Jersey structures for philanthropy08 Nov 2019
Philanthropy is important for many families, with increasing numbers establishing new structures to support particular altruistic causes that they identify with, whether those causes are technically charitable or not.
Jersey is an attractive choice of jurisdiction in which to establish such structures for a variety of reasons. Chief among these are that the Island offers:
- legislation which places a strong emphasis on the importance of flexibility, allowing for the creation of structures tailored to individual family requirements;
- stability (politically, economically and geographically);
- a robust and highly regarded regulatory régime;
- a well-respected and independent judicial system;
- a depth and breadth of experience amongst its professional advisers;
- a central time zone, making the Island readily accessible around the globe;
- proximity to the UK and frequent daily flight connections between Jersey and the UK, so that choosing the Island makes practical and logistical sense for those with family connections or business interests in London or elsewhere in the UK.
Trusts and foundations are the two key structures used for philanthropy in Jersey, with the relevant legislation being the Trusts (Jersey) Law 1984 (the "Trusts Law") and the Foundations (Jersey) Law 2009 (the "Foundations Law"). The Charities (Jersey) Law 2014 (the "Charities Law") complements the Trusts Law and the Foundations Law by offering a voluntary system of registration in Jersey, for those wishing to register structures as charities.
The Trusts Law allows for the creation of both charitable and non-charitable purpose trusts. It is therefore possible to establish a trust for charitable purposes or, alternatively, for philanthropic purposes which may not be technically charitable.
Whilst the Trusts Law allows for the creation of charitable trusts, it does not define "charitable purposes". The position is therefore covered by customary law and the leading judgment on the topic, Meaker v Picot (1972) JJ 2161, established the following:
- For a charitable trust, there must be a clear intention on the part of the settlor to devote the whole of the property to charitable purposes (which will be determined as a matter of construction of the words of the gift).
- The four tests for a charitable purpose (i.e. one showing a general charitable intention) are as follows:
- Is the purpose enforceable by the court?
- Is the purpose either within the express terms or the "spirit and intendment" of the preamble to the English Charitable Uses Act 1601 (also known as the statute of Elizabeth)?
- Does the purpose fall within any of the four principal categories derived from the statute of Elizabeth:
- trusts for the relief of poverty;
- trusts for the advancement of education;
- trusts for the advancement of religion; and
- trusts for other purposes beneficial to the community not falling within any of the preceding three categories?
- Is the purpose for the public benefit?
- The trust's purposes must be exclusively charitable.
With a charitable or non-charitable purpose trust established under Jersey law, the following are key points to note:
- Duration: The trust can be established for an unlimited period.
- Registration: There is no public registration of trusts in the Island and the establishment of a Jersey trust can therefore be attractive to those not wishing to have a public profile in relation to their philanthropy.
- Restrictions: The Trusts Law provides that a trust cannot directly hold immovable property situate in the Island. A separate piece of legislation - the Loi (1862) sur les teneures en fidéicommis et l'incorporation d'associations (the "1862 Law") - allows for trusts of Jersey situate immovable property in certain defined circumstances. (A consideration of the 1862 Law is outside the scope of this briefing.)
- Enforcement: The Attorney General in the Island enforces charitable trusts. A non-charitable purpose trust has an office holder known as an enforcer, to enforce its non-charitable purposes. Whilst the enforcer cannot also be a trustee of the trust, there are no other limitations with regard to the choice of the enforcer. An individual or a corporate entity can be appointed, and there is no requirement for the enforcer to be resident in Jersey.
- Amendments: The Trusts Law provides that a trust can be varied in any manner provided by its terms. In addition, there is a statutory cy-pres provision which allows the Royal Court, in certain specified circumstances, to declare that the trust property is to be held for such other charitable or non-charitable purpose, as the case may be, as the court considers to be consistent with the settlor's original intention. This jurisdiction can operate, for example, where a trust's stated purpose has been fulfilled, or no longer exists, or provides for only a partial use of the property. The Trusts Law also allows the Royal Court to approve an arrangement that varies or revokes the purposes of a trust or enlarges or modifies the trustee's powers of management or administration, if it is satisfied that the arrangement is suitable and expedient, and is consistent with both the settlor's original intention and the spirit of the gift. Before exercising this jurisdiction, the court will need to be satisfied that any person with a material interest in the trust has had an opportunity to be heard.
The Foundations Law is very flexible and allows for the creation of a foundation for purposes - known as objects - which are charitable, non-charitable, or both charitable and non-charitable. A foundation can be incorporated to pursue a philanthropist's chosen causes - causes that he or she is passionate about - whether or not they are technically charitable and whether or not they are combined with the possibility of allowing for benefit to family members or other individuals. This flexibility is clearly attractive and significant numbers of Jersey foundations have been incorporated with philanthropic objects, either alone or in conjunction with objects for the benefit of people.
With a Jersey foundation for purposes which are charitable, non-charitable, or both charitable and non-charitable, the following are key points to note:
Duration: As with charitable and non-charitable purpose trusts, a foundation can be established for an unlimited period.
Registration: Unlike a trust, a Jersey foundation is a legal entity (without shareholders or any other form of owners) which comes into existence following the completion of an incorporation process and holds assets and enters into contracts in its own name.
The constitutional documents of a foundation are its charter and regulations. A foundation will be incorporated on the instruction of the founder, and will have a council (which is similar to a board of directors) to administer its assets and to carry out its objects, and a guardian. One of the council members must be a "qualified person" with the appropriate regulatory licence pursuant to the Financial Services (Jersey) Law 1998: this member is known as the qualified member. Additional council members might include the founder (if he or she is keen to have an ongoing role), other family members, or trusted advisers.
In terms of publicly available information, the register of foundations contains:
- the foundation's name and registered number;
- the qualified member's name and business address in Jersey (which will be the foundation's business address and, unless the charter provides otherwise, will also constitute the place of administration of the foundation's activities and assets); and
- the foundation's charter (but not its regulations).
The charter must specify the foundation's objects, but details of these can be determined in accordance with provisions found in the regulations. The information required to be included in the charter is limited and it is not necessary to include the names of the founder, the council members and the guardian. The identities of the founder and of those officer holders (other than the qualified member) need not, therefore, be a matter of public record. However, for those who would, in fact, prefer to maintain an open profile, additional information beyond that which is prescribed by the Foundations Law can be incorporated into the charter and thereby become a matter of public record.
Unlike a trust, a foundation can be incorporated without any initial endowment. Where endowments are going to be permitted after a foundation's incorporation, this has to be made clear in the foundation's charter.
Restrictions: A foundation can exercise all the functions of a body corporate, save only that it cannot directly (a) acquire, hold or dispose of immovable property in Jersey or (b) engage in commercial trading that is not incidental to the attainment of its objects. However, both of these restrictions can be overcome by interposing an underlying company, so that the relevant activity is not undertaken directly by the foundation.
Enforcement: Every foundation has a guardian with a statutory duty to take such steps as are reasonable in all the circumstances to ensure that the council carries out its functions. The guardian can also be given other powers and duties, if desired.
There is no regulatory requirement in relation to the office of guardian and there is considerable flexibility as to who should be the guardian. The founder and the qualified member (although no others) are permitted to fulfil a dual role as both council member and guardian. As with the enforcer of a non-charitable purpose trust, the guardian can be an individual or a corporate entity, and there is no requirement for the guardian to be resident in Jersey.
The guardian can require the council to account to him or her for the way in which it has administered the foundation's assets and acted to further its objects, and can apply to the Royal Court for orders and directions. The powers available to the Royal Court include the power to order a foundation to carry out its objects in circumstances where it has failed to do so, and also the power to appoint or remove the council members.
A guardian can be given the power, in certain circumstances, to sanction or authorise actions taken by the council that would not otherwise be permitted by the foundation's constitutional documents.
Amendments: The foundation's constitutional documents can allow for amendments to be made to the charter and regulations, including amendments to the foundation's objects or purposes. When any such changes are made, an updated charter will need to be filed with the registrar of foundations.
In addition, the Foundations Law provides that the Royal Court can propose amendments to a foundation's charter or amend its regulations if the court is satisfied that the change will assist the foundation to administer its assets or to attain its objects or that the stated objects are no longer attainable and that the proposed change will help the foundation to attain objects as near as reasonably possible to the stated objects.
As noted above, the Charities Law complements the Trusts Law and the Foundations Law by offering a voluntary system of registration in the Island, for those wishing to register structures as charities.
The Charities Law allows for "entities" (including the trustees of a Jersey trust, and Jersey foundations) which satisfy the statutory charity test to apply for registration. An entity meets the charity test if:
- all of its purposes (as defined) are charitable purposes or purposes that are purely ancillary or incidental to any of its charitable purposes; and
- in giving effect to those purposes, it provides (or intends to provide) public benefit in Jersey or elsewhere to a reasonable degree.
However, an entity will not satisfy the charity test if its constitution expressly permits its activities to be directed or otherwise controlled by (or any of its governors - i.e. its trustees if a trust, or its council members if a foundation - to be) Jersey's Chief Minister, a member of the Island's States Assembly (Jersey's government), or someone holding an equivalent position in another jurisdiction, acting in his or her capacity as such.
The Charities Law contains an extensive list of charitable purposes including, for example, advancement of the arts, heritage, culture or science, and also the advancement of public participation in sport (which is not currently charitable under Jersey's customary law). It also provides for other purposes to be treated as charitable if they can reasonably be regarded as analogous to those which are listed, and allows for the list of charitable purposes to be added to in due course.
There is no presumption that any particular charitable purpose is for the public benefit. A named individual or group of identified individuals will not be treated as a section of the public, so that an entity that benefits only such an individual or group of individuals will not be regarded as providing public benefit.
To determine whether the public benefit element of the charity test is satisfied, Jersey's Charity Commissioner (the "Commissioner") will:
- compare the benefit to be gained by the public with the benefit to be gained by members of the entity itself or any other people (other than as members of the public) and any disbenefit (harm) likely to be incurred by the public;
- consider whether any condition (such as a charge or fee) on obtaining a benefit which is only provided to a section of the public is unduly restrictive.
An entity wishing to register will provide prescribed information to the Commissioner and, once registered, will be given a certificate of registration, confirming its registered name and number and the date of its registration.
One of the innovative features of the Charities Law is that it allows an entity to choose whether to apply for registration on the general section or on the restricted section of the register.
The general section is intended for those entities which would like to register as a charity, to be able to call themselves "charities", to raise funds from the public, and to have the benefit of the full range of Jersey's charitable tax reliefs.
One of the key functions of the Charities Law is to protect public trust and confidence in registered charities. Consistent with this, the general rule is that all of the information on the general section of the register will be publicly available, so that potential donors and volunteers will have access to relevant information to inform their decisions.
Recognising that some charities will not seek donations from the public and will instead be funded with a family's own moneys - and that some philanthropists may prefer to maintain a lower profile in relation to their giving initiatives - the Charities Law also offers the option of registration on the restricted section. This still entitles the entity to be called a "charity" and to have full access to Jersey's charitable tax reliefs. However, only a limited amount of information (including the entity's registered number but not its name) will be accessible on the public register.
Another feature of the Charities Law is that, whether an entity is entered on the general section or the restricted section, the Commissioner can designate a specified matter as not being a public part of its register. This power is available if the Commissioner considers that the safety or security of any person, property or premises would be significantly put at risk by public access to the specified matter.
Taxation and use of the term "charity"
Registration as a charity is voluntary, albeit relevant in determining entitlement to certain charitable tax reliefs and to use the term "charity".
Registered charities are eligible for the full range of Jersey's charitable tax reliefs:
- exemption from income tax;
- entitlement to recover income tax on certain donations received by way of lump sum payment or pursuant to a deed of covenant;
- entitlement to reclaim any goods and services tax ("GST") paid and exemption from the requirement to register for GST;
- entitlement to reduced rates of stamp duty and land transaction tax.
Whilst the system for registration of charities opened on 1 May 2018, the provisions in the Charities Law relating to taxation and the use of the word "charity" were not brought into force until 1 January 2019.
Transitional arrangements were put in place in relation to taxation: if an entity was entitled to exemption from income tax under Article 115(a) of the Income Tax (Jersey) Law 1961 immediately before 1 January 2019, and had submitted its application for registration as a charity (and that application had not been finally determined) before 1 January 2019, the entity would retain its tax-exempt status until the end of the following tax year (31 December 2019). Those transitional arrangements have been extended so that, if the entity's application has not been finally determined by the end of 2019, it will continue to retain its tax-exempt status until the end of 2020.
A point to note is that, for trustees or foundations not wishing to register as charities under the Charities Law, exemption from Jersey income tax is available on satisfaction of certain conditions. In addition, tax neutrality is preserved for structures with no beneficiaries in Jersey and no income deriving from land and buildings in Jersey.
With effect from 1 January 2019, the general rule is that only registered charities (and certain overseas charities) can refer to themselves as a "charity". For those entities choosing not to register, it is still possible to use the term "charitable".
Jersey has an established - and growing - reputation as a location of choice for philanthropic wealth structuring:
- The Trusts Law and the Foundations Law both place a strong emphasis on the importance of flexibility, so that each philanthropist can tailor a structure to pursue his or her chosen goals, whether or not those goals are technically charitable.
- There is a choice in relation to publicity. For those not wishing to have a public profile in relation to their philanthropy, trusts can be an attractive choice as there is no pubic registration of trusts in Jersey. For those who are keen to have a public profile, there is a range of registration options to choose from. For some families, registration as a foundation will be appropriate and sufficient; for others, registration (of a trust or foundation) as a charity under the Charities Law, either on the general or the restricted section of the register, will be preferred.
- Jersey is a tax neutral environment in which to establish structures, with Jersey tax exemptions also available subject to compliance with relevant conditions.