The alternative solution
Avoiding enforced heirship by using trusts and foundations
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History has proved that private wealth was and will continue to be in peril and therefore it needs protection. Trusts, the modus operandi of choice, have been around for centuries and have been unable to provide an unfaltering defence. Trusts have a long history and an established body of jurisprudence. Ironically, there is a structure which has been around for less than a century and due to its constantly evolving nature, could in fact be the alternative and final solution to such an ongoing problem. We will discuss the concept of the private interest foundation and revolutionary structure of the private interest foundation as means to avoid forced heirship.
Private interest foundations were conceived in Liechtenstein in 1926 as a preventive measure to protect family assets during times of financial instability, and to compete with the long-standing Anglo-Saxon trust. And since privacy supports personal freedom, the private interest foundation became the private wealth protection of new smart wealthy men. In essence, a private interest foundation is dressed like a corporation, yet has the soul of a trust.
Private interest foundations have numerous attractive features that make them more adaptable, versatile and flexible structures in comparison to their Anglo-Saxon elders. The main ones are:
• Duration: no perpetuity limitations
• Confidentiality: all the parties in the foundation can remain anonymous while the employees are subject to strict confidentiality rules punishable with monetary fines and incarceration
• Charitable or for a profitable purpose; a general class of beneficiaries may be appointed, as well as unborn beneficiaries
• Separate patrimony: the assets belong to the foundation, not to the founder
• Minimum reporting requirements: foundations that do not pay taxes do not need to file tax returns or financial statements
• Contractual freedom: founders can include any clauses or distribution plans with regards to the assets held; this includes post-mortem distributions, even if forced heirship provisions prevent it.
Never, in the history of foundations, has a successful forced heirship claim been made. Numerous cases dealing with confidentiality, beneficiaries’ and creditors’ rights to information, and even the sequestering of assets owned by the foundation, have been seen by the courts. But none of them have been able to challenge the validity or functionality of the foundation due to the fact that for all legal purposes the assets held by the foundation are completely segregated from the assets of the founder. This separate class of assets may not be sequestered, garnished, or subject to precautionary action or measure, except for the obligations incurred or damages caused during the performance of the purposes or objectives of the foundation.
Forced heirship is the Black Plague of the 21st Century. And with wealth and fortune being made every second, individuals will constantly seek protection. Rich individuals, family businesses, and the likes have constantly been searching for ways to ensure the security and protection of their estates, and as such, the legal world has always provided the necessary alternatives. The real dilemma is whether to utilize an ancient institution that has upheld the same ideals and principles since its creation or to go against the tide and employ an efficient structure that will evolve with time to provide the ultimate solution. Trusts have attempted to bypass inheritance and matrimonial regime provisions for years, and have managed to successfully achieve it only a few times. Foundations on the other hand have a limited set of case law to make reference to, but the few cases that have been put to the test have produced the desired outcome. Forced heirship can be avoided through careful estate planning. Location of assets, type of legislation, individual intention, and country of domicile, are all factors that play a role in choosing which legal framework to build upon.
Under forced heirship rules, a person is not free to dictate who will inherit his or her estate. Instead, forced heirship laws require a deceased person’s estate to pass to one or more blood relatives (usually children and grandchildren) and/or a surviving spouse, who are referred to as the “protected heirs.”
Forced heirship laws vary widely from country to country. In some countries the deceased person cannot in any way alter the forced heirship disposition of their estate, while in other countries the deceased person can direct that a portion of their estate can pass outside of the forced heirship rules if a portion of the estate is left to protected heirs. In other countries forced heirship can be avoided by establishing a suitable private interest foundation.