Private Foundations

Private foundation is a tool intended for family wealth protection and planning. It is a trust equivalent used in civil law countries (i.e. most European countries).

Unlike trusts, private foundation is a legal entity that can be owner of assets, party to agreements, etc. Despite being a legal entity, a private foundation has no shareholders or equity. One can say that a private foundation is owned by itself.

A private foundation can be compared with other well-known organization – charitable foundation. Like a charitable foundation, a private foundation can dispose its funds, complying with its bylaws and internal procedures, and it has no shareholders. But unlike charitable foundation, the objective of the private foundation is to provide support and aid to particular individuals – the foundation’s beneficiaries.

How is asset protection ensured?

It might be unknown to someone that companies and corporations encountered daily are much younger than trusts. The general concept of companies implies the possibility to limit the liability of owners. This rather simple concept became a revolution in business. Before invention of limited liability, entrepreneurs were fully liable under all their undertakings, and losses in case of failure often exceeded potential gains.

The inventors of trusts and private foundations introduced equally revolutionary concepts, which were aimed not at running a business but at protecting assets of wealthy families.

  • Alienation of assets
    First, protection of assets in the trust is ensured since the assets are not owned by the entrepreneur any more. Being the trust settlor, the entrepreneur alienates the assets in favour of the trust, and after that, the same is not considered neither economic, nor legal owner of the assets. Thus, the creditors of the entrepreneur cannot access these assets. Moreover, the entrepreneur is not regarded as the person controlling the trust, since all trust activities are performed by the manager.
  • Absence of shareholders
    Although there are beneficiaries in any trust (usually, they are family members of the settlor), their rights are substantially different from those of the company shareholders. Beneficiaries of the trust do not have voting rights, and they simply receive the distributions. Thus, the assets are protected against the claims of creditors of the beneficiaries.
  • Discretionary structure
    ‘Discretionary’ means that the trust manager is authorized to make decisions on distributions to beneficiaries. Therefore, it is not specifically stated that the beneficiaries have the right to some particular share, and thus the creditors are unable to claim some share of the trust to be applied towards covering the beneficiary’s debt.

We are always ready to provide you necessary legal advice. We also recommend considering the opportunity of individual investment management.

  • Additional Information for Customers

    Use your Internetbank ID and password to access customer information.