It is hard to discern trends in markets at a time of turbulence and uncertainty, however, we have seen a noticeable increase in interest in Jersey and Guernsey foundations, particularly for clients in the Middle East and Far East.
The move towards foundations as an alternative to the more frequently used trust structures in both islands sits within the wider context of more HNW families looking to Jersey and Guernsey for asset protection and succession planning purposes, but more recently is likely to be motivated by the turbulence and uncertainty in the global economy caused by the Covid-19 pandemic.
There seem to be a combination of reasons why foundations are of interest:
- although a relatively modern innovation offshore, the foundation has familiar features for clients with pre-existing corporate structures held in personal names - a foundation has separate legal personality and operates much like a company, but has the additional and useful feature that it has no shareholders;
- unlike a trust with a professional corporate trustee, HNW families can take a more active executive role by taking up offices as councillors or guardians of the foundation - in that sense a foundation can operate rather like a (and indeed, as a form of) private trust company; and
- beneficiaries of a foundation are not owed a direct fiduciary duty by the foundation, unlike beneficiaries of a trust, and it is possible for beneficiaries to have no entitlement to any information about the foundation, allowing for a high level of confidentiality in the event that the senior family members wish to encourage the next generation to make their own way in the world.
Both the Jersey and Guernsey foundation models are very flexible, and by way of example we have seen them used for the following purposes:
- providing an asset-holding vehicle where using a trust would give rise to difficulties in civil law jurisdictions that do not recognise the concept of a trust (or at least, struggle to deal with them on a practical level);
- acting as an alternative to a traditional private trust company, or as an alternative to the purpose trust that would otherwise be used to hold the shares in a private trust company;
- carrying out charitable or philanthropic purposes;
- holding the shares in part of a commercial business off-balance sheet;
- retaining and preserving specific assets, including the holding of wasting assets; and
- acting as a corporate protector where numerous family members wish to come together and have a say in the running of the trusts of which they are beneficiaries.
It seems as though foundations are proving popular with clients in the Middle East and Far East in particular because of the wide flexibility they offer in terms of control and the direction of underlying assets. Traditional trust structures involve a professional trust company who will not allow individual family members to act as directors of the trustee, leaving it to the family to retain oversight through other mechanisms such as protectorships.
The foundation therefore often slots into a wider discussion around how best to put in place a structure that is both robust but also enables sufficient involvement and oversight from family principals. We are often asked to compare and contrast foundations with trusts having significant powers reserved or granted to non-trustee parties, or in the context of creating a private trustee.
The drift towards Jersey and Guernsey foundations (there are nuances that separate the two, but no fundamental differences) appears to reflect the increasing proportion of capital held in private rather than institutional hands (certainly a feature in the Middle East). Also relevant is the short-term uncertainty and turmoil created by the Covid-19 pandemic and the immediate opportunity enabled by a wealth structuring and succession planning tool that offers a new model for influence and control.
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