Foundations and trusts: legal structure

Separate legal personality

In the Cayman Islands, a foundation company has its own legal personality and can hold assets in its own name. It is a company formed under Cayman law with features that distinguish it from a trust.^[3]

In Jersey, a foundation is a separate legal person that can act in its own name. Jersey foundations have features of both companies and trusts.^[6]

In Guernsey, a foundation combines characteristics associated with a company and a trust, including separate legal personality and the ability to hold property for others. It is a distinct type of entity.^[4]

In Malta, a foundation has separate legal personality, while a trust does not and cannot transact in its own name.^[11]

In Jersey, a foundation holds property independently and has no shareholders. A trust is a relationship in which the trustee holds legal title and beneficial ownership belongs to beneficiaries.^[2]

Founders and governing bodies

In the Cayman Islands, the founder generally establishes the foundation by contributing assets, in a role comparable to that of a trust settlor. Cayman governing documents may give the founder powers such as appointing directors or amending those documents, and may also provide for no continuing founder role.^[3]

In Guernsey, a foundation has a founder who provides its initial endowment, a council that administers it, and a constitution made up of a charter and rules. Depending on the foundation's terms, it may also have a guardian.^[4]

In Jersey, the council administers the foundation's assets and carries out its objects. The council has one or more members, including a qualified member.^[6]

A Cayman foundation company is administered by directors under its memorandum and articles of association. A trust is administered by trustees under its trust deed. In Jersey, a foundation is likewise run by its council under its constitutional documents, while a trust is run by its trustee.^[1]

In Guernsey, the charter must be filed with the Registrar of Foundations and is not available for public inspection. Its rules set operative provisions, including the council's functions.^[4]

Beneficiaries and purposes

In Jersey, a foundation may be created for a person or class of persons, for a purpose, or for both. A beneficiary has no interest in the foundation or its assets and is not owed a fiduciary or analogous duty by the foundation or council.^[6]

A trustee, by comparison, owes fiduciary duties to trust beneficiaries.^[2]

In the Cayman Islands, foundations may have beneficiaries, but they do not have legal standing unless the governing terms specify otherwise. Oversight is vested in a supervisor.^[3]

In Guernsey, a foundation is able to hold assets for the benefit of others. In Guernsey, a guardian is required in specified cases, including when a foundation has no beneficiaries or its beneficiaries lack information rights.^[9]

Jersey trusts can also be established for charitable or non-charitable purposes and may have no beneficiaries. So the presence or absence of beneficiaries does not separate every trust from a foundation.^[2]

How the structures differ

In the Cayman Islands and Jersey, a foundation is a legal person, unlike a trust structure administered by trustees. In Guernsey, a foundation similarly has company-like personality alongside the trust-like ability to hold assets for others.^[4]

These descriptions are jurisdiction-specific. The Cayman rules apply to foundation companies, while Jersey and Guernsey foundations are governed by each island's own foundations law, so roles and features do not carry over from one jurisdiction to another.^[3]

U.S. tax classification of a foundation

A foundation is an entity, so the U.S. result depends on classification under Treas. Reg. sections 301.7701-2 through 301.7701-4, and the absence of a dedicated foundation form does not take it outside U.S. tax. Depending on its terms, a foundation can be treated as a foreign trust (Forms 3520 and 3520-A, with grantor trust status if the founder holds revocation or similar rights), as a foreign corporation (Form 5471, with CFC and PFIC consequences), or as another entity type. A U.S. founder or beneficiary may also have Form 8938 and FBAR duties for its accounts. See Foreign entity tax classification and Panama foundation versus trust: U.S. classification.

Questions and answers

Related resources

Related glossary terms

• Trust: The Hague Convention describes a trust as a relationship in which a settlor places assets under a trustee's control for beneficiaries or a specified purpose.
• Charitable trust: A charitable trust holds property for charitable purposes, and trust laws relate it to purpose trusts and to the other categories of trust used in planning.
• Tax residence: Tax residence describes a person's status in a country for tax purposes. Treaty texts address how it affects income items and applicable treaty requirements.

Related articles and guides

• Trust structures under Bermuda legislation: Bermuda's Trusts (Special Provisions) Act defines trusts and addresses roles, reserved powers, governing law and the duration of non-charitable purpose trusts.
• FBAR and Form 8938 for accounts linked to trusts: FBAR and Form 8938 are separate reports with different filing tests for a U.S. citizen. IRS instructions describe foreign accounts as well as trust interests.
• Panama Private Foundation Formation and Fees: Panama private interest foundations are governed by Law 25 of 1995 and have a legal basis, defined purposes, governance arrangements and founding documents.

Tools and official documents

• Foreign trust reporting role finder: Tick the roles that describe a connection to a foreign trust or foreign account to see the forms the IRS and FinCEN instructions discuss. Roles can overlap.
• IRS and FinCEN forms: reference pages: Reference pages for 15 IRS and FinCEN forms tied to foreign trusts, foreign accounts and entities, built from the official forms and their instructions.

Related pages

• Topic guides
• Cayman Foundation Company Formation
• Foundation Councils, Charters, and Rules
• Guernsey Foundation Registration and Filings
• Austria private foundations and U.S. reporting requirements: An Austrian private foundation raises local tax questions and separate U.S. reporting duties for a U.S. citizen who contributes property or receives a payment.