When you want to build a philanthropic project you often use a foundation or trust for philanthropic purposes as a tool. But what are the differences and their respective advantages?
The main difference is that a foundation is a legal entity with its own responsibility, i.e. an externally visible entity that manages and administers assets with a specific purpose. The trust is a legal relationship between persons that is subject to rules of Anglo-Saxon origin, the operation of which is bound to the trustee who is responsible for it and whose "trust" it holds. In short, trusts are designed to meet private-sector objectives, whereas foundations are designed to meet public-sector objectives. The trust also has a limited time horizon unlike the foundation whose duration can be unlimited.
The Trust can be created by a business owner who transfers ownership of the business to the trustee, who holds it for the benefit of the beneficiaries, for example. The trustee is required to carry out a program of functional activities to manage the company, while the beneficiaries can receive periodic income and are also entitled to receive the company at the occurrence of certain events or at the expiry of the trust.
The foundation, on the other hand, makes it possible to allocate assets to the achievement of a public benefit purpose, since it cannot have individuals as beneficiaries. This entity must use its financial resources for educational, cultural, religious, and social purposes by directly managing its programs. In the case of a generational changeover, the transfer of ownership of the company to a foundation is intended to ensure the survival of the company when the entrepreneur retires.
Another distinguishing feature between trusts and foundations is the control scheme, which is strong in the foundation and virtually absent in the trust. The foundation acquires legal personality only with the recognition by the Public Authority, and, in the course of its existence, is subject to various regulations and forms of control of public nature.
A further aspect of difference involves the degree of flexibility of the institution, which is total in the trust and very limited in the foundation. In the case of a trust, for example, the public benefit purpose may well be combined with the protection of beneficiaries, while the foundation can only use its assets to pursue the institutionally intended purpose, excluding the protection of private interests.
In addition, the foundation will be precluded from carrying out economic and commercial activities, except in a residual manner and strictly in connection with the implementation of the purpose, whereas the trustee may have greater freedom of action in this respect.
Finally, the founder's role can be different. In the foundation, he may actively participate in the administration, appointing the first trustees, but may not reserve the power of appointment for subsequent renewals. In the trust, the trust is managed by the trustee, although it is possible to define a role for the settlor within the controlling body.