Definition of a Trust
“Trust” refers to the legal relationships created ‘inter vivos’ or on death by a person, the Settlor, when assets have been placed under the control of a Trustee for the benefit of a Beneficiary or for a specified purpose. Validity of Trusts
There are three minimum certainties for a Trust to be valid:
- Intention: the Settlor must have clearly intended to settle the Trust and confer legal control of assets.
- Assets: the Trust is not operative until assets have been transferred.
- Objects: it must be clear for whom the Trust was created and subsequent assets transferred to the Trust are being held.
Common versus Civil Law
When comparing the Private Foundation to a Trust, the fundamental difference is the legal system. Foundations are based on civil law while Trusts are based on common law.
Common Features between Trusts and Foundations
- Assets can be transferred or donated to both.
- They can be created during the lifetime of the Founder (Settlor) or on death.
- They can both be created for a limited duration and can be revoked. • The Founder can exercise control over the use of the assets (settlors can retain certain powers).
- They both foresee the supervision by outside administrators.
- They are both created for asset protection and succession planning.
The Advantages of the Private Foundation
- A Foundation is a separate legal entity (unlike a Trust).
- Assets placed into a Foundation become the property of the Foundation itself both legally and beneficially.
- Legal certainty: the Foundation is an incorporated body with clear statutory laws and regulations governing it in the jurisdiction.
- Foundations are clearly governed by the law in the jurisdiction where established.
- One can place assets into a Foundation and then transfer “ownership” of the Foundation in a number of ways to indirectly transfer the underlying assets of the Foundation. This is not possible with a Trust.
- Issuance of certificates linked with some assets of the Foundation is not possible in Trust.
For succession planning, a Trust that is to take affect after the death of the Settlor must conform to the formalities of a will. When a Foundation is created to take effect after the Founder’s death, the formalities need not conform to making a will.