Ownership Flexibility Using Discretionary Foundations

For most clients looking to defer tax on Offshore earnings the preferred solution is to have one’s Tax Free Offshore Company owned by an Offshore Private Foundation wherein the client + his/her spouse/family are named as beneficiaries.


But for clients who are either:


(a ) concerned about potential tax consequences that may arise onshore from being named as an immediate beneficiary; or


(b) wanting as much privacy as possible


there is a solution.


The solution is to set up a Discretionary Hybrid Foundation. That is a Foundation which can (a) benefit both a charity and natural persons and (b) which can, utilizing the Councillor’s “discretion”, change beneficiaries at any time.


Typically what the client does is (a) he/she nominates a tax free International Charity to be the beneficiary in the first instance and (b) he /she provides the Foundation Council with a Letter of Wishes setting out guidelines as to how and when in the future the client’s spouse/family might be substituted as beneficiaries.


I know of a client who set up one of these dual structures and then ten years later shifted his tax residence to a country that didn’t have income or capital gains tax. Once he’d moved the Foundation beneficiary was changed from a Charity to the client… whereafter the client promptly drew down the capital from/of the structure all of which was receipted/ banked tax free!


To change the beneficiary of a Foundation is easy. Here’s the steps:


1. You send the Council:

(a) a written request (called a Letter of Wishes) addressed to the Councillor advising who you want added as a beneficiary and why

(b) proof of ID and residential address as regards the new beneficiary


2. The Foundation Council then passes a Council resolution authorising a change.


3. The regulations get amended to note the new beneficiary.


4. The register of beneficiaries (usually stored at the Foundation’s registered Office) gets amended to note the changes


Local condition can have an impact. Hence you should always, before enacting such a plan, seek local legal/tax/financial advice.



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