Fiona Le Poidevin, Chief Executive of Guernsey Finance, explains how Guernsey is offering a fresh approach to foundations.
The introduction of the Guernsey Foundations Law at the beginning of last year has given local practitioners another tool for meeting client needs in asset protection, estate and succession management, philanthropy and wealth planning for globally mobile individuals and families. It adds to the existing range of private wealth structures available in Guernsey, such as trusts, companies and family office partnerships and its merits should be compared with a trust particularly by those clients from civil law jurisdictions.
The Guernsey foundation
The Guernsey foundation is an incorporated entity with a separate legal personality. However, it does not have shareholders to whom its board are accountable. Instead, the foundation is designed to hold assets which have already been acquired and to preserve, rather than risk them, on behalf of beneficiaries in accordance with the foundation's constitution.
The foundation's constitution comprises a charter setting out the foundation's purpose, 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, only 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 easily proving the foundation's existence quickly when dealing with third parties.
Another innovation of the Guernsey foundation is the classification of beneficiaries of a foundation 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 information at all. Where there are disenfranchised beneficiaries then the foundation is required to have a guardian.
The guardian owes the beneficiaries a duty of care in the discharge of his duties, thereby ensuring that the council remains accountable while shielding the disenfranchised beneficiaries from certain information or at which point (e.g. reaching a certain age) a beneficiary from one class can become a beneficiary of the other.
Foundations currently domiciled in other jurisdictions can also be migrated to avail of the robust and flexible regime available in Guernsey.
Uses of foundations
Since the introduction of the Guernsey Foundations Law at the beginning of last year, 18 foundations have been registered in Guernsey. Early registrations were predominantly for philanthropic purposes, but we anticipate that going forward, uses will become more wide ranging and imaginative. Indeed, foundations have already been set up to hold shares in bond issuing vehicles or as an alternative to a discretionary trust for a client's family. Local firms have reported seeing significant interest from clients in the Middle East and Far East, where foundations appeal to them as a way to hold their family businesses, particularly as its council can mirror the board of the family operation and ensure control of the 'golden egg' is retained. In particular, the Guernsey Foundation can be used as a less bureaucratic alternative to the PTC and purpose trust arrangements that have traditionally been used to allow settlors to retain control over assets and wealth.
Similarly, we also expect to see Guernsey foundations used to hold 'orphan' structures where 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.
Quite simply, the Guernsey foundation offers a simple, practical and imaginative solution to a wide range of client needs on a global basis.
An original version of this article was published by Trust & Trustees, June 2014.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.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.