Offshore private foundations are independent legal entities with no members established for the primary objective of achieving a given purpose by means of an endowment. Offshore foundations are legal persons and are bestowed with their own obligations and rights.
Offshore private foundations can be formed for charity, social work, religious purposes of for the benefit of a single person maybe a spouse or child. Generally, an offshore foundation is prohibited from undertaking commercial transactions as its regular business since doing this alter the purpose of the foundation which is meant to be non profit or charitable.
Many common law countries have adapted offshore foundations because of the growing popularity of foundations and the advantages they have shown to have over trust. Foundations originate from civil law legal systems such as Liechtenstein, which had enacted its law on foundations since 1926 and has since then served as a model for other countries. Liechtenstein has two kinds of foundations, one which is formed under private law or privatrechtliche and another under public law known as öffentlichrechtliche. In the Netherlands foundations are called Stichtung and can be established for various reasons such as for government and education pension funds (Stichting Pensioenfond), promoting Dutch museums (Stichting Museumjaarkaart) and social work and healthcare services (Stichting Pensioenfonds Zorg en Welzijn). Some common law legal systems with foundations are the USA, Canada, the Bahamas and Australia.
Offshore foundations are formed using very simple procedures. In most countries they are formed by a notarized deed which is archived at the Registry. Deeds are executed with the assistance of a registered or resident agent through whom a group, corporation or individual expedites the process in the offshore jurisdiction. In Sweden, to form a private foundation, the founder (s) donates the assets to be administered or funds by issuing a letter of donation. A foundation comes into existence once all legal formalities are fulfilled and documents issued in accordance with the laws of the jurisdiction in which it is being formed.
An offshore foundation can be specially created to become effective at given times or in certain circumstances such as upon the death of the founder or the occurrence or an event. If the foundation becomes effective upon founder’s death, there is no need to follow the formalities or requirements for granting a will as the offshore foundation itself functions as a will which is executed once that particular event has occurred.
In jurisdictions such as Panama, the beneficiaries to the foundation are legally unable to revoke the formation of the foundation or object to the assets or funds endowed to the foundation. In Panama, an offshore foundation cannot be made invalid due to the laws of the country in which the beneficiaries or other people administering the foundation live in.
The assets or funds endowed to a foundation can be obtained from a transaction or legal act and usually include real estate, stock, any form of chattel, money, securities that are owned at the time of forming the foundation or expected to be owned in the future. Most jurisdictions give a minimum value that the total assets must have. For example, in Panama the assets transferred to an offshore foundation must be equivalent to US $10.000.
A special feature of offshore private foundations is that the law of most jurisdictions provide for the foundation’s assets to be independent and separate from the estate or assets of the person, group or corporation that creates the foundation. This provision prevents the estate of the foundation from being seized or claimed by the founder or anyone else. In many instances too, the creditor of a founder is capable of exercising the right to go against the formation of a foundation if the creditor is being defrauded from payment of money or other commodity owned by the creation of any given foundation. Offshore private foundations must therefore be created on a totally legal basis. Creditors must be keen on acting against the creation of a foundation because there are also provisions which make the claims of a creditor null and void if these claims elapse over a certain amount of time.
An offshore private foundation consists of a Council or a Board of Trustees which is responsible for fulfilling the duties laid out in the deed. Jurisdictions state the minimum number of people that can belong to the council or board and the records that must be kept on them with regard to their names and other personal details.
Some of the council’s responsibilities include informing the beneficiaries about the foundation’s financial status on a regular basis, most often every year, and depending on the jurisdiction this report may or may not have to be filed with the authorities overlooking matters dealing with offshore private foundations.
There are common law legal systems which make it possible for foundations to relocate from one jurisdiction to another. Offshore private foundations can redomicile for various reasons, including if the founder and or council are displeased with the service of the registered agent in the current jurisdiction, if there are changes or foreseen changes in the foundation laws or the economic, social or political standing of the jurisdiction that are going to be disadvantageous to the interests of the beneficiaries or, to be able to benefit from certain advantage that the laws of another country are offering. Once a foundation has redomiciled it is governed by the laws of its new jurisdiction and functions like any other foundation created in that jurisdiction.
In tax havens where offshore private foundations are formed, the foundation’s estate is usually exempt from all taxes or very low taxes are levied. This allows for free and easy transfer of assets to beneficiaries and in the case of the passing of the beneficiary (where there is only one) transfer to spouse in compliance with the deed or in favour of relatives if the deed is worded within the first degree of consanguinity.
Offshore private foundations are effective in estate planning and allow families to protect their assets and dictate and control the future of property, businesses, precious stones, money and other valuables that the family may hold. Corporations are able to do the same with an offshore foundation. The assets of an offshore foundation can be invested in securities or business ventures but the profits received must go back into the foundation. Whatever decision is made by the council or board must be in the best interest of the beneficiary.
(c) Caribbean Land and Property July 2009