In a simpler and more common landscape, many would simply revolve around the idea of having a will merely to ‘park’ their assets and wealth for distribution purposes after their death. However in the estate planning arena, there has been a flurry of activities in various common law jurisdictions in legislating and promoting the concept of Private Foundation as an alternative to trust. These legislative efforts are reminiscent of the development in which common law trust or trust-like arrangements found their way into some civil law countries. It is crucial to identify the contrast key features of these wealth management tools which serve similar functions however have distinctive differences which only works to your advantage only if the suitable vehicle / tool is identified and deployed correctly, particularly for a holistic estate planning.

Will

A will is a legal document which sets forth your wishes in terms of distribution of your property and possible guidance for any minor children. In the absence of a will, those wishes might never be fulfilled in your absence and land them in a chaotic situation as they may be forced to spend additional time, money, and emotional energy to settle your affairs.

Contents of a Will

A will usually consists: –

1. a) Executor – who performs the provisions of the will.
2. b) Beneficiaries – those who are inheriting the assets.
3. c) Instructions – for how and when the beneficiaries will attain the assets.
4. d) Guardians – for any minor children.

Impediments in Will

Although a will is cheap and simple to draft, it has various downfalls too. Primarily, it requires the family involved to go through the probate process, which is both time-consuming and expensive. Additionally, probate must be finished in all states where real estate is owned. The will and record of financial assets then become public record after the probate process is finished. A will also is applicable only to assets owned by the deceased alone and does not entail life insurance or assets with a signed beneficiary designation. Ultimately, a will gives little room for customisation and offers no safety to your heirs against creditors and financial predators.

Trust

A Trust is an agreement which is made through private writing. A trustee is nominated to monitor and cater to the assets which have been placed into the trust, for the sole benefit of the trustees. For instance, immovable property like houses can be held in a trust, as an artwork or heirlooms. These items would be legally held by a third-party, generally, a firm or an organisation but remains the property of the beneficiary which is nominated in the trust.

Benefits of Trust

To begin with, a trust offers you with a comprehensive document which is easily amendable. A trust also circumvents the need for a conservatorship. This is the legal process of appointing a guardian at the time of mental incapacitation. A trust later prevents your family from going through the strenuous probate process and ensures that your financial information and final wishes remain private. Additionally, trusts give you the freedom to appoint yourself or an industry expert, such as a financial advisor, as the first trustee. With a trust, you can expand out distributions to beneficiaries over a course of time and safeguard your heirs against creditors and those who may wish to prey upon them financially. And finally, a trust offers you the choice to include a “pour-over will” that covers anything you leave out by mistake.

Foundation

The word “foundation” is generally employed with the likes of various non-profits (for instance;, The Bill and Melinda Gates Foundation, Make-A-Wish Foundation, etc). However, not all of these “Charitable Foundations” are private foundations. In fact, a private foundation is a very unique and offers very distinct advantages.

A private foundation is an independent legal entity set up personal as well as charitable purposes. Unlike a public charity, that relies on public fundraising to support its activities, the funding for a private foundation generally comes from a single person, a family, or a corporation, that enjoys certain tax benefits for donations or charitable dos.

Benefits of Private Foundation

Tax Benefits and Regulatory Framework

Most jurisdictions do offer some sort of tax benefits however it is best to be in a jurisdiction that works best to meet your desired objectives. For a Labuan Private Foundation, one gets to enjoy the tax benefits which is reasonably low while meeting the necessary substance requirements of operating in an offshore environment. Additionally, being in a jurisdiction governed by a robust regulatory framework, Labuan offers you peace of mind ensuring that the foundation is protected by its own Labuan Foundations Act (LFA) 2010 which subscribes to common law principles. The LFA 2020 is a brilliant legislative innovation aimed at providing multiple legal tools for affluent individuals or families seeking to structure their estate planning.

Legacy Building

Foundations can be set-up for a specific period or it can also be perpetual which can be passed down from generations to generations. There is also another method to create a legacy for yourself and / or family’s name. As the affluent community becomes more international and the size of their wealth grows exponentially, they demand a multitude of legal solutions to accommodate the diversity and complexity of their needs. For jurisdictions like Labuan who wish to maintain a competitive edge in attracting clients to come onboard, the ability to offer a tool box showcasing a wide range of structures is crucial.

Promotes Togetherness

As family members come together for a similar purpose / objective i.e. own family wealth preservation and business succession planning including attending to an identified philanthropic initiative, these group of family shall put forward their findings to the board, participate in the decision-making process, and monitor results which in return shall, they improve their skills that will benefit them for years to come.

Refrain from Unsolicited Requests

This is specifically and very practical for the purpose of a charitable foundation. This can be easily executed by defining the philosophy and values set-forth of the foundation which can be used to politely turn down off-target funding requests.

Wealth Preservation and Succession Planning

Preservation and succession planning would be top priorities for the affluent. Professional wealth structuring and planning helps protect assets while preserving family’s financial confidentiality. It can also enhance control over one’s financial position, while allowing for an orderly succession of assets across jurisdictions.

QX Trust Co. Ltd, possesses many years of experience in assisting the affluent business owners in their wealth management and succession planning needs. Our team of wealth consultants responds quickly and efficiently with valuable, sound information to ensure the process is as smooth and seamless as possible. Feel free to contact us at +60 3 9212 6940 or consultant@qx-trust.com for a complimentary consultation on how to consolidate all your wealth in a friendly and regulated jurisdiction.