Insight / 30 May 2019
Ten years young by Paul Hunter
Paul Hunter revisits the jersey foundation a decade after its introduction
The concept of the foundation has a long history in mainland Europe, having been originally introduced for religious and philanthropic purposes in countries such as the Netherlands and Germany. Liechtenstein pioneered the idea of a foundation formed for private purposes in 1926, and the structure has been popular with people from civil-law jurisdictions ever since. Foundations were introduced in Jersey on 17 July 2009, pursuant to the Foundations (Jersey) Law 2009 (the Law). At the time, excitement around their introduction was largely focused on the fact that Jersey had, in 2009, been whitelisted by the G20 and would become the only whitelisted jurisdiction to have a private foundation regime.
With the Jersey foundation marking its tenth anniversary this year, it is timely to look back and ask whether it has lived up to the initial excitement. First, let’s take a look at the Jersey foundation’s key features and uses.
The Jersey foundation is an incorporated body that can contract in its own name. It is incorporated by its founder and acts through its council, which administers it in accordance with the terms of its charter and regulations. That charter is a public document and sets out the purpose or objects of the foundation; the regulations are given in a private document and generally set out how the foundation operates to fulfil those objects.
It is a requirement of the legislation that the foundation have at least one qualified member who must be registered under the Financial Services (Jersey) Law 1998 to carry out trust company business.
The appointment of a guardian is also a legal requirement under the Law. This is a key figure (sometimes mistakenly compared to a protector in a trust) who ensures that the foundation council is held to account and that it carries out its duties in accordance with the foundation charter.
There is no requirement for there to be beneficiaries in a foundation and, to the extent there are any, they will hold very different rights and interests compared to beneficiaries of trusts. For example, they have no interest in the foundation assets and are not owed any fiduciary duty.
- Wealth planning vehicle: Jersey foundations are often used as an alternative to trusts for private clients, especially those unfamiliar with the concept of trusts.
- Philanthropic/charitable: a well- trodden path for foundations, given Jersey’s regulatory framework and the flexibility of the Law.
- Orphan entities: in either corporate or private wealth structuring, where there is a need for an entity that has no beneficiaries or shareholders, such as with a private trust company structure.
- Specialist asset holding: holding luxury assets that may be ‘wasting’ assets can sometimes be a challenge for trustees or company directors, taking into account their fiduciary responsibilities to beneficiaries and the company.
Judging its success
In assessing the Jersey foundation’s success, the numbers are helpful. There have been over 375 incorporations since the Law was passed, an average of almost 40 each year, suggesting that foundations have become an integral part of Jersey’s wealth structuring industry.
Particularly positive, looking at the names of active foundations listed on the Registry, is the proportion that are charitable or philanthropic. There are some clear reasons for this:
- The founder can play an active role in the ongoing management of the foundation, either as a council member or a guardian.
- Other family members can play a role in the foundation, achieving the wish that the charitable purpose becomes a family dynastic mission.
- Public and private profile: there is flexibility in how the charitable foundation sits in the public eye depending on the specific wishes of the founder. This is due to the fact that the publicly available charter can include significant detail on its purposes and how it is to be run, or can be restricted to the minimum detail permitted under the Law.
In addition, orphan structures continue to be a big driver of new incorporations, while foundations have also gained real traction for family wealth structuring as a substitute for the more traditional trusts. This trend is being driven in particular by Middle Eastern and Chinese clients, for whom the Jersey foundation is comparable to domestic entities, while being located in an English- speaking, tax-neutral jurisdiction.
Overall, while some were initially a little sceptical that Jersey could compete with its civil-law counterparts, or thought it unlikely that Jersey foundations would be able to rival trusts in terms of flexibility, the evidence suggests that foundations are fulfilling some important and specific roles as part of holistic wealth strategies.
Figures correct as of December 2018, this article was first published in STEP Journal April 2019.