Category: Private Client

The Key Difference Between a Foundation and a Trust

The main difference between a Foundation and a Trust is that a Foundation is a legal entity and owns its assets in its own right as opposed to a Trust, where the assets are legally owned by the Trustees, who hold them for the benefit of the Beneficiaries under the terms of a Trust Deed.

A Foundation creates a separate legal entity with its own legal personality, distinct from the Founder(s), Council or Beneficiaries. A Foundation has a number of characteristics that are similar to those of a company having a separate legal personality and a management board known as a Council. However, importantly, it is entirely independent and has no shares and no members, nor any concept of share capital.

Beneficiaries and a Unique Feature of a Guernsey Foundation

A Beneficiary of a Foundation is anyone who is entitled to benefit from that Foundation. Beneficiaries must be identified by name or by their relationship to another person.

• A unique aspect of Guernsey Foundation Law is that it provides for both enfranchised and disenfranchised Beneficiaries.

An enfranchised Beneficiary is; entitled to a copy of the Constitution, the records and accounts of the Foundation, and can apply to the Court to change the Purposes, or to revoke or dissolve a Foundation.

Subject to the terms of the Constitution, disenfranchised Beneficiaries are not entitled to any information. This is a novel feature of Guernsey Foundations and is not found in any other jurisdiction.

The use of disenfranchised Beneficiaries may be attractive for family arrangements where there is a desire to protect the younger generation from the potentially corrosive effects of the knowledge of substantial wealth. Once the reason for a disenfranchised Beneficiary’s classification, such as age, disappears, they may then become an enfranchised Beneficiary.

Registration

A Foundation comes into being on registration of its statutory documents with the Registrar.

In order to register a Foundation the following documents and information need to be provided:

• The Charter
• A declaration signed by the Founder (or his agent)
• The names and addresses of the proposed Councillors and their consents to act
• The name and address of the proposed Guardian (if any), and his consent to act
• The address and telephone number of the registered office of the Foundation in Guernsey
• The registration fee

Provided that the name is not unlawful or already taken and the Purpose is not contrary to the Law of Guernsey, the Foundation will then be registered, and given a number and a Certificate of Registration.

At this point the Foundation becomes a legal entity separate from its Founder, the foundation officials (the Councillors and any Guardian), or Beneficiaries. The Registrar has discretion regarding whether or not a Foundation will be subject to an annual renewal process and, like a company, a Foundation can have perpetual existence.

Key Features of a Guernsey Foundation

• The Council

A Guernsey Foundation is managed by a Council comprised of at least two Councillors, except where the constitution permits a single Councillor. If neither the Councillors nor the Guardian is a Guernsey licensed fiduciary, then the Foundation will require a Guernsey resident agent to hold the Foundation’s records within the jurisdiction.

The Council of a Foundation owes its duties to the Foundation itself. The Council does not owe any duties to the Beneficiaries of the Foundation.

Councillors have a duty to act in good faith. They also have a duty not to profit, other than as permitted by the Constitution, to preserve the property of the Foundation, to give information to the Guardian and enfranchised Beneficiaries, to maintain accounting records and to be impartial.

• The Constitution: Charter and Rules

The core document by which a Foundation is governed is its Constitution. The Constitution comprises two parts: the Charter and the Rules.

The Charter must contain the name and purpose of the Foundation, a description of its initial capital or endowment, and whether the Foundation has a limited duration in which case the duration must be stated. It may also contain anything else that the Founder wishes to include.

The Rules set out the operating provisions of the Foundation, detail the functions of the Councillors, deal with the procedures for the appointment, retirement and remuneration of Councillors and any Guardian, and identify the default Beneficiary. The Rules may also specify other matters, such as how the assets of the Foundation should be applied and how Beneficiaries may be added or excluded. They may also impose obligations on a Beneficiary or contain protective measures to terminate a Beneficiaries’ interest, for example, if he becomes insolvent.

• The Founder

The Founder of a Guernsey Foundation determines; the Purpose of the Foundation, decides the Foundation’s Constitution, and provides it with initial capital. The Founder, or his agent, must also detail his name as the Founder, to the Constitution of the Foundation, by signing it.

It is also the Founder’s role to appoint the initial Councillors and any Guardian and to have the Foundation registered. The Founder may also be a Councillor or a Guardian, but not both simultaneously, in addition to being a Beneficiary.

Reservation of Powers by the Founder

The Founder may reserve certain limited powers to himself, such as the power of amendment or revocation of the Constitution, and/or of the Purposes of the Foundation.

Such powers can be reserved only for the duration of the Founder’s life, if he is a natural person, or for 50 years from the date of establishment, in the case of a legal person. After which point the reserved powers will automatically lapse. This does not preclude the Council from delegating certain functions to the Founder.

• Guardian

In situations where there are disenfranchised Beneficiaries or where there is a stated Purpose, but no individual Beneficiaries, a Guernsey Foundation must have a Guardian.

The Guardian’s function is to enforce the Purposes of the Foundation on behalf of disenfranchised Beneficiaries, or where there are no Beneficiaries, in substitution for them. Foundations that have Beneficiaries, but no disenfranchised Beneficiaries are not required to have a Guardian.

The Founder may act as Guardian. The Guardian will be named in the Register and may not serve on the Council at the same time. He must maintain accurate accounts and records during his guardianship.

Duties Owed

A Guardian also owes fiduciary duties to the Founder and the Beneficiaries to enforce the Constitution.

Additional Information

If you require any additional information regarding Guernsey Foundations, their benefits and how they can be used, please contact John Nelson at the Dixcart office in Guernsey: advice.guernsey@dixcart.com

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

The Use of Trusts in Switzerland

Switzerland does not have specific Trust Law, but recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.

In Switzerland, the Settlor (the individual who settles assets into the trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee. The Trustee holds and manages the assets in the trust on behalf of the Beneficiaries.

Why Use a Trust And What is the Role of a Trustee?

A trust is a very flexible instrument and is particularly useful for estate planning, wealth management and asset protection.

At a basic level, the concept of a trust is relatively simple: the Settlor places assets in the legal custody of another (Trustee), who holds the assets for the benefit of a third party (Beneficiary). The trust is not a separate legal entity, but more of a legal obligation agreed between two parties: the Settlor and the Trustee.

Trustees owe a fiduciary duty to both the Settlor and the Beneficiaries, as well as to the trust itself. Depending on the jurisdiction under whose laws the trust is constituted, the trust can either have a pre-determined life span or be indefinite. Trusts are intrinsically very flexible.

Taxation of Trusts in Switzerland

The Hague Convention (Article. 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently, Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries.

In terms of Swiss Law:

• A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
• Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.

Why Use a Swiss Trustee?

In addition to the potential tax advantages detailed above, there are a number of reasons why use of a Swiss Trustee can be advantageous:

• Switzerland has a long established reputation for discreet professional support when managing the affairs of wealthy private individuals.
• Switzerland is located in the centre of Europe, where many affluent individuals are based. Swiss Trustees therefore offer the advantage of being able to provide frequent and high quality support as they can regularly liaise with and, when appropriate, meet with clients and/or other professional advisers.
• Swiss economic, political and legal stability provides a solid base for the provision of high quality support and administration services.
• Switzerland has a number of favourable and well developed banking laws, and has been a popular international private banking centre for many years. It is a jurisdiction with a good reputation and offers a high quality of knowledgeable professionals working within asset management, tax planning and private banking.

The Dixcart Office in Switzerland and Trust Services

The Dixcart office in Switzerland is a member of the Swiss Association of Trust Companies (SATC) and is registered with the Association Romande des Intermediaires Financiers in Switzerland (ARIF).

Confidentiality in Switzerland

Switzerland is well known for its commitment to banking services, professional confidentiality and commercial competence.

• SATC provides that: “Any and all information related to a trusteeship and acquired by a Member must be kept strictly confidential by the Member, its directors, officers and other employees.”

A breach of confidentiality, whether professional or commercial, would only be permitted by law in the event of criminal liability.

Summary

A trust based on the Trust Law of, for example, England, or Guernsey, or Isle of Man, or Malta and with a Swiss Trustee, can offer a number of tax efficiencies, as well as advantages in terms of wealth preservation and confidentiality.

Dixcart can establish and manage such trust structures.

If you would like more information on this subject please speak to Christine Breitler at the Dixcart office in Geneva: advice.switzerland@dixcart.com or to your usual Dixcart contact.

Dixcart Trustees (Switzerland) SA is a member of SATC and registered with ARIF Switzerland.

Individuals and families use various structures to protect their assets from uncertainty and volatility and to deal with estate and succession planning matters. Very often asset protection alone is not the principal driver in creating such structures.

It is not uncommon for the next generation of a family to move to new countries to study, work, establish businesses and settle down. As families become more internationally mobile the complexity of administering family estates and assets, as well as cross border succession and estate planning, increases.

Steps, Stages and Structures

Before a family’s estate reaches the size and complexity which requires the establishment of a dedicated, single family office, there are a number of stages through which the structure might transition.

Pooled and enhanced fiduciary support

At an early stage, several disparate family related structures are often transferred to a single fiduciary provider or trustee, with whom the family has a good existing relationship or who has been recommended by a trusted adviser.

These structures will generally take the form of a discretionary Trust or Foundation. The Trustee or Foundation Council can then be instructed to assist with developing the position into a standalone family office position, utilising their knowledge, experience and existing resources of; qualified staff, policies and procedures. At this stage efficiencies are created in the management and administration of the structures under a single provider, the family/adviser relationship is reinforced, and additional cost efficiencies often result.

Private Trust Company (PTC)

For many years the PTC has been the preferred vehicle for administering the assets of wealthy families and many variants have emerged across jurisdictions that specialise in providing them, and whose legislation and regulation are particularly suited to private wealth management. One of the main attractions of the PTC is that decisions, relating to the underlying trusts, are made by directors who are carefully chosen by the family and/or may even be family members.

There are a number of variants of the PTC, which can be limited by shares or guarantee and/or even with separate classes of shares for voting purposes.  Consideration as to the level of control exerted over the PTC needs to be carefully considered. Too much control can lead to tax implications.

The most common solution to the control issue has been to hold shares in the PTC through a Purpose Trust (see diagram below), which creates additional layers of ownership and administration.

Whilst PTC’s remain a popular specialist solution, Guernsey can also offer a simpler structure through the Private Trust Foundation (PTF).

Private Trust Foundation (PTF)

A PTF removes the need for the ownership layers which are required above a PTC, and can simplify the structure and therefore administration and cost (see diagram).

A PTF established under the Foundations (Guernsey) Law 2012 (the “Law”), must be for the sole purpose of acting as Trustee of the Trusts for the benefit of an individual or family.

The Law makes it clear that, on establishment, a Guernsey Foundation has its own legal personality, independent from that of its Founder and any Foundation officials.

Diagram: A Classic Private Trust Company Structure and the Guernsey Foundation Solution

The Advantages that a Guernsey PTF Offers

• A Guernsey PTF will be run and managed in a similar way to a PTC, with the involvement of a local licensed fiduciary such as Dixcart, but with the significant advantage that, as an orphan vehicle, it does not have any other owners or controllers.
• Family members or other trusted advisers can also be appointed to the PTF Council, which is responsible for acting as Trustee to the underlying family Trusts.

Managed Services

Managed support from a fiduciary provider, is often the penultimate stage in the progressive route towards establishing a full standalone family office, directly employing appropriately experienced staff in the jurisdiction of choice.

Managed Support Available from Dixcart

Managed support, as provided by Dixcart, can include dedicated serviced office space at the Dixcart Business Centre in St Peter Port, and fiduciary, accounting and legal support as appropriate. A fiduciary provider, such as Dixcart, can also help grow and develop the position into a standalone family office, ultimately operating independently.

Complicated family structures and family office positions are increasingly looking at the use of Private Investment Funds (PIFs) within their global management positions. As a holder of a Protectors of Investors Licence, Dixcart in Guernsey is licensed to provide fund establishment and on-going fund administration services, to support and further enhance our existing private client offering.

Additional Information

For further information on private wealth structures and their management, please contact John Nelson, Director, Dixcart Trust Corporation Limited, Guernsey: advice.guernsey@dixcart.com.

Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.

Key Advantages

The key advantages of a Swiss Private Trust Company (PTC) are the additional elements of control and discretion which the PTC can provide. A PTC is the ideal structure for high net worth families to use as part of their wealth structuring.

Important Considerations: Professional Trustee or Private Trust Company

One of the first things to consider when establishing a trust is who to appoint as trustee. This is a sensitive question as the settlor is often unwilling to give away control of the assets to strangers in another jurisdiction. A number of individuals may prefer to establish their own private trust company, rather than to use a professional trustee.

A PTC is a standard privately owned company whose sole purpose is to act as trustee of one or more trusts, usually connected to one family. In principle, PTCs do not offer services to the general public. Usually the PTC holds shares in a family company or in an investment company.

PTCs and the Role of a Professional Licensed Trust Company

Like any other company, a PTC is run by its board of directors who make the trust decisions. The PTC allows the settlor and/or family members or trusted persons, to act as shareholders or to be members of the board. As such the settlor or family members are able to appoint or dismiss the directors of the company.

PTCs are often set up and administered by an existing licensed professional trust company, which advises the board members of the PTC, in terms of corporate governance and trustee issues. In some cases, a representative of the professional service company will sit on the board of the PTC together with family members. This combination of family and professional advisers allows the PTC to react quickly to the needs of an extended family and to meet its best business interests. 

Specific Characteristics of Swiss PTCs

A Swiss PTC ensures privacy, when it is formed as a Limited Company. It makes it easier to control access to and disclosure of confidential information. It also allows for  rapid commercial decisions to be made.

A Swiss PTC does not have to be licensed as a professional trust company.

Switzerland as a Family Office Jurisdiction

Switzerland is a, if not the main, hub for family offices.

 Discretion, expertise and security together with one of the best jurisdictions in the world for asset protection and for asset management makes it arguably the best place for a high net worth family to conduct its estate management and control of its assets.

Dixcart Switzerland

Dixcart Switzerland has been providing Swiss Trustee services for over twenty years, is a member of the Swiss Association of Trust Companies (SATC), and registered with the Association Romande des Intermédiaires Financiers (ARIF)

The Swiss Federal Act on Financial Institutions (FINIG) came into effect at the start of 2020, and professional trustees must now gain mandatory approval. Dixcart Trustees (Switzerland) SA meets all of the required regulatory obligations and continues to do so.

Additional Information

if you would like additional information regarding Swiss Private Trust Companies, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com.

Each of the Dixcart offices has an Asset Protection and Trust Team, providing a variety of wealth management services as detailed below. 

Christine Breitler from our Swiss office and Peter Robertson from our Dixcart office in the UK, are the two members of the team we are introducing you to today.

Dixcart Asset Protections and Trusts

The Dixcart Group has almost 50 years of private client advisory expertise in the administration of trusts, foundations, and the provision of family office services. International clients can take advantage of these services from any one of our nine offices. We also have fully regulated, independent trust companies, located in the following jurisdictions: Cyprus, Guernsey, Isle of Man, Malta, and Switzerland.

Dixcart provide the following international wealth management services:

• Estate and international tax planning
• Family office services
• Formation and administration of family trusts
• Formation and administration of foundations
• Formation and management of managed trust companies
• Formation and management of private trust companies / foundations
• Provision of trustee services
• Provision of protector services

Introduction to Christine Breitler and Peter Robertson

Christine joined the Dixcart Group in 1997. She was promoted to Head of the Dixcart office in Switzerland, in 2000. Christine has extensive experience in international tax planning as well as the formation and administration of Swiss and foreign companies.

Pete’s key area of expertise is assisting families and individuals to manage their multi-jurisdictional wealth, as well as planning for the future. He was appointed a director in 2013 and subsequently appointed Managing Director of the Dixcart office in the UK, in 2018.  

Christine Breitler

Head of Swiss Office

Advocate TEP

christine.breitler@dixcart.com

Christine has expertise regarding the establishment of trusts and foundations and provides advice on family office and wealth preservation services to both Swiss and international clients, including estate planning, tax, commercial matters, and immigration.

Relocation, and the movement of family members around the world, often presents opportunities to put in place tax neutral structuring of investments and provide the initial overview and planning necessary to ensure the responsible maintenance, management, and distribution of the wealth to the next generation.

Christine is on the Board of a number of client companies both in Switzerland and overseas.

Christine is a Law graduate of the University of Neuchâtel (Switzerland), and she qualified as a Swiss Attorney at Law in 1990 in Neuchâtel, and in 1993 in Geneva. She speaks English, French and Spanish and is a member of the Society Trust and Estate Practitioners, the British and Swiss Chamber of Commerce and the Geneva Art Law Centre.

Peter Robertson

Managing Director

LLB (hons) FCA TEP

peter.robertson@dixcart.com

Pete is a member of the international team at Dixcart UK and much of his work is with the Tax team and the Immigration team, working primarily with international, non-UK domiciled families in their planning for a move to or an investment into the UK.  This  often involves early stage tax planning, assistance with obtaining relevant visas to move to the UK and ongoing assistance over the subsequent years.

Pete also advises clients on their international tax residence and estate planning and is often asked for Dixcart UK’s assistance with families and individuals managing their multi-jurisdictional wealth and future planning.  This will normally entail working with advisers in the appropriate jurisdictions, to ensure that relevant tax and practical considerations have been incorporated into the planning.

Pete is a qualified Chartered Accountant and Solicitor.  He became a member of the Institute of Chartered Accountants in England and Wales in 2006, completing his training at Blick Rothenberg LLP. In 2008 Pete became a member of the Law Society, qualifying as a Solicitor with the central London firm Pemberton Greenish LLP (currently he is a non-practising solicitor). He is a member of STEP and the International Fiscal Association.

People often say that a Foundation is the civil law alternative to a Trust; but what does this mean? What does a Foundation offer your clients that a Trust cannot? Furthermore, when does it make sense to use a Foundation? Add on top of that the fact that you can validly use both entities in tandem, the clear contrast we were hoping for begins to look grey – but hopefully this article can provide some clarity.

This is the third article in a three-part series we have produced on Foundations. If you would like to reacquaint yourself with the basics of Isle of Man Foundations or the technicalities of setting up and administering one, please refer back to the previous articles in this series:

• Isle of Man Foundations for Offshore Planning – An Introduction (Article 1 of 3)
• Establishing and Administering an Isle of Man Foundation (2 of 3)

In this article we will be examining some of the most common uses of Isle of Man Foundations (IOM Foundations), which includes:

• Using an Isle of Man Foundation for Succession Planning
• Using an Isle of Man Foundation for Asset Protection
• Using an Isle of Man Foundation as Trustee
• Using an Isle of Man for Charitable Objects
• Dixcart Supporting the Establishment and Administration of Foundations

Using an Isle of Man Foundation for Succession Planning

Unlike a Trust, an IOM Foundation is an incorporated vehicle, having separate legal personality; similar to a Private Limited Company, but without shareholders. As such, the IOM Foundation has the capacity to enter into contract, own property and take legal action in its own right.

As an Isle of Man corporate vehicle the IOM Foundation is a ‘Corporate Taxpayer’ under s120(ba) of the Income Tax Act 1970, and benefits from the local tax regime, boasting headline rates such as:

• 0% Corporate Tax
• 0% Capital Gains Tax
• 0% Inheritance Tax
• 0% Withholding Tax

Because an IOM Foundation is not answerable to shareholders and is perpetual in term, it is free to pursue its Founder’s intended Objects for as long as stipulated in the Foundation Rules. For these reasons, the IOM Foundation can be a great choice for those seeking to ensure the continuation of their life’s work, whether a successful business or charitable pursuits.

The IOM Foundation can be established for the purpose of purchasing and owning the shares of a company, either retaining profits for future growth or making distributions to classes of beneficiary, in line with the IOM Foundation’s Instrument and Rules.

Furthermore, once the IOM Foundation has been registered, unlike a Trust, it will receive a certificate of incorporation, which can be useful for evidencing existence when dealing with institutional lenders and third parties, for example. To this end, an IOM Foundation could be used as a Special Purpose Vehicle, with one of its Objects being to secure capital for the business via loans that will not appear on the company’s balance sheet.

IOM Foundations can deliver a level of assurance and control that make them an ideal vehicle for succession planning.

Using an Isle of Man Foundation for Asset Protection

One of the most common uses of the IOM Foundation is asset protection, particularly with regards to Estate Planning. The Founder can dedicate assets (usually capital) into the corporate vehicle. Following this, the Foundation Council will manage and distribute the funds in line with the Foundation Rules and Instrument, as prescribed by the Founder.

Non-charitable IOM Foundations require an Enforcer to be appointed, who ensures the Council carries out its functions in compliance with the constitutional documents. Whilst the Founder can be appointed as Enforcer, it is recommended that they are not; very often it will be a trusted adviser who might act as Enforcer. However, the Founder can be, and often is, appointed as a Council Member; allowing them to retain some control to ensure that their goals come to fruition, potentially without jeopardising their tax position.

Not only does the IOM Foundation provide a clear and enforceable roadmap for the Council Members to follow, due to its legal personality it might also be used to mitigate tax liabilities, particularly inheritance and wealth taxes. The IOM Foundation will be domiciled in the Isle of Man, therefore being subject to the Manx tax regime i.e. 0% IHT, for example.

The IOM Foundation is also appropriate for the mitigation of Forced Heirship laws.  As the structure is resident in the jurisdiction of registration, therefore the laws of the Isle of Man are applicable. Any challenge to the IOM Foundation will be heard in an Isle of Man Court and, for example, laws seeking to challenge the validity of the IOM Foundation can be set aside, in conformity with the Foundations Act 2011.

IOM Foundations are not currently a matter of public record, meaning the identities of the Founder, and any Donors or Beneficiaries are a private matter.

Depending on the IOM Foundation’s constitution, the Foundation’s Rules which will deal with the appointment or removal of any parties, such as Enforcer, Beneficiaries etc., can be altered at any time. This flexibility allows for any change in wishes or circumstance.

The IOM Foundation can also be used to ringfence assets and wealth exposed to both creditors or spouses etc. making it a great all-round tool for asset protection.

Using an Isle of Man Foundation as Trustee

Both Foundations and Trusts provide mechanisms for the transfer of beneficial ownership, from donor to beneficiary – this may make it seem like it’s always an either-or scenario, but it isn’t. In some circumstances the two vehicles can complement one another to further meet the client’s objectives.

The IOM Foundation can be appointed as Trustee, providing a function similar to a Private Trust Company. This provides some or all of the benefits of appointing a Professional Trustee, depending on the choice of Council Members. Such benefits can include:

• Continuity
• Neutrality
• Technical Knowledge
• Mitigating Risk 

In addition, the Settlor can also be appointed as Council Member to retain some oversight, ensuring the purpose of the Trust is realised. This may provide the Settlor with some degree of comfort following the transfer of his assets to a new fiduciary service provider.

As you can see, using the two entities in tandem can help deliver added flexibility with regards to activity and increased oversight concerning the purpose in mind.

Using an Isle of Man Foundation for Charitable Objects

The IOM Foundation is also commonly used as a philanthropic vehicle. The IOM Foundation can be either dedicated to charitable or a mixture of charitable and non-charitable Objects. If established for purely philanthropic pursuits, the IOM Foundation’s Objects cannot be altered to include non-charitable activities in the future.

The IOM Foundation may be of particular relevance to clients seeking to engage in philanthropic activities in jurisdictions that do not recognise trusts.

There are broadly two categories of charitable IOM Foundation, each with its own purpose:

1. A non-operating charitable IOM Foundation is established to make grants to other not-for-profit or charitable organisations. In practice this may be the donation of income from its underlying assets or further donations from the Founder/Donors, or blend. Classes of Beneficiaries can be limited to a single organisation or cause as desirable.
2. An operating charitable IOM Foundation seeks to engage in charitable activities directly, taking responsibility for fulfilling its charitable Objects. Examples of such operating charitable IOM Foundations include; museums, educational institutions, and community initiatives.

The IOM Foundation can be used flexibly for the benefit of whatever cause or organisation is close to the Founder’s heart.

Dixcart Supporting the Establishment and Administration of Foundations

At Dixcart, we offer a full suite of offshore services to advisers, and their clients, when considering the establishment of an IOM Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent or Council Member, as well as providing specialist advice when required. 

From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.

Get in touch

If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Paul Harvey at Dixcart: advice.iom@dixcart.com.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Isle of Man Foundations

Since Foundations have been written into Manx law, they have been used frequently as part of intermediaries’ offshore wealth planning for any number of purposes, but all must conform to the same constitutional principles.

This is the second in a three-part series we have produced on Foundations, building up to a webinar hosted by experts who can help you to meet your clients’ needs. If you would like to read the other articles in this series, please see:

• Isle of Man Foundations for Offshore Planning – An Introduction (1 of 3)
• When to use an Isle of Man Foundation (3 of 3)

In this article we’ll be discussing the nuts and bolts of an Isle of Man Foundation (IOM Foundation), to further or refresh your understanding:

• What do I need to establish an Isle of Man Foundation?
• The Isle of Man Foundation Instrument document
• The Isle of Man Foundation Rules document
• Isle of Man Foundation legal challenges

What do I need to establish an Isle of Man Foundation?

As required by the Isle of Man Registrar of Foundations (Registrar), and under the Foundations Act 2011 (the Act), the application must be made by an Isle of Man Registered Agent (IOM RA) holding a class 4 license from the Isle of Man Financial Services Authority. The IOM RA will generally also be the Nominated Officer, as defined within the Beneficial Ownership Act 2017.

The IOM RA, typically a Corporate Service Provider like Dixcart, must also make a declaration that:

• They will act as Registered Agent on establishment;
• The Isle of Man address provided is the business address of the IOM RA;
• That the IOM RA is in possession of the Foundation Rules, which have been approved by both the IOM RA and the Founder.

There are several options with regards to the application and its turnaround time, currently: a standard fee of £100 for establishment within 48 hours, £250 within 2 hours if received before 14:30 on a business day, or £500 for a ‘while you wait’ service if received before 16:00 on a business day.

On approval, the Registrar will make note of the names and addresses of the foundation, Council Members and IOM RA, its Objects and provide a Certificate of Establishment and registration number. Once established, the IOM Foundation gains legal personality and, for example, now has the ability to enter into contracts, sue and be sued.

There are several constitutional elements of an IOM Foundation that must be present for an application to be acceptable; this includes a completed application form, correct fee as detailed above and the Foundation Instrument (Instrument), and a redacted copy of the Foundation Rules (Rules) – in fact it is an offence for a Foundation to not possess these documents. We will examine the noteworthy facets of the Instrument and Rules in more detail within the following sections.

Isle of Man Foundation Instrument

By law, all IOM Foundations must have an Instrument (also known as the Charter) written in English that complies with the Act. A copy of this document is incorporated into the application proforma and supplied to the Registrar on application.

IOM Foundation Instrument – Name

Among other things, the Instrument will detail the name of the IOM Foundation; which must also comply with The Company and Business Names etc. Act 2012, which provides direction and limitations on the name of an IOM Foundation. The Registrar has produced a Guidance Note to assist with ‘Choosing Your Company or Business Name’.

The IOM Foundation’s name can be altered if permissible under the Instrument and Rules, but notice of this must be given to the Registrar and supplied to the IOM RA. Alternatively, the Instrument and Rules can prohibit any changes to the name, if desirable.

IOM Foundation Instrument – Objects

The Instrument will also note the IOM Foundation’s Objects, providing broad information; the Instrument does not need to detail the specific purposes or classes of beneficiaries etc., it simply needs to ensure that the Objects are ‘certain, reasonable, possible, lawful and not contrary to public policy or immoral’. The Instrument should also detail whether the Objects are to be Charitable, Non-Charitable or Both, and that these are to be administered in accordance with the Rules.

IOM Foundation Instrument – Council Members and Registered Agent

Finally, the Instrument must detail the names and addresses of all Council Members and the IOM RA. These parties can be altered in line with the Rules in the future, but again, notification must be provided to the Registrar and IOM RA where appropriate.

There can be a minimum of one Council Member. An individual acting as a member must be aged at least 18 years, of sound mind and not disqualified. The Founder can be a Council member. Council Members can be appointed or removed in line with the Rules throughout the lifetime of the IOM Foundation.

As previously stated, whilst the IOM RA can be altered, this role is mandatory from establishment and throughout.

In many ways the Instrument is like the Foundation’s incorporating document, giving notice of certain key persons and their regulatory roles and the IOM Foundation’s Objects. It is similar to a memorandum, giving the Registrar the headline information.

Isle of Man Foundation Rules

If the Instrument is the memorandum, the Rules are, as their name suggests, the rulebook on how the Foundation should be administered. This document is specific to the individual Objects, functions and purpose of the IOM Foundation.

The Rules are a legal requirement under the Act and can be written in any language, but an English copy must be supplied to and retained by the IOM RA.

IOM Foundation Rules – Objects

The Rules must stipulate the manner and form of amends to the IOM Foundation’s Objects. Where the Foundation is established for specific purpose, or to benefit any person or class of persons, this will include how these details can be amended. For example, how beneficiaries can be added, removed or the classes extended.

Where Charitable Objects have been exclusively specified within the Instrument, the Rules cannot contain any provision for the alteration of these Objects to non-charitable pursuits.

IOM Foundation Rules – Council Members

The Rules must also establish a Council to administer the IOM Foundation’s assets and oversee its Objects. The proceedings of the Council are detailed within the Rules. In doing so, the Rules must also detail how Council Members can be appointed or removed and where appropriate, remunerated.

IOM Foundation Rules – Registered Agent

An IOM RA is a perpetual requirement for an IOM Foundation, and must be accounted for within the Rules. This will include the procedure for appointment and removal, to ensure an IOM RA is always appointed. The Rules will also cover the remuneration of the IOM RA as appropriate.

The removal of an IOM RA does not take effect until another appropriately licensed IOM RA has been appointed.

IOM Foundation Rules – Enforcer

An Enforcer can be appointed to ensure that the Council carries out its duties to further the IOM Foundation’s Objects and in compliance with the Rules.

Where an Object of the IOM Foundation is a specified non-charitable purpose, an Enforcer must be appointed. However, where the Object is simply to benefit a person or class of persons, it is an optional appointment and not a requirement.

Where an Enforcer is present, the Rules must provide the Enforcer’s name and address along with their remit and procedure for appointment, removal and remuneration – the remit can include the ability to approve or veto Council actions. Apart from the Founder and the IOM RA, a person may not be both a member of the Council and its Enforcer.

IOM Foundation Rules – Dedication of Assets

An IOM Foundation does not need to hold any assets at the time of establishment, but where a dedication is made from outset, details must be provided within the Rules. Additional assets can be dedicated at any time, and by persons other than the Founder, unless prohibited by the Rules.

If further dedications are contributed, the Rules must be amended to reflect the details of the dedication. It is important to note that Dedicators do not gain the same rights as the Founder after providing assets to the IOM Foundation.

IOM Foundation Rules – Term and Winding-up

The Rules may stipulate the length of the IOM Foundation’s lifetime and the procedure for winding-up the vehicle. The term, unless otherwise stated, is perpetual. The Rules can detail certain events or a lifespan that determines when the IOM Foundation is dissolved. Where desirable, full details must be included within the Rules.

Beneficiaries do not have an automatic legal right to the IOM Foundation’s assets. However, if a person becomes entitled to benefit in accordance with the Instrument and Rules, they may seek a Court Order from the High Court enforcing that benefit.

Legal Challenges to an Isle of Man Foundation

The Act provides that any legal challenge to the IOM Foundation, or the dedication of its assets, will be the jurisdiction of the Isle of Man Courts and subject to Manx law only:

s37(1)

“…must be determined in accordance with the law of the Island without reference to the law of a jurisdiction outside the Island.”

Therefore, the establishment or dedication of assets cannot be deemed void, voidable, set aside or invalidated by a foreign jurisdiction because:

• It does not recognise the structure;
• The structure defeats or potentially avoids a right, claim or interest imposed on a person by the law of a jurisdiction outside the Isle of Man; or
• Of the existence of forced heirship rights; or
• It contravenes the rule of law within that jurisdiction.

It is important to note that, due to the relatively recent introduction of this structure into Manx law, the IOM Foundation has not yet been legally tested on these matters. It is also worth noting that the exclusion of foreign law is only in respect of otherwise compliant IOM Foundations or dedicated assets – for example, the Founder or Dedicator must have legal title to the assets being contributed.

Record Keeping

The Act sets out various documents and records that must be maintained at the registered address of the IOM Foundation or such other Isle of Man address as the Council determines. This includes various registers and also accounting records.

The IOM Foundation must also submit an annual return to the Registry, due each year on the anniversary of establishment. Failure to submit an annual return is an offence.

Supporting the Establishment and Administration of Foundations

At Dixcart, we offer a full suite of offshore services to advisers and their clients when considering the establishment of an IOM Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent, Council Member or Enforcer as well as to provide specialist advice when required. 

From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.

Get in touch

If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Paul Harvey: advice.iom@dixcart.com.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.

Background

Switzerland is a very attractive jurisdiction for the coordination of asset protection for a number of reasons, including the stability of this international centre and the highest level of confidentiality that is guaranteed. An English, Guernsey, Isle of Man or Maltese Law based trust, with Swiss Trustees can offer a number of tax efficiencies, as well as advantages in terms of wealth preservation and confidentiality.

Dixcart can establish and manage such trust structures.

Reasons Why Switzerland is a Favoured Location

• Political, Financial, Social and Economic Stability

The economy of Switzerland is one of the world’s most advanced. The service sector plays a significant economic role, particularly the financial services sector. The Swiss economy ranked first in the world in the 2019 Global Innovation Index, and fifth in the 2019 Global Competitiveness Report.

The stable political and economic environment of Switzerland makes it an appealing jurisdiction from an asset protection perspective, with the added benefit of attractive tax regimes for both companies and individuals. These factors, combined with the country’s high regard for personal privacy and confidentiality, are of appeal to Family Offices from all over the world.

• Banking Advantages

Switzerland offers one of the strongest and most commercial banking centres in the world.

It has a long history of expertise in dealing with international currencies and open capital markets. Many banks have dedicated desks for particular jurisdictions, providing specific services to clients.

The main benefits of having a Swiss bank account are the low level of financial risk and high level of privacy

• Trusts and Private Trust Companies as Asset Protection Vehicles 

Widely used in Anglo-Saxon countries, a trust is flexible and, in the right circumstances, can be an effective asset protection vehicle. It provides anonymity for families, and confidentiality regarding the assets and/or companies held within it. Trusts can be a useful aid in terms of succession planning and can assist with long term inheritance matters.  

A Private Trust Company (PTC) is a corporate entity authorised to act as trustee. The client and their family can actively participate in the management of the assets and decision-making processes, as well as sitting on the board of the PTC. 

Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.

In Switzerland the Settlor (the individual who settles assets into the Trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee.

The tax advantages available in using a trust with Swiss Trustees essentially depend on the tax residence of the Settlor and the Beneficiaries. Professional advice should be taken.

Reasons to Use Swiss Trustees

• Taxation of Trusts in Switzerland

The Hague Convention (Article. 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.

The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries.

In terms of Swiss Law:

• A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
• Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.
• Regulation of Swiss Trustees

Swiss Trustees have to be registered as financial intermediaries in accordance with Swiss Anti Money Laundering Law. They can be registered with the Central Regulatory Authority or with a self-regulatory organisation (SRO), which must be recognised by the Swiss Federal State.

• Protection

Under Common Law the Trustee is the owner of the assets and is required to administer the trust assets separately from his own assets. In the event of death or bankruptcy of the Trustee, the assets are not considered as belonging to the Trustee but are submitted to the trust’s protection and held separately for the Beneficiaries. The trust’s assets are therefore segregated from the Trustee’s estate.

• Confidentiality in Switzerland

Switzerland is well known for its commitment to banking services, professional confidentiality and commercial competence.

SATC provides that: “Any and all information related to a trusteeship and acquired by a Member must be kept strictly confidential by the Member, its directors, officers and other employees.”

A breach of confidentiality, whether professional or commercial, would only be permitted by law in the event of criminal liability.

Dixcart and Swiss Trustee Services

The Dixcart office in Switzerland has been providing Swiss Trustee services for over twenty years and is a member of the Swiss Association of Trust Companies (SATC) and registered with the Association Romande des Intermediaires Financiers (ARIF).

The Swiss Federal Act on Financial Institutions (FINIG), came into effect at the start of 2020 and Family Offices and Trustees must now gain mandatory approval. Dixcart Trustees (Switzerland) SA meets all of the required regulatory obligations and continues to do so.

Additional Information 

If you would like additional information regarding the use of Switzerland for asset protection, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively, please speak to your usual Dixcart contact.

The UK has for many centuries been a popular hub. As we start to come out of the pandemic, people will start moving again.

This Article briefly reviews key current lifestyle reasons why people seek to move to the UK. It is by no means an exhaustive analysis.

When any move of residence to a new jurisdiction takes place, a thorough review of how a family’s wealth is held, needs to be undertaken. In order to avoid costly errors, this should happen before the move has occurred.

• If you are moving to the UK, Dixcart can help ensure that the actions you take are as tax efficient as possible and meet family objectives, taking into account the location of assets and of family members.

Dixcart can also be of assistance, with pre-exit planning, should you be considering a move from the UK to another country

Key Lifestyle Considerations – Why People Move to the UK

• A multi-cultural environment that has welcomed diversity for many decades and encouraged and incentivised the ‘entrepreneur spirit’. Innovation is  applauded and rewarded.
• The UK is ranked by the world bank as being the 8^th easiest place to do business out of the 190 countries assessed.
• An education system whose quality is recognised throughout the world, both at school and university level.
• A robust and durable legal system used as the template in an extensive number of countries across the world.
• The opportunities that Brexit has created.
• Pound sterling is one of the strongest currencies in the world, and the UK is the 5^th  largest economy in the world and the second largest in Europe.
• An attractive regime whereby persons resident but not domiciled in the UK can elect for the remittance basis of taxation. This means that they will only be taxed in the UK, on UK source income and gains, and only on foreign income and gains in so far as these are remitted to the UK.
• A number of appealing visa options to enable a move to the UK to take place.
• Home of cream teas, a ground breaking fashion industry, football, fish and chips and Harry Potter with a depth of history, variety and quality of the arts.

Matters to Consider Prior to Moving

As indicated above, it is important that families evaluate their tax and succession arrangements well ahead of any move, a practical list of some of  the factors that should be taken into consideration is detailed below:

Practical matters:

• Travel documents (visas)
• Formal enrolment in country/jurisdiction of ‘arrival’, including communication with tax authorities, healthcare and schooling.

Taxation matters:

• Confirm the arrangements that affect heirs and family in other countries.
• Plan for the optimal timing of loss of tax residence, and any exit charges.
• Consider any action that needs to be taken to ensure assets are held in the  optimal way, prior to moving. Leaving this until after arrival can result in unexpected and large tax bills that could have been avoided.
• Plan the timing of disposals and acquisitions to ensure the best possible tax outcome.
• Consider establishing new banking arrangements to segregate income and gains.

Succession and inheritance:

• Confirm which laws govern succession and if a choice of different jurisdiction law is available.
• Confirm whether marital/family laws are affected and whether a choice of different jurisdiction law is available.
• Review estate planning documents (wills, succession, and prenuptial documents), and consider the interaction of wills, appropriate for different jurisdictions.
• Consider the use of trusts for estate planning, not forgetting that the timing of the settlement of trusts could be key to the taxation outcome.

Implications of transferring physical wealth:

• Family heirlooms, jewellery, works of art, aircraft, cars and yachts: can they be transferred, are import duties applicable?

Gifts and Donations:

• Confirm whether gifts or donations should be executed in advance of acquiring the new residency.

Ongoing Matters to be Reviewed at Least Annually

There are a series of important reviews, that should be taken at least annually to take into account both changes in personal circumstances and the law:

• Review of estate planning documents. These include wills, succession and prenuptial documents.
• Review of trusts arrangements, structures, and bank accounts.
• Review of any changes to tax laws and the implications in relation to existing agreements and structures.

How can Dixcart Help?

Dixcart can assist with:

• Pre arrival and departure tax planning.
• Advice and assistance with Visas for residence in the UK.
• Accounting, legal and taxation advice, as well as compliance regarding setting up businesses in the UK or in any of the jurisdictions in which Dixcart has an office.

Additional Information

If you would like to discuss how you should plan ahead, for a potential move of location and/or to ensure that your existing structuring meets your current circumstances, please contact Peter Robertson at the Dixcart office in the UK: advice.uk@dixcart.com.

This Article begins by reviewing a number of generic reasons to use a foundation and then considers the specific characteristics and benefits that can be provided by a Malta foundation.

Why Establish a Foundation?

There are numerous reasons why a foundation may be of benefit, each of which are relevant in terms of Malta private foundations: 

• Asset protection: if a home country is not politically or economically stable, a foundation can be established overseas and assets transferred into it (professional advice should always be taken in the home country, prior to any transfer taking place).
• Confidentiality: the foundation deed must state the foundation’s name, its registered address, a description of the initial endowment with which it was formed, and its purposes and objects.
• Lifestyle planning: partners who are not married, or whose family arrangements are not straight-forward, may find that some countries’ legal systems do not provide adequate solutions on their death or separation. In such cases, a specifically drafted foundation can be used to ensure that partners, and children of such partners, are treated as the founder intends.
• Securitisation vehicle: Maltese law allows for the use of a foundation in place of a trust, as an appropriate vehicle for the securitisation of debt.
• Spendthrift beneficiaries: foundations can be created to prevent reckless heirs from spending family wealth on the death of their parents, by limiting their interest to income or to capital (at least until they reach a certain age, or until they fulfil certain requirements).
• Succession planning: a foundation can generate a greater degree of privacy and flexibility than may be possible with a will alone. Foundations can be used to avoid the division of family estates and to prevent disputes between heirs.

Maltese Foundation Legislation

In 2007, Malta enacted specific legislation regarding foundations. Subsequent legislation was introduced, regulating the taxation of foundations, and this further enhances Malta as a jurisdiction for international private asset planning.

Characteristics of Maltese Foundations

• Maltese private foundations are regulated by the ‘Second Schedule to the Civil Code of the Laws of Malta’. New legislation introduced a registration procedure, which has been designed in a way to safeguard the privacy of Maltese private foundations.
• A foundation can only be constituted by virtue of a public deed ‘inter vivos,’ drawn up by a notary public or by means of a will. Once the foundation is constituted, it is registered with  the Malta Registrar of Legal Persons.
• A private foundation is limited to a maximum period of 100 years.
• In terms of Maltese legislation, it is possible to re-domicile a foundation into and out of Malta.
• A foundation may be terminated at any time if all of the beneficiaries agree, provided they are all alive, none have been convicted of a crime or are minors. If the founder is still alive his consent would also be required. Termination obligations must be included in the deed.

An interesting feature of a Maltese foundation, is that segregated cells can be established within a foundation to achieve particular purposes with particular assets. The segregated cell does not have separate legal personality, however the assets and liabilities of the cell are ring-fenced from the other assets and liabilities of the foundation, and/or other cells.

Maltese Foundations: A Choice to be Taxed In One of Two Ways

• A foundation can either be treated as a trust, OR as a company, which is both resident and domiciled in Malta:

Taxation as a Trust

A Maltese foundation can irrevocably elect, that the foundation be treated as a trust for tax purposes.

An election to be treated as a trust gives rise to beneficial private asset planning opportunities, particularly where the founder and beneficiaries are not resident and/or domiciled in Malta. In such a situation no tax and/or duty will be payable in Malta. This applies on settlement and in relation to the income, attributable to the foundation.

Taxation as a Company

If a Maltese foundation decides to be taxed as a company, as with other companies in Malta, the income and/or gains realised, are subject to tax in Malta on a worldwide basis at the flat rate of 35%.

However, on the distribution of qualifying foreign or local source income, by the foundation in favour of its beneficiaries, the beneficiaries will generally be entitled to a refund of 6/7ths of the Malta tax paid by the foundation, giving an effective tax rate of 5%. This assumes that the beneficiaries are not resident and/or domiciled in Malta.

A number of reliefs are also available to foundations, as well as to companies. These include; the full imputation system, participation exemption, and access to appropriate unilateral agreements, Malta also has a wide network of Double Tax Treaties.

How Can Dixcart Assist?

The Dixcart office in Malta can assist with the efficient establishment and management of a foundation to meet the agreed objects.

Additional Information

For further information about Maltese foundations and the benefits that they offer, please speak to Jonathan Vassallo: advice.malta@dixcart.com at the Dixcart office in Malta. Alternatively, please speak to your usual Dixcart contact.