Manage Your Assets Effectively

Foundations offer a really attractive option compared to traditional legal structures for international estate planning. They provide a good balance of privacy, flexibility, and strong asset protection. While foundations have great advantages like separating control from who benefits financially, tax benefits and lasting indefinitely, it’s important to be aware of the complexities. This includes the costs to set them up and keep them running and the legal rules in different countries. If you’re thinking about using a foundation as part of your estate planning, it’s really important to get advice from legal experts. At Samoa Offshore Legal, we specialize in giving complete advice and creating customized solutions for your estate planning needs. Our team of experienced lawyers knows all the details of foundations and international estate planning. Let’s talk about how we can help you secure your legacy and make sure your wealth is passed on smoothly to future generations.