By Richard Pirie Head of Trusts and Foundations, Collas Crill, Jersey
Wealth planning is a long-term exercise to preserve wealth while meeting the future needs of several generations.
The main reasons why an entrepreneur wishes to put his business into a structure are succession planning and asset protection – he wants to decide on the succession of control and benefit, and he wants to make sure that what he has worked so hard to build is protected if something goes wrong for him or for a member of his family, such as divorce. At the same time he wants to keep control of it. During his lifetime and after his death he wants his family to enjoy the fruits of his endeavours but he does not want them to be able to sell the income generator he has created. The question is how?
A trust may not be suitable because the duties owed to beneficiaries are not consistent with a trading business as a significant trust asset. The beneficiaries can collectively determine a trust and thus sell the business, thereby defeating a key wealth planning objective.
By contrast the Council of a Jersey Foundation does not owe any duties to beneficiaries, unless the Regulations expressly provide them at the request of the Founder. Instead the Council is accountable to a mandatory Guardian, but there are no restrictions on who can hold this office so it can be fulfilled by family members.
A Jersey Foundation has recently been prepared by this firm for a wealthy GCC-based family with five branches, which owns companies that operate trading businesses and hold property portfolios and passive investments. The Foundation will own the shares in all those companies but only as a passive shareholder, and the family will continue to control them at board level. In deciding the level of dividends that the companies declare, the family controls the flow of money into the Foundation. The Guardian is a committee with one member from each branch of the family, and the Council cannot make distributions without Guardian approval, thus the family also controls the flow of money out of the Foundation.
By using a Foundation, the succession and asset protection objectives are achieved by transferring ownership of the companies into it. Meanwhile the family retains control of the businesses and of all money flows into and out of the Foundation.
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.