Isle of Man foundations are mainly used for private wealth and charitable purposes although there is no reason why they cannot be used in a commercial context.
A foundation can be the equivalent of a family trust, used to benefit successive generations of family members; or as a charitable foundation operating in a similar way to a charitable trust. Or a foundation could be the equivalent of a purpose trust and could have as its objects the ownership of assets. A foundation might for example be preferred instead of a trust (a) to own assets which are wasting or risky (b) to hold "orphan" assets, for example the shares in an SPV in a financing structure or in a private trust company or (c) where the client is more familiar with civil than common law jurisdictions and thus understands a foundation better than a trust.
Foundation uses may include:
- Philanthropy – A foundation can be particularly useful for those interested in philanthropy. The law allows for the creation of foundations for purposes which are charitable, non-charitable or a combination of the two. It is therefore possible to establish a foundation for a particular purpose which although philanthropic may not qualify as being strictly charitable. Also a foundation's existence and its instrument are registered and a matter of public record, this can be important to those keen to maintain an open profile.
- Family business or wasting assets – A foundation can be established with the sole object of holding a particular asset and its beneficiaries do not have interest in the foundation assets (and are not owed a fiduciary duty). Foundations can be of particular interest when considering the appropriate structure to hold a single family business or a wasting asset such as an aeroplane or a boat. In the case of a family business for example, tensions may exist between different branches of the family, such competing interests may present difficulties for a trustee with a fiduciary duty to discharge and obligations to have regard to the interests of the different beneficial class, or in such circumstances a foundation may well be a more suitable vehicle as the council owes duties to the foundation rather than to beneficiaries.
- Beneficiary rights and information – A foundation might be of interest to those wishing to consider asset planning in the context of the possibility of a future divorce.
- Reservation of powers – For clients wishing to retain a degree of control a foundation can be an option (the founder can be both a council member and an enforcer).
- Ownership of PTCs – where a private trust company is incorporated to act as a trustee of one or more family trusts a question often arises as to the appropriate ownership of the shares of the private trust company. Frequently a charitable or non-charitable purpose trust will be established in this context. An alternative is to hold the shares in the private trust company by a foundation. Certain clients might wish to incorporate a foundation to act as a trustee itself in the place of a private trust company.
- Contracting party – A foundation unlike a trust is able to contract and transact business in its own name.
- Migrations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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