Labuan Foundation, a vehicle for asset protection
Did you know that Labuan Foundation can be used as an estate planning vehicle while keeping your assets protected from future creditors?
It is a vehicle that can be used as protection for your assets from the risks and gives you a peace of mind to secure the future of your family and business.
So, what is a foundation? To simply put, a foundation is a hybrid combination of a trust and a company. A foundation is a separate and independent entity and has its own legal identity, which can sue and be sued under its own name.
Foundation, structured based on civil law, is designed for individuals, especially those with high net worth, who wants to have both control and protection on their assets.
Background of Labuan Foundation
Labuan Foundations Act (LFA) 2010 was formally introduced on February 2010 and it is the governing law of Foundation in Labuan International Business and Financial Centre (IBFC).
A Labuan Foundation can be registered and established by residents or non-residents with a licensed Trust Company in Labuan IBFC. The types of Labuan Foundations that can be established are Private Beneficiaries Foundation, Non-Charitable Foundation (also known as Private Purpose Foundation), and Charitable Foundation.
A Private Beneficiaries Foundation is a foundation can be set up by an individual, family or a group of people for specific beneficiaries. The common purpose for this type of foundation is for asset protection and family succession planning.
Non-Charitable Foundation or as the name Private Purpose Foundation suggests, is a foundation set up for desired purposes such as research, education, nature preservation and other purposes which are not charitable purposes.
And a Charitable Foundation is for charity purposes and is non-profit oriented.
Basic structure of Labuan Foundation
In a Labuan foundation, the key members are the founder, secretary, officers, council members, supervisory person, and the beneficiaries.
The founder, the person who subscribes his name to the Charter to establish the foundation, can be an individual, a corporation, residents or non-residents. The founder may appoint any trusted individuals or corporations to be the council members, officers and supervisory person.
According to the LFA 2010, a Labuan Foundation must appoint a secretary and it must be a licensed Labuan Trust Company. The council members are appointed to be responsible for ensuring the compliance of the Labuan Foundation and its officers with the terms as stated in the Foundation Charter and Articles. The council members also must supervise the management of the foundation by its officers.
Next, the officers of the Labuan Foundation. Their general responsibilities are to administer the foundation accordingly to its objectives and purposes and manage the investment and assets of the foundation. The officers are also subjected to other roles as stated in the Charter and Articles of the Foundation.
For proper governance, a person or corporation cannot be both council members and officers of a Labuan Foundation at the same time.
A supervisory person is elected to be responsible for safeguarding the foundation and monitoring all the foundation’s affairs.
The Charter and Articles refer to the constituent documents of the Labuan Foundation. The objectives and purposes of the establishment of Labuan Foundation will be clearly stated in the Charter and Articles.
Why use a Labuan Foundation
A Labuan Foundation is a popular wealth management vehicle for asset protection, especially more for high net worth individuals. Assets that are placed with or endowed into the foundation are protected against potential claims from future creditors because the ownership of the assets have been transferred to the foundation and the foundation itself is a separate independent legal entity on its own.
A Labuan Foundation is also a vehicle that can be utilized during estate planning to prevent forced heirship rule, especially for residents of civil law countries. To be exact, the Labuan Foundation Act (LFA) 2010 prevents the assets of the foundation being from assessed and subjected to the forced heirship rule.
In addition, the LFA 2010 also prevents spousal claims on the assets of the foundation in the unfortunate event of death to the founder.
However, a proper and valid constituent of the foundation in the form of a properly drafted Foundation Charter and Articles with clearly stated terms and conditions regarding how the assets will be distributed to the beneficiaries is required in order to weaken and protect the assets from any claims from the spouse.
As another wealth management purpose, it allows the founder to determine the operation of the Labuan Foundation and its investments.
Therefore, with proper planning and structuring, a Labuan Foundation is a multi-purpose tool for wealth creation, accumulation, preservation, protection and distribution upon death on the founder.
Labuan Foundation offers a unique and comprehensive asset protection structure, which is important to wealthy individuals and families who wish to protect their assets effectively with succession, estate and wealth planning in mind.