Fiona Le Poidevin, Chief Executive of Guernsey Finance, looks at the Island's introduction of its own foundations legislation.

Guernsey lies on a bedrock of granite, a strong foundation material which in the past was exported to London for many uses, including the building of the granite steps in front of St Paul's Cathedral and the repaving of London Bridge. In the present day, Guernsey is exporting a new kind of foundation to the City and beyond. On 25th July 2012, the States of Guernsey, the Guernsey parliament, approved The Foundations (Guernsey) Law, 2012. It is currently awaiting Royal Assent from the Privy Council and this is expected to be received in either late 2012 or early 2013. As we shall see below, the Guernsey Foundation creates a unique proposition in managing the wealth of clients.

Why foundations?

At the end of 2004, the Economic Development Unit of the Commerce and Employment Department of the States of Guernsey set up a Trust Law Revision Working Party. The working party consulted on introducing foundations in Guernsey and there was overwhelming support for the idea. It was approved, in principle, by the States of Guernsey but the immediate focus was modifying the trust law, which led to The Trusts (Guernsey) Law, 2007 and this was followed by a major shake-up of Guernsey's company legislation through The Companies (Guernsey) Law, 2008. However, while progress was slowed by other priorities, some concerns were also raised about foundations.

One was that introducing foundations into our law was denigrating the value of trusts or otherwise diluting the message that Guernsey is a centre for trust administration. However, there is little you can do with one that you cannot do with the other. In addition, there are already a number of foundations that have been established elsewhere which are administered in Guernsey and this is because we are renowned for administration excellence, whether for trusts, companies, partnerships or foundations.

Others questioned whether the Island's reputation may be tarnished by introducing an entity that for some is tainted by association with some of the jurisdictions from which they have historically been provided. Ultimately, there was recognition that foundations per se were not flawed but rather there were systemic problems in some of those jurisdictions which have historically offer foundation solutions. In fact, it was viewed that there was an opportunity to offer foundations from a jurisdiction which adopts leading international standards of regulation, cooperation, tax transparency and exchange of information.

However, perhaps the most compelling arguments for adopting the foundation were precisely because Guernsey was renowned for the trust. The trust is a common-law concept which is familiar to those in the Anglo-Saxon world of the UK, US and Canada, for example, but is less well understood in civil law jurisdictions such as continental Europe and some of the 'emerging' markets which are the major sources of new private and corporate wealth.

Guernsey's introduction of the foundation would provide clients with the ability to use the Island even if they were uncomfortable with a trust. It would also provide an added level of flexibility to service providers who would have an extra tool on the menu of options available for best meeting client needs while still using Guernsey structures.

What is more, many European critics of Guernsey as a jurisdiction regard the trust with some suspicion. They also struggle to understand how a trust can exist if it is not registered anywhere. Guernsey foundations will be registered, with certain - albeit limited - information of that registration available to the public.

In essence, the introduction of foundations in Guernsey made sense both commercially and from a reputational standpoint.

High standards

Following final approval of the law by the States of Guernsey in July, Guernsey Finance held a seminar in London to explain the new legislation to 120 delegates, including the leading legal and tax advisers from city's private client community. The session was moderated by Russell Clark from Carey Olsen and panellists were Richard Pease of Lenz & Staehelin, Elizabeth Henson from PwC and Gavin Ferguson of Appleby, while Filippo Noseda of Withers gave his thoughts on the new law via a pre-recorded video commentary.

What Filippo emphasised was that there are many clients and their advisers who want a foundation solution, rather than a trust. While some would prefer one from a civil law country, others would prefer one from a jurisdiction, such as Guernsey, which, although renowned for administering trusts, in doing so had built up considerable infrastructure and expertise in managing the wealth of private clients.

Indeed, Guernsey has over 50 years' experience in wealth management. Today, there are 154 lead corporate fiduciary licensees (as well as nearly 40 licensed individuals, who can act as directors, co-trustees or trust protectors). These range from multinational organisations to independent, locally-owned firms, who in total employ more than 2,000 members of staff.

The fiduciaries are also complemented by the broader financial services industry in the Island, including banking, investment and insurance sectors as well as a strong network of professional support services, including multi-jurisdictional law firms and global accountancy practices. In addition, Guernsey has a long standing and well respected judicial infrastructure which is experienced in dealing with fiduciary matters.

It is for these reasons, combined with the Island's reputation for high standards in regulation and tax transparency, that Filippo believes Guernsey will be a foundations destination for quality business. What I am hearing from a number of local practitioners is that they have had inquiries from clients who have foundations currently domiciled in other jurisdictions but they are now considering the migration of these to Guernsey once the legislation is enacted. This is principally due to the specific provisions of the new law but also due to the heritage we have in providing trust and corporate services as well as, of course, our reputation for being a well regulated and tax transparent international finance centre.

We do not necessarily expect a flurry of activity, with huge numbers of new foundations being established but we are looking at quality and not just quantity. Indeed, we believe that our expertise in servicing private clients means that we are especially well placed to administer complex structures and in particular, where they are for philanthropic purposes. Obviously, we are not saying that a foundation, as opposed to a trust, is always the right option or that a Guernsey foundation is always going to be the most appropriate route but we believe that it does offer some important advantages over others already in the market.

Unique features

The Guernsey foundation is an incorporated entity with a separate legal personality. As such, on face value, it looks more like a company than a trust. However, unlike a company, it does not have shareholders to whom the board are accountable. Instead, the foundation holds assets (in its own name) on behalf of beneficiaries, particular purposes, or both, in accordance with the foundation's constitution. Therefore, although it looks similar to a company, its operation is more akin to that of a trust. However, a foundation is neither.

The foundation's constitution comprises a charter setting out the foundation's purposes, initial assets and duration (which may be unlimited) as well as rules prescribing, among other things, the functions of the council and procedures they must follow. There are no 'trustees' and instead, council members perform a similar role by having a duty to the foundation to act in good faith, and cannot, without express authorisation, profit directly or indirectly from their position.

Guernsey has taken note of the fact that some clients may worry about confidentiality because as foundations are registered entities, they are, unlike trusts, publicly visible. In Guernsey, limited details are available to the public (although full disclosure must be made to the registrar) whereas in other jurisdictions such as Jersey and the Isle of Man, the whole charter is commonly visible. Yet, Guernsey's approach also means that this limited visibility offers the benefit of being able to prove the foundation's existence quickly when dealing with third parties.

In drawing up their foundations legislation, Jersey specifically set out to provide a wealth management product that could legitimately meet the needs of clients who wanted to retain more direction or power over their assets than the trustees of discretionary trusts would normally permit settlors. Filippo has said that he found this particularly interesting considering that many common law jurisdictions have taken steps to strengthen reserved settlor powers within their trust provisions. He also queries whether foreign tax authorities might view such arrangements as effectively a corporate structure and therefore subject to the corresponding tax treatment.

Filippo goes on to say that in Guernsey, the founder's role is flexible but perhaps more restrictive than in Jersey. However, Guernsey has taken an approach which will be more familiar to those versed in the traditional civil law model where the foundation not only has a separate legal personality, like a company, but also a legal personality that is independent of the founder. This may also help to clarify the appropriate tax treatment for the founder in their own country of residence.

A particular innovation of the Guernsey foundation is the ability for beneficiaries to be classed as either being 'enfranchised' or 'disenfranchised'. Enfranchised beneficiaries will have rights to certain information regarding the foundation, whereas disenfranchised beneficiaries are not entitled to any at all. Where there are disenfranchised beneficiaries then the foundation is required to have a guardian. Their role is similar to that of an enforcer of a purpose trust, with a duty to act in good faith and en bon père de famille.


This article has only had a chance to explore some the key features of what makes a Guernsey foundation particularly unique. However, I hope that you have been able to at least get an indication as to the way in which we believe the particular provisions relating to confidentiality and control mean that the Guernsey foundation is a very useful structure for asset protection, wealth planning and dynastic planning.

We believe that these provisions, combined with the Island's high reputation and service standards, mean that Guernsey will see foundations being established in relation to sophisticated and quality business, such as for philanthropic purposes. There is the benefit that the foundation's purpose does not have to be exclusively charitable, so the vehicle can be more flexible than the charitable trust.

A foundation is also useful for corporate entities looking to create an orphan structure where the assets of a particular entity can be held in a foundation, rather than having a parent company and being an asset on that company's balance sheet. This means that the foundation may be used in fund structuring as well as other corporate purposes, including subordinated debt, private equity structuring and providing employee benefits.

We're not saying that a foundation or indeed a Guernsey foundation is always most appropriate to meet a client's need.

However, we do believe that the Guernsey foundation - the combination of the jurisdiction and specific provisions in the new law - can offer benefits compared to others already in the market. We believe it will be particularly attractive to clients from continental Europe but also those in civil law jurisdictions further afield in the 'emerging' markets, such as Russia, Latin America and Asia, specifically China. Indeed, I have just returned from a two-week visit to Hong Kong, Shanghai and Beijing and already there is significant interest in how Guernsey foundations can benefit Asian clients.

Originally published by IFC Review, November 2012.

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