Guernsey Finance's Dominic Wheatleyexplains why foundations are proving popular on the
THE FOUNDATIONS (GUERNSEY) LAW, 2012 came into force at the
beginning of 2013. Since then, we have seen steady growth in the
number of foundations being registered in the island. We have also
witnessed the migration of foundations from other jurisdictions to
Guernsey. The Law has certainly given Guernsey service providers an
added level of flexibility and expanded the menu of options
available for best meeting client needs via Guernsey
Service providers have reported that the Guernsey foundation is
particularly appealing to clients in the Middle East, Asia and
South America. This is primarily because of how the foundation can
offer a similar feel to a private family company set-up, unlike
trusts, which are rooted in common law. However, a foundation
differs from a company in that it does not have shareholders to
whom the board is accountable but instead holds assets (in its own
name) on behalf of the beneficiaries or for particular purposes, or
both. Similarly, a Guernsey foundation offers many of the benefits
of the reserved-powers trusts in the Caribbean, but in terms better
understood by those in civil-law jurisdictions.
THE GUERNSEY FOUNDATION
The foundation's constitution comprises a charter setting
out the foundation's purposes, initial assets and duration,
which may be unlimited. The constitution also includes rules
prescribing the functions of the council members and the procedures
they must follow. Council members provide much the same role as
trustees, must act in good faith and cannot, without express
authorisation, profit from their position.
COMMAND AND CONTROL
As with Guernsey-law trusts, the level of involvement that the
founder may have in running the foundation is flexible. Nothing in
the Law prevents a founder becoming a guardian, council member or,
if suitably qualified, an investment advisor. Also, in principle,
it is possible for the founder to appoint themselves as a
beneficiary. The founder may reserve a number of different powers
too. As with trusts, however, there may be tax or asset-protection
implications of reserving certain powers.
Beneficiaries have a number of rights, including the right to
full and accurate information about the foundation property. They
can also be council members. However, it is possible for the
constitution to 'disenfranchise' the beneficiaries, meaning
they have no right to information at all.
In the case where all beneficiaries are disenfranchised, or if
there are no beneficiaries, a guardian must be appointed to
supervise the council members. Ordinarily, there is no requirement
for a guardian but some lawyers are advising that it is prudent to
appoint a protector to act in good faith as an administrator of
family wealth. One way a settlor of a trust may retain control in
the family is by setting up a private trust company (PTC) to act as
a trustee. This is not necessary with a foundation as the council
can include the founder and/or the beneficiaries. It is also
possible to use the foundation as an alternative to the PTC; the
foundation's purpose can be to act as a trustee of underlying
Some clients may worry that, because foundations are registered
entities, they are, unlike trusts, publicly visible. However, under
Guernsey law, only limited details are publicly available and,
while the whole charter is filed with the Guernsey Registry, it is
not visible to all, unlike in other jurisdictions. This limited
visibility is also of great benefit when dealing with third parties
(such as banks), in order to quickly prove the entity's
The foundation provides a great alternative to the discretionary
trust for preserving family wealth for future generations. One of
the reasons it is particularly attractive to high-net-worth clients
is that it allows the patriarch to be prescriptive about succession
planning rather than being required by law to follow their
country's forced-heirship rules.
Guernsey has significant expertise in servicing structures for
protecting and preserving private family wealth, and the foundation
has provided another alternative. The Guernsey legislation not only
provides some aspects that differentiate the Guernsey foundation
from others in the marketplace but there are also provisions that
allow for the easy migration of foundations already established
elsewhere. In this regard, Guernsey has the advantage of offering
political and economic stability and a highly respected judicial
system, experienced in making judgments on fiduciary matters.
An original version of this article was published in
theSTEP Journal, May 2016.
In its judgment of 19th September 2016 in In the matter of D, E and F Trusts  JRC 166C, the Royal Court applied, for the first time, the statutory mistake provisions embodied in Article 47E of the Trusts (Jersey) Law 1984.
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