Recently I was asked by another tax professional to discuss all things related to an entity called a “foundation” and I realized it would make for an interesting tax blog post. A foundation is a creature of a country’s statutory law, but foundations are not well understood in common law jurisdictions, such as the United States. In my recent discussion, we looked at the difference between civil law and common law jurisdictions and how foundations are not typically seen in the United States, but are often seen in Europe and more recently in the Middle East.
US States Jumping on the Bandwagon
Despite the fact that practitioners in the US are not familiar with the “foundation”, two US States (New Hampshire and Wyoming) are trying to attract business (and of course, much needed revenue) by recent enactment of foundations laws. Given that the US tax authorities and the judiciary are not familiar with this type of entity since it emanates from civil law, it may be rather risky to organize a foundation in the US. Certain wrinkles will certainly need to be ironed out. On the other hand, foreign law foundations have been around for a long time and so, there is far more precedent available to assist the tax planner.
Trusts v. Foundations
When it comes to asset protection and succession planning, trusts get a lot of publicity and hype. Foundations, however, are sometimes the better option. Determining the most suitable vehicle for a client is very fact specific. Given the ever increasing popularity of “foundations”, all practitioners should be learning about them and how they may benefit their clients. I am happy to help you understand more.
More Information
For those wishing detailed information about “foundations”, how they might be treated from a US tax perspective, and how they can help in asset and succession planning as well as business restructuring, download my article Handle With Care: How Sharia Law and U.S. Tax Law Affect the Foundations Regime in the United Arab Emirates published in Tax Notes International (TNI) Vol. 98 No. 5 May 4, 2020. The full article is available at no cost on SSRN.
Posted: June 18, 2020
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