Should I use a Foundation or a Trust for asset protection?

Both offer strong protection, but the choice depends on where your assets are located. A foundation is often preferred in civil law countries because it is a registered public entity; this provides a robust shield against creditors because the assets clearly no longer belong to you. A trust works best in common law jurisdictions. A lawyer analyzes your specific risks to decide which vehicle offers the strongest wall against potential lawsuits.

Do I need a lawyer to set up a charitable foundation?

Yes, setting up a charitable foundation is legally complex. In the US, obtaining 501(c)(3) tax-exempt status requires rigorous interaction with the IRS. In the UK, you must satisfy the Charity Commission's strict public benefit tests. A lawyer ensures your mission statement complies with these laws. They also draft the bylaws to prevent you from accidentally violating rules on self-dealing, which could lead to severe tax penalties or the loss of your charitable status.

What is the role of the "Foundation Council" versus a Board of Directors?

The Foundation Council is the governing body, similar to a corporate Board of Directors. However, a foundation has no shareholders to answer to. The Council is responsible solely for fulfilling the foundation's charter. Their duty is to the purpose of the foundation rather than profit generation. A lawyer structures this council to ensure checks and balances exist; this prevents any single member from hijacking the foundation’s assets for personal gain.

How can a foundation be used for family succession planning?

A foundation is an excellent tool for dynasty planning because it acts as an immortal owner of family wealth. Unlike a will, which transfers assets after death through a public probate process, a foundation holds the assets continuously. The rules you set today govern how future generations access funds. This prevents family businesses from being broken up by feuding heirs; the foundation keeps the core capital intact while distributing only the income.

Are there tax benefits to establishing a foundation in specific jurisdictions?

Jurisdiction matters immensely. Some jurisdictions offer "zero tax" on income earned outside the country, while others offer specific exemptions for charitable giving. In the US, a private foundation allows for income tax deductions for donors, though it faces an excise tax on investment income. A lawyer navigates these global rules to help you choose a domicile that balances tax efficiency with political stability and legal reputation.

Can a foundation conduct commercial business activities legally?

Generally, a private foundation cannot run a full-scale active business like a factory or a shop. Its primary purpose must be managing its own assets or charitable giving. However, it can often hold shares in a commercial company. If the foundation engages in too much direct trade, it risks losing its special status. A lawyer defines these boundaries clearly to ensure your investment activities remain passive enough to comply with the law.

How does a lawyer handle the dissolution or migration of a foundation?

Closing or moving a foundation is a formal legal procedure. You cannot just empty the bank account and walk away. A lawyer handles the "redomiciliation" if you want to move the foundation to a better jurisdiction without triggering a tax event. If dissolving, they ensure all creditors are paid and remaining assets are distributed exactly according to the charter. This formal closure protects council members from lingering liabilities after the entity is gone.

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Marie Flegbo-Berney

BONNARD LAWSON

Foundations · Switzerland

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Common Questions

Foundations FAQ

A Private Foundation is a distinct legal entity, much like a corporation. It owns assets in its own name and can sue or be sued. A Trust, by contrast, is a legal relationship where a trustee holds assets for beneficiaries. The key difference is legal personality. A foundation exists on its own; a trust relies on the trustee. Foundations are generally more common in civil law countries, while trusts dominate in common law jurisdictions like the UK and US.

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