Appleby's Gavin Ferguson examines how Guernsey has evolved to provide clients from all over the globe with innovative advice.
The mandates that cross the desk of a Guernsey private client lawyer have changed considerably in the past decade, as the jurisdiction and its fiduciary offering have evolved and adapted, whilst the Bailiwick maintains its position as one of the world's leading offshore financial centres.
Our client base of high net worth and ultra-high-net-worth individuals continues to change; the types of fiduciary structures that those clients want, and the reasoning behind their demands, continues to develop; and the countries from which they hail are likewise ever diversifying.
In general, Guernsey's private wealth industry has seen an increase in the value of structures heading to its shores albeit a decrease in the volume of structures, such that the work we now do in our fiduciary practice involves much greater sums being put into trusts with these clients having far more complex and expansive requirements. Guernsey continues to thrive as an offshore centre for a number of reasons, including Guernsey's flexibility to move quickly to meet the demands of ever developing mobile clients.
This is a market not afraid of innovation our most recent innovation being the introduction of a novel Foundation Law as a means to attract clients who may not be comfortable with the common law trust.
Today, Guernsey's new business is all about bespoke structures, with clients considering private trust companies, managed trust companies, private trust foundations and the like. Generally these bespoke trusts include very specific provisions drafted purposefully to suit a particular family; the off the-shelf trust structure being well and truly a thing of the past.
An example of such a bespoke structure would be one we recently worked on for a Middle Eastern ultra-high-net-worth individual, who had numerous family trusts administered in Guernsey and elsewhere. The client was good friends with another extremely wealthy individual who had restructured his Guernsey trusts a few years prior, creating a private trust company (PTC) to act as a trustee of the family trusts and establishing a purpose trust to hold the shares in the PTC. Our client wanted the same structure, albeit with a foundation owning the PTC.
The charter documents were bespoke and provided the individual with a certain amount of control over the structure; whilst not jeopardising its integrity. The use of private wealth foundations continues to burgeon in Guernsey. The majority of the foundations in the pipeline, and on the books already, are being used as a direct alternative to the trust for estate planning purposes (as well as for commercial and philanthropic purposes).
We recently acted for a wealthy Russian client, who had a very successful business empire inside and outside of Russia, whose principal aim was to protect his assets for his issue. He came to Guernsey with foundations in mind. Again we were able to draft constitutional documents following his specific requirements, which included him retaining an element of control. He didn't want to be a council official, but instead he wanted an advisory committee comprising him and one member from each branch of the family. There was a separate confidential document, the by-laws, which set out the running of the committee, and the rules of the foundation required the council to obtain consent from the committee before exercising various powers. The committee also had the power to appoint and remove council members.
Back to the trust, in many ways, the use of the trust has come full circle. It arose, according to some scholars, as a means for the crusaders to protect their assets whilst away on campaigns. The main development of the trust took place in the eighties and nineties when it became used as a means to mitigate taxation for a wealthy UK clientele (then subject to some very penal taxes), only to now return to its original purpose of preserving wealth for the family.
Of course the demand for safe harbours and capital security has itself evolved as the world's wealth has increasingly been created in new jurisdictions. While the reference to the BRIC economies of Brazil, Russia, India and China may be somewhat outdated now, there is plenty of evidence that the richest people on the planet are increasingly emerging from Asia, Latin America, India and Africa, and are no longer exclusively born in Europe and the United States. The nature of some of these new jurisdictions is such that they are often politically, economically or judicially, unstable and that presents risks for their wealthiest residents. Some face a very real threat of kidnapping, or a government with a track record of expropriating assets from the rich.
These threats lead people to want to protect their wealth for the sake of future generations, and to maintain confidentiality around their financial affairs. The best way to do that usually involves an offshore jurisdiction with a stable economic, political and judicial system, such as Guernsey which can point to a long history of sophisticated professional services, delivering discreet trust and foundation structures to the world's wealthy.
With the growth of the developing markets comes an increase in wealthy individuals focused on philanthropy, charitable giving, and the redistribution of capital. Once again, trusts and foundations in offshore jurisdictions fill that need efficiently. Guernsey's new clients now come from Asia, Latin America, India, Africa and beyond. Indonesia, Brazil and Mexico are producing many more millionaires than they used to, and those individuals often head to the likes of Guernsey for support. In the Middle East, with the fastest growth in ultra-high-net-worths, the vast majority of wealth is held by family businesses, under the control of a patriarch who will be looking to ensure the continuance of his business after his death, and again a fiduciary structure with good corporate governance may be a very good vehicle.
Guernsey continues to attract new business, from new jurisdictions and new clients with new demands. Today, as always, they are attracted to a respected offshore jurisdiction where they know that the people looking after their money are properly regulated, overseen by an independent body, with adequate insurance and properly capitalised. Wealth may be moving around the world, and the needs of the wealthy may be getting more complex, but their underlying safe-harbour requirements are really nothing new.
An original version of this article was published by Private Client Practitioner's 2015 Guernsey Special Review, January 2015.
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.