Given the economic upheaval caused by the Corona Virus (COVID 19) pandemic, we have been contacted by a number of clients of late looking to set up a (or continue a) business whilst at the same time setting in place a solid asset protection solution.
The ideal scenario for most would be to set in place a Combo structure ie a tax- free Offshore Company PLUS a Private Foundation.
How it would work is:
- The Company would/own/operate your business and receive all income in the first instance.
- The Foundation would own (ie hold all shares issued by) the Company.
- As money is earned (a) the Company pays you a living wage and (b) left over profits/monies are diverted to the Foundation:- The Foundation would either hold those monies at bank or divert the monies into certain investments as you may prefer.
Anyone trying to sue you personally would not be able to touch any of this money, even if you’re named as a beneficiary of the Foundation (in most cases the client his/her spouse and children are named as Foundation beneficiaries).
Why is that so?
Unlike its English cousin the Trust (where the beneficiaries hold a legally recognizable “beneficial” interest in Trust Assets and in certain instances can compel the Trust to pay them distribution), in the case of a Private Foundation, the beneficiaries:
(a) at law have no legal or beneficial interest in assets owned by the Foundation; and
(b) are not entitled to receive a distribution from the Foundation unless or until such time as the Foundation Council actually resolves to pay the beneficiaries a distribution.
In simple terms (if a Private Foundation is the shareholder of your tax-free Offshore Company) you don’t own the Company or any assets owned by the Company or the Foundation.
The end result?
Any person that you owe money to cannot seek recovery from your Offshore Company (or the Foundation)!
You could even transfer ownership of other “at risk” assets to the Foundation comforted by the knowledge that in most cases the would be predator would have little, if any, ability to claw back the asset/s.
Why is that so?
Most Foundation jurisdictions:
(a) do not recognize the operation of foreign law/judgments (ie the predator/creditor, even if he/she has a judgment against you in the country where you or the asset are located, would have to start a separate legal action/suit in the country wherein the Foundation is registered); and
(b) place a time limit on the ability of a Creditor to sue the Foundation (in most jurisdictions any action seeking return of an asset must be commenced within 12 months of the asset being transferred to the Foundation).
The most popular Foundation jurisdictions include:
Seychelles: https://offshoreincorporate.com/seychelles-foundations/ &
If you wanted to make it even more difficult for the predatory creditor (and if your budget can stretch that far!), additionally, you could interpose an Offshore Trust between the Company and the Foundation. Trying to tap into assets held by such a structure would be the Litigation Lawyer’s equivalent of climbing Mount Everest! (Here is an example of such a structure: https://offshoreincorporate.com/how-to-create-the-ultimate-tax-effective-offshore-corp/).
In such a scenario Belize is usually the favoured Trust Jurisdiction because its law uniquely provides that once an asset is transferred to the (ie Belize) Trust the transfer can’t at any time be clawed back by a creditor.
(Most Trust jurisdictions say that a law suit seeking return of an asset by a creditor of the Trust Settlor/Creator can be brought against the Trust if commenced within 12 months of the asset being transferred to the Trust).
Would you like to know more? Then please Contact Us: