A trust is currently a generally recognized instrument that is frequently used in the Anglo-American legal system.
Meanwhile, in civil law countries, historically a trust has not been used so widely. Continental traditions have shown that it is more common to use legal entities to own property rather than contractual relations.
It is therefore important to note that a trust is not the only instrument for achieving the goals of asset management. These functions may also be fulfilled by a foundation.
The main comparative characteristics of trust and foundation are given below:
|A trust is an element of the common law concept that is in force in the United Kingdom and the countries that came under a significant influence of the United Kingdom legal system.||A foundation is an element of the civil or continental law concept.|
|A trust is not a legal entity but rather a binding agreement between the parties.||A foundation is a separate legal entity which is subject to mandatory state registration. The main difference between a foundation and standard corporations is that a foundation has no shareholders.|
|Property in favour of a trust is transferred by its settlor.||Property in favour of a foundation may be transferred by its founder or other persons.|
|Although the trustee is a registered holder of property, in practice the possession is limited to the obligation of managing such property in the beneficiaries’ favour.||Foundation is an actual and unlimited holder of property transferred to its assets.|
|A trust implies actual disposal of property that was previously owned by the settlor. For this reason, normally any property transferred to a trust may not be thereafter revoked. A trust that may be revoked may be recognized as null and void hence non-existent.||A foundation may be liquidated in accordance with the founder’s instructions, and consequently in such cases all property of foundation will be returned to him.|
|After a trust is established, the settlor has no rights to the transferred property or the possibility to control the trust, unless otherwise specified in the trust deed. A trust that continues to be controlled by its settlor may be recognized as null and void hence non-existent.||The property of a foundation is managed by its council appointed by the founder.|
|Under the law the trustee must act in the beneficiaries’ interests, hence managing the property of the trust so as to preserve and increase the property for the beneficiaries’ benefit. Thus, the settlor may not include in the trust deed any clauses that would not comply with the applicable trust legislation.||The general law on foundations does not contain requirements for acting automatically in the beneficiaries’ interests. A foundation manages the property in accordance with its by-laws approved by the founder so in full compliance with the conditions set by the founder at incorporation.|
|In most cases, the beneficiaries have access to trust documentation, unless specified otherwise in the trust deed.||In case of a foundation, the beneficiaries’ access to information may be limited as required.|
|A trust may be recognized as non-existent if it is proved to have been established artificially or in discrepancy with the laws.||A foundation that is duly registered with the state has no grounds to be recognized as non-existent.|
Accordingly, for the countries with a continental law system, the use of foundation may be more common and effective than the use of a trust relationship.
Lexon Incorporations will provide services for the registration and further maintenance of foundations in a number of jurisdictions.