1.      A Liechtenstein Foundation holds assets transferred by its founder/settlor that become assets of the Foundation. The articles or statute of the Foundation set out the terms upon which the founder has transferred his assets. The founder may reserve rights in the statute: to revoke the Foundation; or amend the Foundation documents; or change the beneficiaries. The object of the Foundation is to follow the intentions of the founder as set out in the statute.

2.      The Foundation is an entity without shareholders but established as a financial structure with a board of governors as a council. At least one member of the Foundation council must have a law office address registered in Liechtenstein. Foundations are required to be audited and trustees, trust companies auditing firms and chartered accountants can act as auditors.

3.      The Foundation must have a purpose, that may include a class of beneficiaries. The rights of beneficiaries are regulated in the articles or statute and will include conditions for the application of the assets of the Foundation for their benefit as well as any conditions prerequisite for the loss of those rights.

4.      Beneficiaries of the Foundation inherit the beneficial interest, not the heirs of the deceased beneficiary. By such means the assets remain in the Foundation. If a beneficial interest is to be inherited, it has to be expressly provided for in the Foundation documents. As a beneficiary only in life, the beneficial interest does not enter the estate of a deceased.

5.      If there are no beneficiaries identified in the statute, the Foundation is solely for the benefit of the founder. In such circumstances, upon death the Foundation is transferred under inheritance laws to his estate.

6.      There are distinct classes of beneficiaries:

                         I.       Beneficiaries of the beneficial interest: benefit from the Foundation‘s assets as defined by the statute.

                        II.       Beneficiaries of prospective entitlements: benefit from the Foundation's assets upon succession rights.

                      III.       Discretionary beneficiaries: benefit from the Foundation's assets interest at its discretion. Discretionary beneficiaries have no rights against the Foundation.

                     IV.       Ultimate beneficiaries: benefit from the remaining assets of the Foundation if provided for under the statute after its liquidation.

7.      The private-benefit Foundation in Liechtenstein is used for the support of a particular family or class of people and ensures the transfer of assets from one person to the next generation. The founder can bind descendants to conditions upon which they may receive financial support and benefit from assets.

8.      Private-benefit Foundations are not subject to external supervision and do not have to be entered into the Liechtenstein Commercial Registry (Public Registry). The Foundation deed is not deposited at the Registry of Deeds and Public Registry, only notice of its existence need be given. The founder and object of the foundation only needs to be disclosed to the Liechtenstein lawyer and the trustee. There is also no obligation to disclose the beneficiaries of the Foundation to the Liechtenstein authorities. Assets transferred into a Foundation and wealth distributed to beneficiaries is tax exempt. Inheritance tax and gift tax have also been abolished.



9.      The conclusion from this review of Liechtenstein Foundations, is that it is a financial entity, cloaked in secrecy, and any settlor needs to enter into such arrangements with their eyes wide open and must be independently advised. The conflicts of interest that are apparent from such arrangements are obvious as the governors of the Foundation stand to gain from their supervisory role, although they are shielded from scrutiny. Once a settlor passes away, his family and potential heirs are open to embezzlement and profiteering as the power over the assets lies with the governors.

Steven Kay QC
6 October 2018