Offshore Foundation Vs Trust
An Offshore Foundation is a commonly used term to refer to a separate legal entity without members or shareholders, established under the wishes of a founder that is outlined in a Charter.
Whereas an Offshore Trust is formed for the purpose of placing assets of property ownership onto the name of a trustee, who holds it for the benefit of its intended beneficiaries. Though they differ in definition, there are many similarities between the two corporate entities as they share many of the same offshore benefits, financial services, and management structures.
Differences
There are some fundamental differences that should be pointed out. While there are other subtle differences, they largely depend upon the type of Trust and Foundation and the location of the structure.
Foundation Characteristics
- Needs to be registered to exist
- Foundation Charter is public (not Panama)
- Incorporate legal entity much like a company (not Panama)
- Assets are owned by the Foundation itself
- Foundation can sue and be sued in its own name
- Does not need assets to be placed in Foundation
Trust Characteristics
- Does not need to be registered
- Trust deed is not public (can be confidential)
- The trust is not a legal entity and so rights fall upon the trustees
- Split between ownership of assets and the assets itself
- Trustees sue and are sued in their own name rather than action taken for or against the Trust
- Assets are to be placed in the Trust
What is an Offshore Foundation?
An Offshore Foundation is used for any number of activities, including for personal, commercial or charitable purposes, though its modern use has been mostly associated with its wealth protection, estate planning, and tax savings benefits.
A foundation has many similarities of a regular corporation and the asset protection features of a trust. It also benefits from being free from all local taxation if it does not conduct any transactions or business locally.
A Little History
Foundations have their inception nearly 100 years ago in Western Europe for estate and asset planning in Liechtenstein. Since then, Foundations have become widespread and are used in countries all over the world. Foundations are used primarily in Civil Law jurisdictions, where ‘Anglo Saxon Trusts’ are unknown.
Private Interest Foundation began in Liechtenstein when with the Law of Persons and Companies in 1926. Today, Liechtenstein capitalizes on its historic fame, charging USD 25,000 or more to incorporate a Foundation and nearly USD 10,000 a year for maintenance. Foundations can be used for any number of reasons, including charitable, commercial or family purposes.
Different Types
There are many different types of foundations each with its own specific uses and functions.
- Private foundations
- Public Foundations
- Charitable Foundations
- Corporate Foundation
- Family Foundation
- Community Foundation
Each type of foundation can overlap in their uses and activities whether it is used internationally or domestically. Offshore foundations are not a widely known corporate structure, and that has allowed them to exist without as much scrutiny as for example Offshore trusts or corporations.
A private foundation has many of the same functions and management structures of a private company as well as the asset protection benefits of Trusts. There are a host of associated benefits and uses of Foundations, the most popular being the Panama Foundation which has been a leading centre in establishing international Foundations.
Benefits of an Offshore Trust
Most people look to an Offshore Asset Protection Trust to keep their wealth or assets secure. Thankfully, in offshore countries, a local judge can not legally force a foreign trustee to release funds due to a foreign court order. Someone who is seeking grievances or are pursuing a case against the Trust much do so in the territory where the Trust is located.
There are many obstacles preventing the continuation of a case against a non-resident trust. Many offshore countries make pursuance against such an entity troublesome, time-consuming, and costly, to prevent unlawful claims and would-be trouble makers from gaining access. Cook Islands Trust is considered to be one of the world's toughest places to make such claims because of its statute of limitations on fraudulent conveyance.
As such, there is a limited amount of time (one year from the date of the lawsuit or two years from the claimed 'fraudulent' transfer), where a claim can be made against a foreign trust. This makes pursuing lawsuits very difficult as by the time the suit is finished in the US or UK, for example, and is being pursued in the Cook Islands, the time will have been or shortly will be expiring.
Similarly, proving intent to defraud must be done in places like Belize or Cook Islands, where a creditor has to prove beyond a reasonable doubt that transfer was made to intentionally defraud. These barriers to litigation prevent only the most determined creditor from bringing forward the suit, as most would calculate the benefits of success against battling an international trust and usually drop the case before it begins and agree to settle out of court. These barriers to success limit the creditor's ability to bring a suit forward and acts as a strong deterrent from starting a lawsuit against the Trust in the first place.
Foreign or Domestic?
A trust formed outside where you live gives you a number of protection mechanisms that are exclusive to a foreign trust. Because the trust is located offshore it acts as a barrier for anyone looking to break into the structure.
All of this prevents autocratic regulators, government or tax authorities from improperly seizing or freezing your assets without a proper due process, an event that is becoming all the norm in today's brave new world. Diversifying assets across different foreign jurisdictions in offshore entities also creates barriers preventing the wrong people from pursuance of claims against you from: malpractice suits, scam artists, creditors, and false claimants.
Having extra hurdles that claims have to go through is extremely valuable in safeguarding you against any potential problems. A second layer of protection is found by having corporate laws and a legal system that does not respond to foreign court orders but must follow a process of proving intent to defraud which is a difficult thing to prove.
This process is often expensive (1000,000 USD in the case of Nevis) and time-consuming, which often deters individuals from pursuing the claim in the first place. An asset protection trust does this by having a statute of limitations of 1-2 years (ex. Cook Islands) for making a claim to prove if there was any fraudulent transfer occurred.
Last but certainly not least, foreign trusts as well as foundations, when placed in a zero tax or tax-neutral jurisdiction, benefit from having the assets held without incurring local taxation.
What's the main Difference?
A domestic trust does not enjoy any of these asset protection benefits, is often closely linked to the individual personally, must respond immediately to local court rulings, is taxed, and does not enjoy the added layers of protection enjoyed by international offshore structures.
A domestic trust probably is not sounding very good right about now
Advantages
There are many benefits as we have talked about, from forming an offshore trust. To sum it up, they include:
- Asset Protection to protect one's assets, bank accounts and investments
- Proven intent to defraud to pursue claims against the Trust
- Fixed time limited against pursuing lawsuits or fraudulent conveyance claims
- Difficult barriers remain preventing unlawful claims
- Local courts do not recognize foreign court orders judgments
- No bankruptcy laws nor clawback provisions in many offshore jurisdictions' legal codes
- Must show criminal intent beyond a reasonable doubt
- Laws prevent 'fishing expeditions' by creditors
Structure
- Settlor - Individual who owns the assets of the trust
- Trustees - Administrators of the trust
- Protector - Oversees trusts operation
- Beneficiary - The individual benefiting from the trust
Settlor
This is the individual who places their assets in the trust for the trustees to manage for their benefit.
Trustees
The trustee(s) hold the title to the assets within the trust, though they can not in anyway benefit from taking anything from within the trust. A Trustee is one who looks after the trust in case is any legal action taken against the Trust. The Trustee is limited in their abilities to distribute the assets only to the intended beneficiary.
Protector
A protector has oversight over the offshore entity, though is usually optional in most offshore jurisdiction, but gives another failsafe as they are given power to appoint and dismiss the trustees and make decisions on the beneficiaries' behalf.
Beneficiary
A beneficiary is one who is to benefit from the trust. They ultimately have the sole authority of the trust. The trust is structured in such a way to ensure that they are protected.
How does it Work?
An offshore asset protection trust works by giving the legal title of an individual's assets to a trustee who exists outside of the country where you live. A trustee is the one who legally holds the title of the trust on behalf of the beneficiary.
A creditor can not go after the beneficiary of the trust as they in no way are legally responsible for the contents and so must go after the trustee if they seek to break into the entity. Because the trustee is located in a country outside of where the creditor is located, they must approach the court within that specific country.
Keeping your assets outside of the United States, or wherever you may live gives you leverage allowing you to usually settle the claim without having to go through any long legal battles.
How much does it cost?
Offshore trusts costs are typically more expensive than domestic trusts because of the associated costs of having a trustee in a country outside of where you live and generally range between 10,000 - 20,000 USD, although it varies depending upon the country as well as if there are any additional services.
1. Cook Islands Trust
The Cook Islands Trust has some of the world's toughest asset protection legislation has given this country a name for itself. Many barriers to prevent from claims being pursued. Local courts do not acknowledge foreign claims and there are fixed time limits from pursuing claims.
2. Nevis Trust
The Nevis Trust is a highly regarded asset protection structure that has strong corporate laws that have been used to ensure that a trust can not be broken into.
There are a great many barriers used to prevent creditors from accessing the assets in the trust making it one of the most popular trusts in the world.
3. Belize Trust
A Belize Trust is one of the world's most popular International Trusts formations that offer flexible arrangements, strong asset protection clauses, as well as tax reduction possibilities as well as strong confidentiality clauses.
There have been many changes within Belize's corporate laws over 2019. With so many changes happening, it is best to speak with us prior to pursuing this Trust in case there are any significant amendments that are currently in the works.
1. Nevis Foundation
The Nevis Multiform Foundation is a versatile offshore structure established under the Multiform Foundation Ordinance of 2004, allowing it to operate as a company, trust, partnership, or foundation. It offers complete foreign ownership, confidentiality, and robust asset protection with no public disclosure of founders or beneficiaries, making it ideal for estate planning, wealth protection, and asset holding.
There are no tax obligations for foreign activities, and the foundation maintains anonymity through nominee services, with minimal local requirements beyond a registered office. The structure also includes flexibility in corporate shares and governance, requiring only one director and allowing meetings anywhere globally. With no audit or annual reporting mandates, the Nevis Foundation is quickly formed (within 1-2 business days) and is well-suited for those seeking a flexible, secure, and private offshore entity.
2. Panama Foundation
The Panama Private Interest Foundation (PPIF) is a unique asset protection structure designed to hold assets without direct commercial involvement, providing a separate legal identity for the foundation’s assets. Unlike corporations, the foundation has no owners, shielding its assets from creditors or forced heirship claims, and allowing the founder to specify asset distribution through a private "Letter of Wishes."
It offers substantial tax advantages, as there are no taxes on foreign income, capital gains, or inheritance for assets held in the foundation. The PPIF can support estate planning, charitable causes, and secure investment management while maintaining privacy and flexibility. With anonymous ownership, no reporting requirements, and options for re-domiciling from other jurisdictions, Panama is an attractive location for establishing private interest foundations.
3. Cook Islands Foundation
The Cook Islands Foundation is an offshore entity established primarily for asset protection and estate planning, offering high privacy and tax-free benefits under the Foundation Act of 2012. The foundation allows for complete foreign ownership, ensures confidentiality by keeping founders' and beneficiaries' identities private, and provides robust legal protection against foreign claims and forced heirship laws.
Registration is straightforward, with no minimum capital requirement, and the foundation operates as a separate legal entity without the need for shareholders. It is commonly used for non-charitable and charitable purposes, estate planning, and safeguarding assets with no obligation to disclose financial details publicly. As a versatile alternative to the Cook Islands Trust, it is particularly advantageous for those seeking a cost-effective structure with flexible governance and enduring asset protection.
