We’ve Got It! www.megadox.com THE SIMILARITIES AND DIFFERENCES BETWEEN A TRUST AND A PRIVATE CORPORATE FOUNDATION A trust is a legal relationship of persons (settlor, trustee and beneficiary), not a legal person. A foundation is a corporation (a legal person) created by a government by its laws, or an act known as a statute. In the case of most corporations, a corporation is created for the ultimate value of its shareholders, or members, who would receive the assets of the corporation on a wind-up of the corporation, and who may be entitled to dividends as shareholders, or members, of the corporation. However, a corporate foundation is created not for value for its shareholders, or members, but rather for the ultimate value of the special purpose or purposes for which it is established. In Canada, such purpose is usually charitable and, if exclusively charitable, is recognized as such under Canada’s Income Tax Act (the “Tax Act”) for special tax relief. The relationship that establishes a trust is the relationship between those persons, being the person (the “Settlor”) who gives (settles) an asset (the “Trust Assets”) to another person (the “trustee”) to hold for the benefit of another person or persons (the “beneficiary or beneficiaries”). The trustee has legal ownership of the Trust Assets, but has no beneficial ownership of the same; that is to say the trustee must take care of the Trust Assets, but cannot use the same for his personal use, all benefits to be obtained from the Trust Assets to go to the beneficiary or beneficiaries. A Foundation, being a legal person and not a relationship of legal persons, is established when a person (the “founder”) gives (“founds”) certain assets (the “Foundation Assets”) to a corporation (the “Foundation”) created irrevocably for a special purpose (the “Foundation’s Purpose”). The Foundation’s Purpose for which a Foundation is created can be for any lawful purpose, whether for planting flowers in a cemetery, saving certain species of marine life or providing for the needs of certain members of humanity. The key difference between a Trust and a Foundation is that a Foundation has both legal and beneficial ownership of the Foundation Assets. As such, the Foundation Assets cannot, under any circumstances, be treated as the assets of the founder or any persons within the Foundation’s Purpose; however, the founder (or any other person or persons approved by the founder) can, either directly or through third parties, exercise control and supervision over the administration and disposition of the Foundation Assets. In addition, the Foundation’s legal and beneficial ownership of the Foundation Assets is restricted in that the Foundation can use the Foundation Assets only for the Foundation’s Purpose and not for any other purpose, a breach of which by the Foundation’s directors being criminal fraud and subject to penalties (typically jail) in all countries of the world. These key differences between a Trust and a Foundation is especially important to persons who are within the Foundation’s Purpose of a foreign Foundation and are resident in Canada. A person who is a resident of Canada and within the Foundation’s Purpose of a foreign Foundation does not have any “beneficial interest” in the Foundation or the Foundation Assets and as these Canadian residents will not be subject to any Canadian foreign reporting requirements or Canadian income tax on the Foundation’s Assets or monies received from the Foundation. A trust, on the other hand, does create a “beneficial interest” in the Trust Assets for the beneficiaries which will subject resident Canadian beneficiaries of a foreign trust to certain Canadian foreign reporting requirements and perhaps Canadian income tax on the earnings of the foreign Trust. Further, resident Canadians who are beneficiaries of a foreign trust are also now usually taxable on the monies they received from a foreign trust due to certain provisions of the Tax Act. There are no equivalent provisions in the Tax Act for foreign corporate foundations, with the result that Canadians who are within the Foundation’s Purpose of a foreign Foundation and receive monies will receive these monies as capital (rather than income) which is not a source of funds which is taxable under the Tax Act. A further key difference between a Trust and a Foundation is that, given a Trust is a legal relationship, a court of law can vary that relationship in any manner it can justify. The Foundation, being a corporation, is governed by its incorporating documents and resolutions, which are not subject to variance by a court of law.