The Real Cost and Compliance Obligations of Trusts and Foundations


When it comes to setting up trusts and foundations, the initial setup is just the tip of the iceberg. As a seasoned professional, my two decades of experience have shown me the critical importance of understanding the ongoing costs, commitments, and compliance obligations these structures entail.

Why Multigenerational Trusts and Foundations Aren’t for Everyone

We’re not talking about simple living trusts here. Multigenerational dynasty trusts and foundations are sophisticated mechanisms designed for asset protection, estate and succession planning, privacy, tax benefits, and meeting compliance obligations. They are invaluable for both those who set them up and future generations, but come with a price – both in terms of money, effort, and adherence to regulatory requirements. Unfortunately, they’re not a one-size-fits-all solution. The reality is that they’re complex, costly to maintain, and demand ongoing administrative attention, including compliance with legal and fiscal regulations.

The Learning Curve: My Journey in Trust and Foundation Advisory

Early in my career, I set up trusts and foundations for any client who wanted and could afford them, not fully appreciating the extent of compliance obligations involved. However, it became apparent that this approach wasn’t always in the client’s best interest. Some clients, after a few years, wanted to dissolve their structures. The reasons for dissolving them often came down to two factors: the cost, the administrative burden, and the complexity of compliance obligations. This experience was a turning point, reshaping how I advise clients today.

The Real Cost and Compliance Obligations of Running These Structures

If you’re considering a trust or foundation, be prepared for significant ongoing expenses, including professional management fees, administrative tasks (such as board meetings and keeping meticulous records), and compliance obligations (like FATCA/CRS reporting and maintaining Beneficial Owner Registers). These can range from tens to hundreds of thousands of dollars annually, for larger structures, not to mention the resources allocated to ensuring continuous compliance with evolving regulations.

Financial Sense and Sensibility: When Does It Make Sense?

A critical question I often encounter is, “At what level of wealth do these structures become viable for someone?” The answer isn’t straightforward. It’s not just about the size of your wealth; it’s about whether the income generated within the structure can cover the costs, if the tax benefits are significant enough to justify the expense, and if the structure can effectively meet its compliance obligations. For individuals in high-risk professions, such as plastic surgeons, these structures may be worthwhile even if they don’t financially sustain themselves due to their protective benefits and the importance of regulatory compliance.

The Role of Your Advisor: A Beacon in the Fog

A proficient advisor will not shy away from discussing the long-term implications, costs, and compliance obligations associated with setting up a trust or foundation. Sometimes, the best advice is to steer away from a decision that seems profitable in the short term but could be detrimental in the long run due to unforeseen compliance challenges. This level of honesty and foresight is what sets a true professional apart.

Wrapping Up: Balancing Benefits with Realities

To conclude, while the benefits of trusts and foundations are clear, especially for asset protection and estate planning, they come with a commitment that might not be right for everyone. Assessing their viability requires a deep understanding of not just the potential advantages but also the financial, administrative, and compliance implications involved.

If you are a HNWI or manage a family office and find yourself pondering over these options, let’s talk. Our expertise lies in helping clients like you navigate these complex decisions with ease and confidence. By understanding the full spectrum of what’s involved in setting up and maintaining trusts and foundations, including the critical aspect of compliance obligations, we can guide you towards making decisions that align with your long-term financial goals and legacy aspirations. Contact us for a consultation, and let’s explore the right strategies for your unique situation.

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