There are only three things you can do with money – spend it, save it or give it away. Though giving appears the easiest of these, in practice it’s the one which can prove the most difficult. Just ask some of the wealthiest people in the world such as Bill Gates (Bill & Melinda Gates Foundation), Warren Buffett (a Trustee of the Bill & Melinda Gates Foundation and founder of the Buffett Foundation) or Sheikh Khalifa bin Zayed bin Sultan Al Nahyan (Khalifa bin Zayed Al Nahyan Charity Foundation) who are leading this increasingly philanthropic trend.
Not everyone can give a transformational amount like those mentioned above, but even for those with more modest giving intentions there are still many aspects to consider. These include maintaining control over where and how assets are redistributed, privacy for both the giver and beneficiary, and avoiding unnecessary publicity. It is for these reasons that Trust and Foundations are considered the philanthropist’s best friends.
A Trust is formed when someone (a Settlor) places their assets (gives legal control) in the legal custody of someone else (a Trustee) for the benefit of a third party (a clearly defined Beneficiary). Trusts are governed and utilized in common law jurisdictions, and historically the most popular jurisdictions are those where there is the most case law history, such as Jersey or Guernsey. However, if the assets of the Trust are held in a civil law jurisdiction, they are liable to attack if the Trust is ever disputed.
Trusts ensure that your assets are redistributed in accordance with your wishes and provide privacy. Charitable Trusts differ slightly, since they remove the link between the Trustees and the Beneficiaries, meaning that the Beneficiaries have no legal standing against the Trustees.
Foundations are primarily civil law tools, used where trusts may not be recognized or deemed appropriate. They originated in the early 20th century in Liechtenstein and are now commonly offered in jurisdictions including Panama, Bahamas, Dutch Antilles, Jersey and Isle of Man. They have a special legal status based on civil law, which mix the legal components of a trust and a company. They have their own self-governing legal status, but they don’t have any shareholders.
Foundations also offer privacy, succession planning and a high level of asset protection, but they also afford a higher level of control to the Founder. The assets are owned and controlled by the Foundation which is governed by Foundation Council and directed by a Letter of Wishes, which is supplied by the Founder, and specifies how assets are to be handled and/or distributed. It is usual to insert a Protector into the structure, this role is to oversee the implementation of the Letter of Wishes and can grant the Protector rights of consultation or even rights to remove or replace the Foundation Council. This provides a more hands on role for those concerned about the potentially unlimited powers of Trustees to control assets.
Whilst it’s also possible to have a similar Protector role in a Trust structure, the unique legal status of the Foundation means that a Founder may be able to assume the role of Protector, without impacting the discretionary nature of the Foundation Council, therefore delivering more control.
An alternative structure is to set up a charity, which must offer benefit to the public to qualify. In the UAE this requires application to the Public Utility Association Department of the UAE Ministry of Social Affairs. If the applicant is not a UAE national it is advisable for the applicant to first contact their Embassy to assist in the application. Before a license is granted there must be at least twenty founding members (all adults with good conduct), minutes from a temporary board of directors meeting and Articles of Association.
Whilst the use of a charity structure is common, they’re subject to stringent regulation and are becoming increasingly transparent in terms of donation and distribution.
In Panama, confidentiality is strictly maintained, Foundations have no reporting requirements and neither the Protector nor the Beneficiaries need to be publicly registered. These factors have made Panama the first choice for Foundation structures, and many wealthy philanthropists opt for these to ensure control and to avoid unnecessary publicity.
(Written by Paul Hymers, Finance Director at Atlas Corporate Services)
About Atlas Corporate Services
Atlas Corporate Services Group is a global corporate and trust service provider, with corporate and private clients. The Group manages onshore and offshore companies, trusts and other business structures to meet the individual demands of its clients, such as corporate re-structuring, wealth and asset protection, tax reduction, international expansion and the provision of professional officers and secretarial services. Atlas Corporate Services JLT, based in Dubai, undertakes marketing functions for the Mauritius based office.