In 2019 Wyoming became the second state in the United States to adopt statutory foundation legislation (2019 Wyo. Sess. Laws Ch 190 (H.B. 236) “WYSFA”), which is a civil rather than common law concept for wealth management and succession planning. The WYSFA incorporates classical foundation legislation from civil law jurisdictions with trust principles to form a unique hybrid enjoying the advantages of Wyoming domicile and the applicability of Wyoming law in providing an almost unfettered discretion in privacy, asset preservation, family control and succession planning with an efficient regulatory system enhance by our new Chancery Court.
Wyoming’s use of the phrase “statutory foundation” purposefully distinguishes between foundations under the civil law and “private foundations” recognized as charitable entities under the Internal Revenue Code (“IRC”). This language clearly establishes the statutory foundation as an entity under Wyoming law and provides that it is not within the providence of the IRC unless it is formed for a charitable and not a private or for profit purpose.
The Wyoming Statutory Foundation (“WYSF”) incorporates distinct elements from
- the state’s Trust Code (“WYUTC”), Corporation Act (“WYCC”) and Limited Liability Company Act (“WYLLC”); and
- legislation provided by off-shore jurisdictions (notably Liechtenstein and Panama)
to enable the entity to:
- function like a trust in a form recognized by civil law jurisdictions; and
- enable US residents an alternative structure that is more appealing for privacy, asset protection and estate planning purposes,
with the principal advantages being:
- a distinct and separate legal entity (differing from a trust and allowing suits in its own name);
- no shareholders or members (differing from a corporation or an LLC);
- exempt from the “controlled foreign company rules”;
- existence into perpetuity; and
- legally allowed to hold a variety of assets for business and personal purposes (differing from a corporation or an LLC.
This framework is comparable to a corporation and an LLC and differs from them in the variety of assets the WYSF may hold because the entity has the flexibility provided by its governing documents to tailor the vehicle to the demands of each founder or family, while maintaining privacy and asset protection.
Required parties to a WYSF are:
- Board of directors
- Beneficiaries; and
- Protector or contributor
and all parties must be a “person,” meaning an individual, partnership, corporation, joint stock company or any other association or entity, public or private.
The WYSF is formed by filing “Articles of Formation” with the Secretary of State, which for privacy, convenience or other reasons may be signed by an Organizer, which would typically be the professional advising the entity. No other person, including the Founder or Contributors & etc. need be named. Filing provides “conclusive proof that the organizer has satisfied all conditions required for the formation of a statutory foundation.”
The Founder may reserve the right to amend or restate the Articles of Formation and the purposes of the WYSF; however, the Founder’s heirs, souse and creditors are prohibited from doing so.
The Founder is the person initially contributing property to the WYSF. This Person’s intent controls the drafting of the “Operating Agreement,” which may allow additional contributions to the WYSF by a Contributor or Contributors.
Two telling and interesting aspect to the WYSFA are:
- the WYSF owns the property contributed and once transferred to the entity operates to defeat any subsequent claim by the Founder and the Founder’s creditors; and
- any contribution to or distribution from the WYSF may not be disallowed solely because the transfer “avoids or defeats any forced heirship or legitimate right, claim or interest under the law of a foreign jurisdiction,” which mirrors the provisions of the WYUTC.
Board; Protector; and Beneficiaries
The Board of Directors:
- (similar to a corporation) manages the WYSF, unless the operating agreement provides otherwise (similar to an LLC),
- must consist of at least one person,
- permits the Founder to serve; and
- exonerates directors from individual liability.
A significant and positive difference for the WYSF is that a director must act in good faith and in a “manner not opposed to the best interests of the entity. Note that this specifically omits the need to consider the beneficiaries’ interests, which is directly opposed to the WYCC expressly requiring a consideration of the shareholders’ interests and to the WYUTC expressly requiring administration solely for the beneficiaries’ interest.
A protector for a WYSF is optional if formed for a private purpose and the founder may serve as protector, although no one may serve simultaneously as a protector and a director.
The most interesting aspect of the WYSF is that the Articles of Formation and the Operating Agreement are not required to name beneficiaries or include terms for distribution; thus, a beneficiary of an WYSF does not have a right to or interest in foundation property unless the Operating Agreement provides for it.
A WYSF must confer a benefit on at least one person, an inherited; however, beneficiaries have limited access to information on the WYSF and has no right to participate in or even access information related to management, other than in certain circumstances.
An Operating Agreement is required for a WYSF, which is analogous to a corporation’s bylaws or a trust’s agreement or instrument. The Founder or the Board of Directors may adopt the agreement and a Court will accord great weight to the Operating Agreement in a dispute. The Operating Agreement allows a great deal of flexibility in meeting the Founder’s purpose, which could include privacy, asset protection, succession planning, charitable purposes and other matters generally considered in an estate planning event.
Information is limited depending on the party. A protector receives all information; however, a beneficiary received nothing other than a copy of the Operating Agreement if a protector is serving or the founder is still alive. WYSFA allows sealing in judicial proceedings similar to the WYUTC and limits judicial supervision absent a court order. Finally, in this vein, the litigation would be under the auspices of a special “Chancery Court” recently establish in Wyoming.
Any foreign national will recognize the WYSF and regard it as an attractive alternative for his or her estate plan and holding vehicle for properties in the U.S. U.S. residents will recognize it as an amalgamation of the best aspects of several entities allowing the formation of family capital on a private, asset protected basis with succession planning preserving the uniqueness of family control.