The word foundation evokes philanthropy in our mind. We think of Bill and Melinda Gates Foundation and the work it does to fight poverty, disease and inequities in the world.
But did you know that foundations can also be used for estate and succession planning?
The Bill and Melinda Gates Foundation
The layman’s notion of a foundation is that it is a legal body which collects donations to help alleviate a problem in the world. Bill Gates is literally the founder of his foundation, which means he is the one who started it. Thereafter many people around the world joined in to lend a helping hand. Some of these benefactors make financial contributions as one-off donations; some are more regular with their donations; and others provide assistance in kind. They are all donors or contributors. The foundation is run by a governing body which can be called a Board of Trustees, or Council. This board appoints an executive team to run the foundation: management. The people who benefit from the works of the foundation are its beneficiaries – they can go up to innumerable numbers.
Using a Foundation to plan your Estate and Succession
A foundation can also be set up for a private purpose. For example, a father can set up a foundation, and endow it with an asset or a sum of money to benefit only his children and their children. The Council may decide to invest the assets on a commercial basis to generate further income and growth. To this effect, the Council may appoint managers to run the foundation. These commercial foundations are not charitable institutions, but some countries exempt these non-charitable foundations from tax. The idea is to promote the growth of the funds so that ultimately when the beneficiaries receive benefits, they pay their fair share of tax on the benefits received.
NWT runs a private wealth business in Geneva and Mauritius. Our clients are affluent families living mostly in Africa, Middle East and Europe with a select few in Asia and the Americas. We have 3 decades of experience as Trustee in managing intergenerational wealth.
We have established foundations for many wealthy families. Mr Touré is one such esteemed client. He is in his early 60s, and has two daughters and two sons. All of his children have recently finished school and started working. Mr Touré has wealth which is worth around 60 million euros. This wealth consists mainly of his family businesses and real estate properties in West Africa and Mauritius, as well as a portfolio of global bonds and equities held with a Swiss bank. He is about to buy a piece of property in Europe.
Mr Touré wishes to pass the management of his family businesses to the sons to the extent they display good business acumen. Every child shall have an equal share in the post-tax profits distributed from the business. The family’s principal residence will go to the elder son, just as Mr Touré himself has inherited it from his father.
For the rest of the wealth, Mr and Mrs Touré will decide as and when they feel the time is right, but they are mindful that they could be trapped by prescriptive rules of the law should they pass on without a will. Last but not least, Mr Touré feels that he has been abundantly blessed by life and now that he is almost retired, he wishes that one-tenth of all his income and gains are given to charity. However, Mr Touré is very clear that he will only provide funds where the charitable needs are properly assessed and the handling of funds is blameless.
Mr Touré consulted with NWT. We established The K Touré Private Foundation. Mr and Mrs Touré are the founders and they are also the Council members alongside NWT. The couple is also the principal beneficiary along with their 4 children. The Foundation has thus become the vehicle through which charitable funds are regularly set aside. The distribution of funds is made when needs are identified and properly assessed. The Foundation will also hold the personal wealth of the family and the Council will distribute the wealth during and after the lifetime of Mr and Mrs Touré based on the wishes they will express to the Council from time to time until their passing.
We further established The K Touré Business Foundation. The primary aim is to hold the controlling shares in all family businesses. This means that shareholders’ decisions in the businesses and all profits from the businesses will be under the control of the Foundation. Mr Touré will invite the children to join the Council when he feels any of them have proven themselves. It is agreed that professional directors will be invited to join the Council to assist the children as Mr Touré retires from active involvement or passes away. Even if none of the children joins the Council, each one will benefit from an equal share of profit distribution from the businesses as beneficiaries of the Foundation. Mr Touré is satisfied that he has been able to instil discipline in his estate and succession planning and he has created a sense of responsibility in the children.
NWT is licensed by the Financial Services Commission in Mauritius and by the Association Romande des Intermédiaires Financier (ARIF), a self-regulatory body approved by the Swiss Financial Market Supervisory Authority (FINMA) in Switzerland.
If as Mr Touré, you have estate and succession planning needs, please speak to us.
23 February 2022