What is a Discretionary Foundation?
If you are looking for maximum Privacy Offshore you should seriously consider including a Discretionary Foundation as part of your International Corporate Structure.
A Discretionary Foundation (like a Discretionary Trust) is a Private Interest Foundation (“PIF”) wherein the Foundation Council has a broad discretion including in terms of:
(a) who to install as beneficiaries and when; and
(b) when distributions are paid, to whom and how much.
In the case of a Discretionary Foundation the beneficiaries do not have a fixed entitlement or interest in the Foundation funds/assets. The Council has the discretion to determine which of the beneficiaries are to receive the capital and income of the Foundation and how much each beneficiary is to receive. The Foundation does not have a complete discretion however. The Council must act in accordance with the Letter of Wishes provided by the Founder at the outset (which commonly provides for the Founder and his/her family to be added as beneficiaries at a later time) and can only distribute to beneficiaries within a nominated class as set out in the terms of the Foundation’s Regulations.
Persons who are to receive a benefit from a PIF are called Beneficiaries. You as the Founder may be a beneficiary though not the sole beneficiary. (Unless you’re setting up a Purpose Foundation) there must be at least one beneficiary nominated from the outset.
There are essentially two ways that you can approach the issue of who to name as Beneficiaries (and when). The first (more traditional) method is to clearly describe to your Foundation Registration Agent (or the Professional person who is setting up the Foundation for you) the names of the persons (which may include you and eg your partner/children) that are to ultimately benefit from the PIF. Some people feel more comfortable if they can see, from the outset, their names appearing as beneficiaries.
Note: in this instance you will need to list the parties which are to be the beneficiaries of the foundation either by name or reference to another party (i.e. the children of XYZ).
You can also provide for your foundation to benefit any future unborn children. If so, in your formation instructions, you would need to clearly specify the full names of the parents or prospective parents (e.g. “the children of my son in the event that he has any children”). You can also give details if you wish to add any age requirements or other conditions for benefits to be distributed.
Discretionary or Potential Beneficiaries
The second, more creative approach is to set up a Discretionary Foundation and to maximize the “Discretionary” nature of the structure to avoid any person’s names appearing anywhere eg in the Regulations or Order form.
One of the key features of Discretionary Foundations is that the Council/lor retains the power to add or substitute further beneficiaries after the PIF has been formed. What you can do in this instance is nominate (in the section of the Order Form asking for details as to beneficiaries) an internationally recognized charity such as Oxfam or Unicef or The Red Cross etc to be the primary beneficiary from the outset.
If you are setting up a Seychelles Foundation this may not really be necessary however as under the Seychelles law there is no deemed entitlement for beneficiaries. Hence if you name yourself/your spouse/family members as beneficiaries it should not give rise to tax consequences onshore (ie unless or until the Foundation actually pays or resolves to pay you/the beneficiaries a Distribution).
If your wish is for the Foundation Council/lor to add or substitute beneficiaries at a later time all that needs to be done is to tell your Foundation Registration Agent (or the Professional person who is setting up the Foundation for you) the names of those persons and when, (after formation of the PIF) you would like to see those persons added as primary beneficiaries. By taking this approach if the Foundation’s Corporate document were accidentally found by persons acting on behalf of your creditors (or the Revenue Authorities) they should still be unable to establish whether you (or your partner or family members) are beneficiaries of the PIF.
As with any such structure local laws can have an impact. Hence you should seek local legal, tax and financial advice before committing to establish an entity or structure such as that described above.