Any discussion about Charitable Purpose Foundations must necessarily begin with an examination of What is a Purpose Foundation?
A Purpose Foundation (like its forerunner the Purpose Trust) is one set up, not to benefit specific natural persons or corporate entities, but rather to raise funds for and/or to carry out some form of specific (usually Philanthropic or Charitable) Purpose.
Historically any Purpose Trust or Foundation which is set up to achieve a Purpose other than a Charitable Purpose has been held by the Common Law Courts to be unenforceable.
However of late some jurisdictions have passed laws specifically allowing for the establishment of a Foundation which is established to carry on a specific Purpose, Charitable or otherwise.
An example of a non-charitable purpose Foundation would include one which is established to maintain the Founder’s collection of antique automobiles, or perhaps one for the purpose of constructing a home for the maintenance and care of his/her cats and dogs and all their offspring.
In the Common Law world a Trust must have beneficiaries whose identity can be established with certainty. If the identity or method of determination of the ultimate beneficiaries of a trust is so vague that neither the trustee nor a court could readily determine whether any given individual at any time was or was not a beneficiary, the trust would be unenforceable under common law and therefore, invalid, unless, of course, its purpose was charitable.
Historically, a charitable trust, although it may have no named beneficiaries, could be enforced by the local attorney general. In the foregoing examples, however, certainly neither the antique automobiles nor the cats and dogs could sue the trustee to enforce the trust, and none of them is capable of having a personal representative.
Interestingly one jurisdiction (ie Seychelles) has specifically catered in its Foundations Law for any attempt by a foreign court to declare a (non-Charitable) Purpose Foundation invalid by including a provision in its law which says that “Notwithstanding a provision of a written law or of a written law of any other country, a Foundation, other than a Foundation with beneficiaries being beneficiaries in terms of section 59, shall be a Foundation established to carry on a specific Purpose”.
That being said if your heart is set on establishing a Purpose Foundation and your aim is to fly under the radar or to claim tax deductibility for any “donations” made to the Foundation the wiser choice would be to establish your Foundation as a Charitable Purpose Foundation. Certainly such a Foundation would be far more likely to survive a legal a challenge such as those which have historically struck down Non-Charitable Purpose Trusts in the Common Law Courts.
In a Charitable Purpose Foundation the objects of the Foundation must be set out in the Charter (that is the document which is publicly filed giving birth to the Foundation). Here is an example of such objects:
(a) To provide assistance and relief for children in ill-health;
(b) To raise funds for, and to financially assist, children in ill-health;
(c) To promote the health and wellbeing of children, including promotion of the provision of proper health care and treatment for children;
(d) To make distributions to non-U.S. entities and institutions that are organized and operated exclusively for charitable purposes and which further the purposes referred to in sub-paragraphs (a) to (c) above.
The law of your home state can impact on your reporting requirements. Hence it would be wise to seek local legal and tax advice before committing to establish a Purpose Foundation.
