Saint Kitts and Nevis: A State of the Art Asset Protection Tool: The Foundation Act of 2003 St Kitts

A number of small countries are beginning to emerge as superstars—with brightly shining, very favorable asset protection legislation. Some of the strongest financial structures for asset protection use "The Foundation" as an asset protection tool. 

In this article let’s cruise across the Caribbean to the island of St Kitts. St Kitts has established the foundation as a formidable asset  protection tool that is easy and simple to form yet difficult if not impossible to penetrate. St Kitts had worldwide asset protection in mind when it designed this protection device in the St Kitts Foundation Act of 2003.

First, though, let’s look at the basics of foundations in general and why they are so effective at protecting assets. Then discuss some of the benefits that St Kitts has over other countries with similar foundation structure statutes.

A foundation is a legal entity created when a founder, which can be a real person or juridical person (i.e. corporation, trust, LLC, etc.,) files the "articles of the foundation" (also called a charter) with the country’s public registrar: a relevant government body or minister who oversees the recording of such entities.

The founder then endows the foundation with assets, called the patrimony. The reason a foundation is such a strong, protected business structure is that once the founder endows the foundation with the patrimony, the founder is no longer legal owner of the assets. As with any legal transfer of title of assets, a separation is created - the assets are now separated from the ownership of the founder: and as such are protected from potential creditors or other civil, judicial or governmental collection threats to the founder. This is a proven, sound and particularly strong mechanism of many asset protection devices.

Once the foundation has been endowed with the patrimony, the founder loses direct control of the assets. The loss of direct control of the assets satisfies the legal definition of separation of assets and founder. But the founder can, however, still maintain some control over the council—the managing body of the foundation. This is achieved in fulfillment of how the charter is structured. For example, the founder may choose to endow the foundation inter-vivos or may endow it by a will upon the death of the founder. This is often done to avoid forced heirship laws found in some jurisdictions.

There are certain requirements that every jurisdiction demands be included in "charter" or "articles of the foundation." These items are such things as the name of the foundation, its purpose, and the initial assets. These requirements usually vary only slightly from country to country.

All foundations require some kind of managing body, referred to as a council, or a board. The managing body may vary in number and may be any type of entity, a real or a juridical person.

However they are labeled, the councils all serve the same purpose: implementation and execution of daily matters in order to achieve the objectives of the foundation as expressed in the charter. In St Kitts, the council members are held accountable to the highest standards of ethical and responsible conduct and are required to behave solely with the best interests of the foundation in mind.

Often times there is an overseer or supervisory person named in the bylaws that has power over the council. The overseer may be referred to as the "protector" as is the case with trusts, or more generally, the "guardian" in a foundation. No matter how one refers to them, they exist exclusively to serve as an added protective measure to insure that the objectives of the foundation are carried out exactly as the founder originally intended.

The business of administering the ongoing affairs of the foundation is more often spelled out in the bylaws of foundation. The bylaws specify the specific acts that the council may and may not do without seeking approval of the guardian.

Most foundations operate in a very similar manner with few small differences. The remainder of this article will refer specifically to foundations under The Foundations Act of 2003 in St Kitts, emphasizing from time to time significant advantageous differences in where a foundation is created.

The Articles of the Foundation is the first step in creating a St Kitts foundation. Part XI paragraph 61 subsection 1, and Part II paragraph 4 subsection 1 of The Foundation Act of 2003 sets forth what must be contained in the articles of the foundation which must be signed by, or on behalf of, the founder:

• the name of the foundation which must end with the word "foundation" as well as the address of its registered office, which must be located in St. Kitts.

• the details of the founder: where the founder is a real person, the name and address of that person; in the case of a legal person (body, trust, corporation etc.) the number and place of registration of that legal person and the address in the Federation of St Kitts for service of documents on the founder.

• the purposes and objectives of the foundation; and in the accompanying statement whether it is to be an ordinary or exempt foundation. In the case of an exempt foundation, a statement that the councilors of the foundation will notify the Ministry in writing if the foundation ceases to qualify as an exempt foundation.

• the initial assets of the foundation and a statement of those assets along with an accompanying statement of the understanding that the founder will transfer the said assets to the foundation immediately upon registration.

• the manner of designation of the beneficiary or the identification of a person, body or class of persons by reference to which the beneficiary is to be ascertained.

• whether the foundation is established for a definite or indefinite period, and where it is established for a definite period, that period.

• designation of the member(s) of the foundation council, and

• the name and address in the Federation of the secretary to the foundation, and

• the registered address of the foundation.

The above provisions MUST be included in the charter of the foundation to be registered with the registrar in St Kitts.

To give you an idea of what else may be included in the charter, the following items are specifically itemized in the Foundations Act as provisions that MAY be included in the foundation articles:

• the reservation of the rights or powers of the founder.

• terms for the appointment, removal and period of office and representative authority of the councilors of the foundation, including the number and description of those persons.

• terms for the appointment, removal, and period of office of the auditor, if any, to the foundation and may provide that the appointment  of the auditor is at the discretion of the guardian.

• terms for the appointment of a guardian for the maintenance of the objectives of the foundation and specifying the duties, functions, powers and rights to remuneration of the guardian. If a guardian is appointed, how he shall be appointed or removed and also how he shall  conduct himself whilst in office.

• terms for the appointment of persons to act by power of attorney or otherwise carry out particular duties on behalf of the foundation.

• permitting amendment to the articles of the foundation and specifying circumstances in which they may be amended.

• requiring or permitting the making of bylaws.

• providing for the transfer to the foundation of supplementary assets in addition to the initial asset and

• for the addition or removal of beneficiaries.

Also required: Every year after the formation of the foundation, before the end of the month of the foundation anniversary, the secretary must file an annual report. The report must be accompanied by the annual filing fees and must contain the current particulars and reaffirm, in the case of exempt foundations, that it is still operating as an exempt foundation, that is to say that it is not doing business inside the Federation of St Kitts.

The founder may or may not belong to the council. Having the founder  belong to the council may appeal to some as a good way to oversee the  foundation or protect it from mismanagement. However, many courts have  ruled that as long as the founder retains direct control over assets he  has transferred to an apparently separate legal entity it is in reality  a sham and therefore an illegitimate transfer of assets.

The less involvement with control of the foundation operations the stronger the asset protection is from the viewpoint of challenging its validity. As a legal issue, it is more likely that someone contesting the validity of an endowment will have a stronger case when the founder retains control over the transferred assets.

When primarily used as an asset protection structure, it is possible  to combine the foundation with other legal structures, LLCs, trusts, IBC’s and so forth in other jurisdictions. This will place the assets much further beyond the reach of potential threats to your security.

The Guardian is to the foundation much the same as a protector is to a trust. The founder may choose to include in the bylaws or the articles of the foundation the position of guardian, which may be more than one in number and which may also be a juridical person. The guardian may also be the founder.

The guardian’s responsibilities and powers are specifically enumerated in the foundation legislation and can be further specified in the foundation’s bylaws. Generally speaking they are to oversee the council’s operation of the foundation, taking any action deemed necessary to ensure the foundation operates in accordance with the articles of the foundation, its bylaws and The Foundations Act. They also have full rights to view the financial records at any time without notice, attend all meetings of the council, and table matters for discussion at such meetings. But, the guardian does not have the right to vote, as the council members have.

In St Kitts, there are no domicile requirements for the founder, the assets, or the registered office.

The only requirement for domicile in St Kitts is that there is a secretary domiciled in the Federation with a registered address in The Federation of St Kitts and Nevis with which to serve papers to the founder. All the documentation can be created by the founder anywhere in the world then submitted by the founder or a duly authorized agent of the founder.

Foundations from other jurisdictions that fall within the workings of The Foundations Act of 2003 can be domiciled or continued in St Kitts by filing the appropriate application and fees with the Minister. St Kitts foundations can also be continued in other jurisdictions, should the council or guardian feel it to be in the best interest of the purpose of the foundation.

One of the reasons asset protection is so strong when forming a foundation in St Kitts is The Foundations Act of 2003 explicitly states that "councilors of the foundation shall keep confidential all information regarding the nature and amounts of the assets of the foundation and the conduct of their administration." It further adds that councilors may only reveal information to inspectors appointed directly by the ministry, which may be at the request of the founder, guardian, beneficiary of legal age, or pursuant to a court order.

While these passages deal specifically with the councils of the foundation, Paragraphs 70 and 71 of the St Kitts Foundation Act of 2003 state in very strong and specific language that nothing in the Foundations Act would require "any person to disclose information to anyone that might incriminate themselves, or reveal any information that might violate legal professional privilege." In addition, anyone wishing to investigate any foundation in the jurisdiction of the Federation must first post a $25,000 bond, and should the Minister find no cause for investigation they may be required to forfeit that money.

A St Kitts foundation also includes the usual features found in the Liechtenstein foundations regarding forced heirship, alienation and forfeiture of benefits. That is to say that no other jurisdiction’s laws will supersede or render invalid any foundation or transfer of assets to a foundation properly executed and in accordance with St Kitts law.

A St Kitts foundation is tax-free on all of its assets and earnings generated outside of The Federation and for business conducted in the Federation within the confines of the Foundation Act.

The St Kitts Foundation Act of 2003 goes into great detail to offer the best possible climate for secure asset protection. It covers a wide range of specifics relating to possible eventualities in the creation of and administration of a foundation. The legislation was created with idea of constructing a flexible comprehensive structure that by law would ensure a foundation as an entity with full privacy, be exceptionally difficult to penetrate and meet the broad asset protection needs of the worldwide market base of companies and individuals that the country serves.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.