Foundations Overview

Foundations have been around in various forms since the Middle Ages

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Foundations Overview

Foundations have been around in various forms since the Middle Ages having originally been used for charitable and religious purposes. Over time foundations evolved first with the “family foundation” introduced by Liechtenstein in 1926 and later the “private interest foundation” popularized by Panama in 1995. Today they are widely used for both charitable and private purposes where they are an increasingly popular alternative to a trust in estate planning. Foundations have characteristics of both companies and a trusts with many referring to them as an “incorporated trust”.

 

Foundations have settlors (called founders) and beneficiaries like a trust. However, rather than trustees who hold legal title to assets of a trust and administer the assets in accordance with the trust deed, foundations have councilors appointed to manage the affairs of the foundation. Foundations, unlike trusts which are only a contractual arrangement, are separate incorporated bodies like companies. Thus when assets are transferred from the founder, they become the property of the foundation itself with full legal title. Neither the founder nor beneficiaries is considered a “beneficial owner” of the foundation assets.

Types of Foundations

Charitable Foundation

– non-profit organizations which receive funding from multiple third party sources and have charitable objects and beneficiaries.

 

Private Foundations

– may be established for philanthropic purposes but may also include estate planning or succession planning objects in addition and all or at least the vast majority of the funding is provided by an individual or family. Famous examples include the Gates Foundation and Rockefeller Foundation.

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Private Interest Foundations

– also funded by an individual or family, used more for estate planning and succession planning purposes as an alternative to a trust and do not typically have charitable objects.

 

Purpose Foundations

– this is still a relatively new concept where a foundation is established with no beneficiaries to carry out any specified purpose such as acting in the role of the council or protector of another foundation or as the protector of a trust for instance.

 

Commercial Foundations

– while foundations are not suitable for carry out commercial, profit making activities, they can be utilized by corporates for purposes such as a corporate pension scheme.

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