The Difference Between Trust And Foundations – And Why You Should Care!

Trusts and Foundations are an important aspect of succession and wealth planning. They can be written into your Will but also give you the flexibility to provide for your family whilst you are still alive.

For example, you may want to establish a trust or foundation for your children – but with a provision; when they go to university, when they reach a specified age, or when they are ready to take over the family business, etc.

When used as instruments for succession planning, trusts and foundation deeds typically include provisions for how the assets will be administered to the beneficiaries.

To ensure the provisions are executed according to your wishes, trusts and foundations appoint administrators – either a lawyer that handles private trusts or a specialist in trusts and foundations.

What Are Trusts?

Discretionary trusts help you to protect your asset and ensure they provide a benefit to the beneficiaries at the correct time. A common use of a trust is to smooth the path for your children to take over a family business when you retire.

Business trusts are an effective instrument to transfer wealth and distribute assets without the risk of prompting a dispute. Trusts can also help beneficiaries navigate complex tax laws.

There are various categories of trusts but the common purpose for establishing a trust is to hold property and safeguard assets. The key benefit here is that even if the beneficiary faced a lawsuit (i.e divorce), the assets of the family business would be protected by the trust.

What Are Foundations?

Foundations are a modern concept that is typically adopted by philanthropists. They share several similarities with trusts in that they can serve as a living will. They have no end date and enable donors to navigate taxation.

Whereas setting up a Trust involves appointing administrators to manage and distribute assets, a foundation is firstly registered as a business and given its own legal identity.

Another key difference is that funds held in foundations are distributed to charitable causes, education, religious donations, or scientific research. This means the founder can receive donations from third parties. Donations offered to a foundation are tax-deductible.

Foundations are governed by a board of three or more members who decide which beneficiaries are awarded contributions. However, founders do not have to stipulate a purpose for the foundation. This enables the foundations’ board members to remain flexible in how they distribute money.

Difference Between Trusts And Foundations

Trusts are typically used by family business owners that want to transfer the continuation of a company to family members, or people they trust to run the business successfully.

Foundations are typically adopted by the mega-rich in pursuit of philanthropic engagement that wants to avoid civil law jurisdictions that legally bind ownership of a Trust to beneficiaries.

This makes foundations an attractive vehicle for holding assets that are depreciating or considered high risk. ‘Gifts’ generates investment revenue, assets can be passed on to countless generations of your family and continue your legacy.

Trusts and foundations are easy to set up but in order to protect your assets and ensure funds are distributed according to your wishes, it is advisable to appoint administrators that specialize in this area of law.