The Difference between Private Trust and Private Foundation

People all over the world are living longer, healthier lives, which results in the accumulation of wealth as well. The important question that many of us have on our minds as we get older – “Are we well prepared to protect our wealth and family once our lives come to an end?” 

The fundamental objective of Succession Planning is for you to ensure that your wealth is passed on to your loved ones, so that they would be able to face the hardships caused by your absence. Good succession Planning allows you to take control over your own assets instead of leaving it up to the legislature and courts to decide on your behalf and gives you the option to entrust the distribution of your assets to the person you trust the most to look out for you and your loved ones’ best interests.

The primary concern for most of us is deciding what would be the best way to keep our loved ones safe and protected should we become incapacitated or even worse, meet our untimely demise. This includes making choices like appointing a surrogate to make medical decisions for you, or management decisions of your property and business, as well as providing support for your family, thereby alleviating the stress on your loved ones.

Upon your passing, the immediate goal would be to wrap up your final affairs. Providing support for the distribution of assets to your next of kin by avoiding unnecessary probate expenses, minimizing the costs of estate taxes, and properly safeguarding the transference of your inheritance, and not to forget the continuous management of your wealth and business are just some of the factors to be considered.

As you go through the succession planning process, you would be considering between having a Will, Private Trust or a Private Foundation would be best suited for you and your wealth. Once you have decided, how do you ensure that your vision will continue to be served long after you have passed? The question “when would be the best time to set up a succession plan” have been pondered by many and for some, the discussion of death and succession is a taboo topic and is usually avoided until their very last moments of life. Even without the dreadful events enveloping the world today, the best answer for succession planning that we can give you comes from a popular Chinese proverb: The best time to plant a tree was many years ago, the second-best time is now. These are important questions, and finding the answers starts with gaining a better understanding. The following comparison will serve as a simple guideline for your succession planning.

See Also

Labuan Private Foundation: a Solution for the Wealthy Families in Asia Comparison of Labuan with Other Jurisdictions FAQs on Labuan Foundations

What is a Private Trust?

• A private trust is an agreement between two parties, the Settlor, and the Trustee.
• “Settlor” entrusts assets to another person or a corporate “Trustee” to manage the assets for the benefit of the “Beneficiaries”.
• The Settlor will transfer legal ownership of his or her assets to the Trustee whose main responsibility is to hold the assets for the sole benefit of the Beneficiaries, who are listed in the trust deed. A trust deed is extremely difficult to amend.
• The Settlor will have no more control over the assets once they are passed to the Trust.

What is a Private Foundation?

• A Labuan Private Foundation is arguably a better vehicle for High Net Worth Individuals to secure assets with the intention of handling these assets for the advantage of a class of persons on a limited or perpetual basis.
• Generally used for private wealth management, business succession and asset preservation.
• A separate legal entity and the legal framework laid out will be registered with the Labuan Financial Services Authority.
• The founder retains the authority to change the Charter and Articles at any time he/she wishes to.

A quick self-check on which is more suitable for your circumstances?

Issue: I wish to protect my equity in my company while retaining full control over them.

Answer: A foundation is the answer.

Issue: I wish to protect and grow my legacy for my future generations even after I have passed on.

Answer: If the next generation is keen to be involved in family wealth management and the family businesses, a Foundation is suitable. If not, a Trust will be better.

Issue: I have only one child who is not interested in carrying on my business. I would like to protect my wealth during my lifetime.

Answer: Both Foundation and Trust may be used. Both structures can hold business equity and enjoy dividends by transforming the business into employee-owned entities. However, if the founder would like to maintain full control, a Foundation is advisable.

Issue: I have a special needs child and I want to secure part of my wealth for his/her future.

Answer: A Trust will be more suitable for management and distribution purposes.

Comparison between Private Trust and Private Foundation

About FA Advisory

Comprising a team of seasoned professionals well-versed in Labuan’s business landscape, FA Advisory Limited extends a comprehensive suite of services covering corporate services, private wealth management, and licensing compliance administration, all tailored to meet the unique needs of our clients.

At FA Advisory Limited, our expertise lies in delivering Labuan insights that facilitate business expansion, simplifying intricate processes, and offering valuable information to guide you through various facets of your journey.

Choose FA Advisory as your trusted partner in navigating the dynamic business landscape of Asia. With our commitment, we are your gateway to success in Labuan and beyond.

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