Elevating Wealth Strategies: The Foundation, Trust’s Alter Ego

In our recent related articles (1 & 2) we conducted an in-depth exploration of trusts, shedding light to their evolution and the strict rules that govern them, particularly in the context of Cyprus. Before we switch to foundations, it is highly advised to give those articles a quick read. They will equip you with a solid knowledge base facilitating a smoother comprehension of the principles and features referring to foundations. Now, let us unravel the roots, structures, and modern-day significance of foundations in managing wealth.

Foundations: A Journey Through Time

Foundations, with their roots tracing back to the Middle Ages, have undergone a fascinating evolution, particularly in the Holy Roman Empire. Originally established by nobles as Stiftung(en) or foundation(s), these entities transformed over the years into vital institutions such as hospitals, monasteries, and workhouses. While the non-profit nature of foundations persisted, their numbers dwindled in the 20th century.

In contemporary times, foundations can take on two primary forms: non-profit (charitable foundations) or for-profit (benefiting foundation beneficiaries). The fundamental concept remains unaltered – the initial property utilized by the Founder shapes the foundation’s goals.

Global Variants and Noteworthy Examples

Several jurisdictions host well-known variants of foundations, including Liechtenstein, Malta, Switzerland, Panama, and others. Let’s delve into the example of the Liechtenstein Foundation, renowned for its distinctive features.

The Liechtenstein Foundation typically includes a Founder, a Foundation Council (with a minimum of two members), a Protector (optional), an Auditor (optional), and any additional bodies as needed. Notably, there’s a minimum foundation capital requirement of USD, EUR, CHF 30,000. The founder, similar to a settlor in a trust, plays an important role in influencing the foundation’s structure.

Comparing Foundations and Trusts

In many aspects, foundations bear similarities to trusts, even featuring equivalent parties with different titles. However, misuse of a Foundation can lead to illegal activities and concealment of real ownership, classifying it as a high-risk entity.

Governance and compliance in foundations, much like trusts, involve essential components such as intention, subject matter, and objects. Foundations, similar to trusts, provide privacy for beneficiaries, support various legal structures, and contribute significantly to wills and estate planning, charitable purposes, asset protection, pension plans, and general tax planning.

Documentary Framework

Foundations are registered in the Commercial Register of the Principality of Liechtenstein, complete with a separate registration foundation number. The entity possesses its own statutes (Foundation Articles) and may include additional documents like by-laws.

Critical Differences and Client Considerations

While foundations may seem similar to trusts, critical differences exist. Foundations have a distinct registration number, making them a clear legal entity compared to trusts. This distinction can influence client preferences, especially in activities like buy-sell transactions.

The corporate resemblance of foundations compared to the tripartite arrangement of trusts may sway client choices based on understanding and trust. Moreover, fiduciary duties differ. Trustee responsibilities are explicit, while foundations may afford more discretion.

Future Prospects

Both trusts and foundations continue to flourish, adapting to the evolving needs and circumstances of clients. They serve as effective tools for asset protection, estate planning, charitable endeavors, and general tax planning. As they continue to develop, trusts and foundations are poised to play important roles in shaping the financial landscape for years to come.

Should you seek guidance in the variety of wealth management institutions, we invite you to contact experts at Eurofast in Cyprus at nicosia@eurofast.eu.

Pilavas Nicos Eurofast

Nicos Pilavas
Banking Officer
Eurofast Nicosia