As I get older, I confess that, on occasion, I hanker after the days when I used to work in a bank. Life seemed so much easier in those days. When someone asked me what I did for a living, I could swiftly reply, "I work in a bank". That would satisfy my inquisitor entirely and the conversation could move on.

It wasn't even that bad when I first moved to Gibraltar all those years ago. I simply inserted 'trust company' in place of 'bank' and that did the trick. After all, everyone knows what a trust is, right? So a trust company must just deal with trusts. What could be simpler?

But the world moves on. These days, the group for which I toil daily is more accurately described as an 'international regulated financial services group'. Cue blank stares. As someone said to me at a recent event, "So what's that then? Trusts and stuff, is it?" I had to admit that yes, trusts are a significant part of the business but they are by no means the only thing we get up to – hence "trust company" no longer fits the bill.

But what is a trust anyway, and are there other options? These days, trusts are used in a mindboggling range of situations requiring innovative, flexible but, above all, compliant solutions that meet client needs. Traditional trusts are still widely used for estate planning and succession issues, professional advice being essential at every stage.

Readers may recall that I have previously written about special types of trusts used in pension planning such as QROPS, QNUPS and SIPP (just a few of the many acronyms that inhabit our industry). Businesses can also establish their own corporate pension schemes as part of a remuneration strategy to reward employees. To a large extent, all of these schemes require regulated services where some form of trust is involved.

Of course 'trust companies' are often able to provide corporate services too. And when we set up companies for a client – sometimes (but not always) in conjunction with a suitable trust – we tend to refer to them collectively as 'structures'. And if you think this makes us sound like a firm of architects, it may not surprise you to learn that the latest structure that we can offer here in Gibraltar is known as a 'foundation'.

This type of arrangement has been available elsewhere for many years but, while the ink on the enabling legislation passed by the Gibraltar parliament is still drying, I thought I should attempt to explain what precisely a foundation is and, more importantly perhaps, why it is that Gibraltar has waited until 2017 to introduce them.

First, a brief history lesson. The roots of the foundation go back, if one wants to look that far, to Roman law and to the Byzantine and Canon law, respectively. In Europe, the heads of families would hold assets for the benefit of present or future family members through an entailed estate – termed a fideicommissum.

In England and Wales there was a similar legal concept, known as a 'trust'. Historians will tell you that the law of trusts was developed in the 12th Century at the time of the Crusades. When a landowner left his home in England to join the Crusades, he would convey the ownership of his land to a trusted acquaintance. This 'trustee' would manage the estate and pay and receive feudal dues, on the understanding that the ownership would be conveyed back to the crusader on his return – or to his rightful heirs if he did not.

Trusts and foundations may therefore have begun life in a very similar way but they have diverged significantly in recent times. The foundation structure as we know it today really began in Liechtenstein in 1926, which has since become the jurisdiction with the greatest tradition and success with foundations for private purposes.

Panama established its own version in the 1990s but for the common law jurisdictions with which Gibraltar competes, trusts were overwhelmingly more popular. And herein lies the difficulty. Many civil law jurisdictions are unaware of the concept of a trust, and, in many countries, trusts do not exist and are not recognised in law. As a result, anyone attempting to use a trust can encounter considerable difficulty in so doing.

A foundation differs from a trust in several important respects. Both offer additional privacy, wide-ranging possibilities for their organisation, especially in regard to estate and succession planning, asset protection and business holding, as well as providing, in some circumstances, a favourable tax framework. However a foundation, unlike a trust, has an independent legal identity and holds assets in its own name. This means it can own and manage assets directly in ways that can be more difficult to arrange under a trust, which does not have a separate legal identity from its trustees.

A foundation requires a 'founder', who is the equivalent of a 'settlor' under a trust. The founder is generally the person who transfers initial assets into the structure. The foundation is then set up and governed by a Foundation Charter, which details the purposes, beneficiaries and guardian of the foundation, as well as the rules on how it should be administered. A copy of this document together with other information must be filed at Companies House where a Register of Foundations is held.

The purposes of a foundation need not be charitable and can be very wide provided they are not illegal, immoral or contrary to public policy. As long as the Foundation Charter permits, the purposes of the foundation can be amended, providing flexibility in the event of future changes of circumstances.

The founder can take on certain powers – again this is generally more difficult for a settlor under trust law. These include the right to appoint or remove members of the Foundation Council, which manages and administers the entity, makes distributions to the beneficiaries and works to achieve the purposes of the foundation. In Gibraltar, a licensed professional firm must be included as a member of the Council, offering immediate reassurance to clients and beneficiaries of the foundation.

The tax treatment of foundations is similar to that of Gibraltar companies – a 10% rate is applied only to profits or gains accrued or derived in Gibraltar from any trade, profession or vocation. Only beneficiaries who are ordinarily resident in Gibraltar will be taxed in Gibraltar on distributions. This provides certainty to international clients and their advisers.

I referred to other common law jurisdictions with which Gibraltar competes and several have now enacted some form of legislation for the establishment of foundations. Locally, the financial services industry has been discussing these issues with government for some time and the local branch of the professional body STEP (Society of Trust and Estate Practitioners) was particularly engaged in the drafting process.

The Gibraltar Parliament approved the Private Foundations Bill in March 2017 and interested readers can find further details on the excellent website at www.gibraltarlaws.gov.gi/bills.php. Minister for Commerce Albert Isola commented that Private Foundations had "long been on the wish list of those professionals who advise their clients in complex financial engineering". He went on to say that research had shown there to be an international demand for the foundation.

He is not wrong. From my viewpoint, I am delighted that we are now able to offer the foundation in Gibraltar. It gives us another valuable financial tool to attract international families and business owners to use our financial centre. Now it is here, I very much look forward to using it. There's just one problem. What can I tell people now when they ask me "so what is it that you do again?" Life just keeps getting more complicated.

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.