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Private Foundations: The Latest Trend In Latin America

Private Foundations: The Latest Trend In Latin America
The use of Private Foundations in international wealth planning is becoming as widespread as ever before, especially amongst families and investors from Latin America.

For over 800 years the concept of Trust is established and widely used in England and other common law based countries to protect assets against future creditors, and to plan how the family patrimony will be distributed amongst family members. However despite its many advantages, the Trust never gained foot-hold in Latin America. One of the main reasons being, that the concept of entrusting a third party (Trustee) with the control over part of the family patrimony does not fit well into the Latin American culture. For a Trust to be effective, the one that settles the assets in the Trust (the Settlor) cannot maintain and exercise control over the Trustee, who manages and controls the trust fund . Another reason why the Trust concept is not popular in Latin America is the fact that a Trust is a common or English law legal concept, whereas Latin American countries have a civil law legal system.

A properly structured Private Foundation allows for the family (or client) to retain and exercise a greater degree of control over the assets in the Private Foundation, this while not affecting the Private Foundations’, assets protection and estate planning features. Many believe this to be one of the main drivers for the popularity of Private Foundations in Latin America, Asia and Eastern Europe.

The main features of a Private Foundation are:
-Taxation: The Curacao Private Foundation is fully tax exempt. There are no income taxes, corporation tax, capital gains tax, profit tax, gift tax or other.

-No initial endowment: A Private Foundation can be incorporated without, any initial endowment.

-Unlimited duration: A Private Foundation need not have any limited period of existence.

-Orphaned structure: A Private Foundation is incorporated on the instruction of a Founder, but is not owned by the Founder, or by anyone else.

-Information: A Private Foundation is not required to provide anyone (whether or not a beneficiary) with any information.Solely if required by law (court order) information must be disclosed.

-Register: The register of Private Foundations contains a foundation’s name and registration number, the name of the council, the business address in Curacao and a copy of its articles of incorporation. The information required to be included in the articles of incorporation is very limited and it does not include the names of the Founder and the members of the Supervisory Board.

-Founder’s rights: The Founder has such rights in respect to the Private Foundation and its assets as are provided for in the articles of incorporation and regulations.

-Breath of objects: A Private Foundation objectives must be lawful(subject only to that limitation), it can be charitable or non-charitable (or both), for the benefit of a person or a group of persons, or to carry out a purpose (or to do both).

-Body corporate: A Private Foundation has its own independent legal personality, therefore it is able to, transact, hold assets and sue (and be sued) in its own name. Subject only to the qualifications that its primary purpose cannot be to directly engage itself in business and trading activities, in this regard the holding of investments or other types of assets is not considered, business and trading activities.

-Constitutional documents: A Private Foundation‘s constitutional documents are its articles of incorporation (which is registered and available for inspection) and its regulations (which are not registered and available for inspection).

-Council: A Private Foundation has a council to administer its assets and carry out its objects. The council can consist of one or more members, and one member must be a “qualified person”, with appropriate regulatory license to provide, trust services in Curacao. Council members are required to act honestly and in good faith with a view to the Private Foundations best interest.

-Supervisory board: A Private Foundation can appoint a Supervisory Board whose primary responsibility will be to supervise and take such steps as are reasonable in all circumstances to ensure that the council carries out its functions. The Founder can also be appointed as a member of the Supervisory Board.

-Beneficiaries: The Beneficiaries of a Private Foundation have no interest in its assets and are not owed a duty (by the Private Foundation, The Council or the Supervisory Board) that is, or is similar to, a fiduciary duty. However, if a beneficiary becomes entitled to a benefit from the Private Foundations, this benefit must be provided.

In summary: the Private Foundation is increasingly being used throughout Latin America, primarily to obtain the following benefits:
– Peace of mind: knowing that at last part of the family assets are secured against eventual future creditors.
– Control: one would be able to determine now, who will get what part of the family patrimony, when and under what circumstances.
– Privacy and confidentiality would be attained, which are no longer seen as a luxury; these are essential planning elements to reduce risk.
– And a United family: by arranging the transition to the next generation now; one would reduce the chances for family conflict at a later stage

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