The differences (main) between the trust and foundation are:
1. Duration: Trusts (with the exception of a charitable trust) will only last for between 80 to 100 years, so at the end of that time, the assets need to be distributed and resettled on another trust (that is so long as everyone is happy for that to happen – it may be that in 100 years time there is a better system). Whereas foundations last for as long as they remain registered. Indefinite existence is not always a good thing as legal systems change, and you want the ability to change when needed – especially where the assets are very valuable. For this reason, the best structure for the family office is the foundation which owns the private trust company which holds the shares in the businesses.
2. Ownership: With trusts, there is separation of ownership between the trustee (who has the legal ownership) and the beneficiaries (who have the beneficial ownership). Whereas foundations do not have that separation of ownership but own the assets outright. This means that if there are problems with the trustee, the beneficiaries can club together and remove the trustee, or (if all the beneficiaries are in existence and are of age) can have the trust wound up, as the beneficiaries have an interest in the assets. This is not able to be done with a foundation, as the beneficiaries have no interest in the property until the Council distribute it to them. That means that the Council can deprive the beneficiaries of the assets (unless protections are built in to prevent that abuse). If the purpose is to protect against creditors, then the foundation for that reason is better than the trust, but you are at risk of a bad council.
3. If a trust fails, there will be a resulting trust of the assets for the settlor as the ownership has been split (and on failure it must go back to the last absolute owner). If the foundation fails, or its purpose no longer exists, there is no resulting trust for the founder – a court order is needed to decide what to do with the assets. Obviously this is not good news for the founder who would want his assets back.
4. Recognition: There are more jurisdictions that recognize trusts than those that recognize foundations. If the client is multi-national, the trust is better for asset holding than the foundation (refer again to the family office structure as being the best method of holding) especially when dealing with banks.
5. Separation of duties: Trusts in NZ, BVI and Seychelles can have separation of trustee roles – one to hold the asset and the other to manage. Under foundation law, this is not possible, and therefore no way of have a secret party managing the assets for the foundation.