Following the review of the Guernsey Trust law in 2006 it is fully expected that the resultant legislative changes (to be enacted during the course of 2007) will introduce the Guernsey Foundation.
The introduction of the Foundation to Guernsey is a direct result of the consultation that took place with the finance industry at the time of the review of the trust law. The industry clearly felt that the Guernsey Foundation is a tool that will enable a greater variety of tax planning structures to be established and thereby attract additional business to Guernsey
Civil law concept in a common law jurisdiction
The Guernsey Foundation will undoubtedly generate great excitement amongst financial advisors because, intriguingly, it will introduce a civil law concept into a well respected, offshore, common law jurisdiction.
This will make them of special interest to advisors in civil law jurisdictions because it will enable them to open up the potential benefits of Guernsey to clients who may want to be offshore, but who were suspicious of – or did not understand – the trust concept which is the common law equivalent.
What to expect
It is expected that the key features of the Guernsey Foundation will be similar to, or the same as, those found in other civil law jurisdictions.
- They will be a distinct legal entity, established by charter which will be registered on a public register
- The charter will state no more than the name of the Foundation, the names and addresses of its Council members and the address of its registered office, which must be in Guernsey
- The purpose may be a generic one, such as ‘wealth management’, but may be more specific if desired
- The assets will be owned directly by the Foundation (compared to a trust where they are held in the name of the Trustee for the benefit of the beneficiaries)
- The Council of the Foundation will be governed by rules set down when running the Foundation and these rules can be set out by the Founder
- It will be possible for these rules to reserve powers for the Founder, giving the Founder an element of control over the assets of the Foundation – something considered key if they are to be successfully used in civil law jurisdictions
- It will be possible for a Guernsey Foundation to migrate to another jurisdiction and, subject to meeting requirements, a foreign Foundation to become a Guernsey Foundation
- There does not appear to be a restriction on the type of assets a Guernsey Foundation can hold. Therefore, it will be possible for them to hold, for example, shares in a family company carrying on commercial activities. However, it will not be able to undertake commercial activities itself
- The proposal for the tax treatment of Foundations is for it to be the same as the treatment of a Guernsey trust with Guernsey trustees
- The recommendations also suggest that Foundations have an open-ended existence (compared to the 100 year limitation for a Guernsey Trust)
These are the principal recommendations that are expected to appear in the legislation. The importance to the Guernsey finance industry is the availability of another tool with which to offer financial planning opportunities to client advisors and, particularly to those advisors and clients in civil law jurisdictions.
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.