Jersey foundations: key uses17 May 2019
A decade since the introduction of the Foundations (Jersey) Law 2009 (the "Foundations Law"), the Jersey foundation has an established role in private wealth structuring. Key uses are for succession planning, as orphan structures for specific purposes, and for philanthropy.
With foundations available in a number of jurisdictions, it is important that families choose a location, and a form of foundation, which suit their requirements.
Factors in Jersey's favour are as follows:
- Experience, expertise and quality of service: Jersey's finance industry has developed over more than 50 years, and offers an extensive range of highly-respected services, together with a network of more than 13,000 professional advisers.
- Stability: The island offers political, economic and geographic stability at levels not often seen in other jurisdictions.
- Robust and highly-regarded regulatory regime: Jersey adheres to and is often an early adopter of global standards set by the United Kingdom, the European Union, the United States of America, and the Organization for Economic Co-operation and Development (OECD).
- Rule of law: Jersey has a well-respected judicial system, with adherence to the rule of law and ready access to the courts.
- Central time zone: With a central time zone, Jersey is accessible for families across the globe.
- Proximity to the UK: Jersey has several daily flight connections and a flying time to London of under an hour so that, for those with business interests or family connections in London or elsewhere in the UK, choosing the island makes logistical and practical sense.
Choosing a Jersey foundation
The Jersey foundation is not an exact equivalent of a foundation found in any other jurisdiction. The island's foundations should therefore be considered on their own merits without assuming, for example, that they will give rise to the same rights and duties, nor that they will be interpreted in the same way, as foundations established elsewhere.
Some of the key features of the Jersey foundation are as follows:
- Incorporated vehicle: Differing from a trust, a foundation is an incorporated vehicle which is brought into existence following the completion of a registration process.
- Legal personality: A foundation is a separate legal entity which holds assets, and enters into contracts, in its own name. By contrast, as a trust is not an entity in its own right, transactions in relation to a trust are entered into in the names of the trustees, rather than in the name of the trust.
- Public record: A foundation's existence can be determined as a matter of public record, by conducting a search of the register of foundations. The entry of a foundation's name in the register is conclusive evidence that the foundation has been incorporated and that the requirements of the Foundations Law in that regard have been complied with.
- No ultra vires: The doctrine of ultra vires does not apply and a foundation can exercise all the functions of a body corporate, save only that it cannot directly acquire, hold or dispose of immovable property in Jersey or engage in commercial trading that is not incidental to the attainment of its objects (although these limitations can be overcome by using an underlying company).
- Orphan vehicle: As Jersey foundations do not have shareholders or other owners, they can be used to simplify planning arrangements.
- Indefinite existence: As with Jersey trusts, foundations can continue to exist indefinitely and are therefore well-suited to dynastic planning across the generations.
- Amendments: Amendments can be made so that, for example, a foundation's objects can be changed as circumstances evolve, enabling them to remain relevant and appropriate.
In terms of the structure of the Jersey foundation, the following are core elements:
- Constitutional documents: A foundation will have a charter (which is registered and open to public inspection) and regulations (which are not registered and are therefore private). The Foundations Law specifies certain content for each of these documents and also allows for considerable flexibility so that, in particular, regulations can be tailored to address family governance and other specific requirements.
- Objects: A foundation's objects can be tailored to reflect individual requirements, and can be to benefit people and/or to carry out purposes (whether charitable or non-charitable).
- Principal roles:
- The founder: The founder is the person upon whose instructions a foundation is incorporated. A founder need not endow assets upon the foundation and (unlike a trust) it can come into existence without assets.
- Council: A foundation has a council, which is similar to a company's board of directors. Its role is to administer the foundation's assets and to carry out its objects. The council can have one or more members, with one member being a "qualified person" with the appropriate regulatory licence pursuant to the Financial Services (Jersey) Law 1998: this member is known as the qualified member. Council members are required to act honestly and in good faith with a view to the foundation's best interests, and to exercise the care, diligence and skill that reasonably prudent persons would exercise in comparable circumstances. These duties are similar to the statutory duties of a Jersey company's directors, but are narrower than the duties owed by the trustees of a Jersey trust.
- Guardian: The guardian's role is to take such steps as are reasonable in all the circumstances to ensure that the council carries out its functions. The founder and the qualified member (but not others) can act as both council member and guardian. There is no regulatory requirement for this role, and nor is it necessary for the guardian to be resident in Jersey.
Who is using Jersey foundations?
Families from across the globe are using Jersey foundations, for a variety of reasons:
- For some families – such as those from civil law jurisdictions in Europe and Latin America and from the Middle East and Russia – foundations are more familiar than trusts and so are their preferred choice for structuring.
- For other families, the Jersey foundation is chosen because its particular features suit their specific requirements.
What are foundations being used for?
Whilst each family has its own reasons for choosing a Jersey foundation, three broad categories of use can be identified:
- succession and estate planning
- orphan ownership
Succession and estate planning
For families focusing on succession and estate planning, the Jersey foundation is attractive because of its flexibility: it can be tailored to individual requirements, and can also allow for amendments to be made over time as family priorities and dynamics change. As well as this over-arching flexibility, the following features of the Jersey foundation are often important:
- Reservation of powers: The founder can be a member of the foundation's council and/or its guardian, and can also be given rights in relation to the foundation and its assets, so that concerns regarding retention of control can be addressed.
- Retention of assets: A foundation can be drafted with the express object of holding certain assets and this can be important where, for example, the founder is planning to transfer a family business into a structure and would like to know that the business will be retained into the future, notwithstanding changes in family dynamics or the profitability of the business.
- Fiduciary duties: For some founders, it is important that the beneficiaries of a Jersey foundation have no interest in its assets and are not owed fiduciary duties by the foundation, the council, the guardian or anyone else appointed under the regulations to carry out a function in relation to the foundation. Nevertheless, if the constitutional documents provide that a beneficiary is entitled to a benefit, the beneficiary can apply to the courts in Jersey for assistance if that benefit is not provided. A beneficiary is also a "person with standing" and therefore able to apply to court for directions or other orders in accordance with the provisions of the Foundations Law.
- Information disclosure: Save to the extent expressly required by the Foundations Law or by its constitutional documents, a foundation is not required to provide beneficiaries (or others) with information about the foundation. In relation to express statutory requirements, the Foundations Law provides for copies of the regulations to be supplied to those appointed under the regulations (viz. council members, the guardian and anyone else appointed under the regulations to carry out a function in relation to the foundation). This feature of the Foundations Law can be very important as it allows for a tailored and individual approach to be taken in relation to the topic of disclosure. For some, it may be desirable that there should be no disclosure whilst, for others, it may be considered that beneficiaries should be given information, but not until a pre-determined age or in pre-defined circumstances. The ability to make such decisions can often be very helpful particularly, for example, where younger family members are concerned and efforts are being made to encourage them to develop their own careers and independence.
- Legal personality: A foundation (unlike a trust) is an incorporated vehicle with a separate legal personality and this is important for some families.
- Separate existence: For some families, it is important that assets will be held in the name of the newly created foundation and will continue to be held in that name throughout the foundation's existence. By contrast, where a trust is created, the assets will typically be held in the name of a professional services provider (with whom the family may not be wholly familiar at the time of the trust's creation) and will be transferred into the names of new service providers as and when trustees change during the lifetime of the trust.
- Family governance: A foundation's regulations, whilst required to contain certain information, can also incorporate additional material as required. They can therefore be used as a key document for family governance purposes. Regulations are private documents which allow for considerable flexibility in drafting and can, for example, detail an approach in relation to the future operation and retention of a family business and/or the involvement of future generations (whether as council members or otherwise).
Orphan structures for specified purposes
A Jersey foundation (with no shareholders or other owners) is often an ideal choice for families focusing on the creation of bespoke structures. This might, for example, arise in the context of a family office, with family wealth (and associated trusts, foundations and companies) being consolidated to provide increased efficiency and simplicity and to help with reputation management.
- PTCs: A private trust company (PTC) is frequently an important element with such structures, providing a dedicated trustee to act in relation to family trusts. A Jersey foundation can own the shares in the PTC or, alternatively, can act as the PTC itself.
- Other examples: Families often establish dedicated protector or enforcer vehicles as part of their trust structuring, or vehicles which will be council members, or the guardian, of a foundation. A Jersey foundation can own all of these vehicles or, alternatively, can fulfil each of the roles itself.
Jersey foundations are very popular for families interested in philanthropy. Flexibility is again very important, with the following additional factors also influencing a family's choice:
- Choice of objects: Philanthropy is often a very personal matter, and a Jersey foundation can be drafted to pursue the causes that really matter to a family, whether or not those causes are technically charitable. It is also possible to provide for philanthropy and for benefit to family members or others within one foundation, and this option has frequently been chosen.
- Preferred structure: Foundations have traditionally been used for philanthropy and many families are therefore naturally drawn to the Jersey foundation as being an appropriate choice of structure.
- Ongoing involvement: One of the key attractions of Jersey foundations for philanthropy is that they allow opportunities for ongoing involvement. For example, the founder or other family members might be council members (and so might participate in a giving committee, distributing the foundation's assets) or might be the guardian (with a monitoring role, to ensure that the council administers the assets and carries out its objects as required by the constitutional documents).
- Incorporated vehicle: A foundation exists as a legal entity which holds assets, and enters into contracts, in its own name. The ability to refer to a foundation as such - and, for example, to use the foundation's name when distributions are made – can be important for families when considering how their philanthropic giving will work in practice.
- Public profile: For some families, the ability to publicise their philanthropy is important, whilst others prefer to maintain a lower profile: Jersey foundations can accommodate them all. For those seeking publicity, the foundation might carry their family name, and full details of the chosen causes and/or of the council members and guardian can be included in the charter so that they are publicly available. For those favouring a lower profile, a neutral name can be used, details of the chosen causes can be specified in the regulations (which are private), and only the name of the council's qualified member needs to be made public.
- Charity registration: For those establishing a foundation with charitable objects, Jersey offers the additional choice of a charity registration. This is important for many families and, again, preferences in relation to public profile can be accommodated. The innovative Jersey charity register offers registration on either the restricted or the general section. The former is available for those using their own moneys (rather than public donations) and provides for only limited information (including the charity's registered number but not its name) to be made publicly available.
How can Bedell Cristin assist you?
Our international private client team can assist with the preparation of foundation documents and with issues arising during a foundation's existence. If you would like assistance, or any more information, please contact one of our team and we will be happy to help.