Russia and CIS: Jersey structures for private clients14 Apr 2015
For Russian and CIS clients wishing to establish a structure for the preservation of private wealth, Jersey represents a very attractive choice. A British Crown Dependency, but not part of the United Kingdom, the Island has operated as an international finance centre for more than 50 years, administering trusts and providing private wealth management services for all of that time.
Some of the core strengths that the Island offers are:
- stability (politically, economically and geographically);
- a democratically elected government and adherence to the rule of law;
- a robust and highly regarded regulatory regime;
- a well-respected judicial system;
- depth and breadth of experience amongst its professional advisers, with access to counterparts in the UK and other major centres in the world;
- legislation which places a strong emphasis on the importance of flexibility, allowing for the creation of structures tailored to individual client requirements.
Added to this list is the fact that Jersey is readily accessible from the UK (with several daily flight connections and a flying time to London of under an hour) so that, for those Russian and CIS clients with business interests or family connections in London or elsewhere in the UK, choosing the Island also makes logistical and practical sense.
Trusts and foundations
Trusts and foundations are the two key private wealth structures used in Jersey. The principal trusts legislation is the Trusts (Jersey) Law 1984 (the "Trusts Law"), and foundations were introduced into the Island by the Foundations (Jersey) Law 2009.
Some important features in relation to Jersey trusts and foundations are as follows:
- Trusts and foundations can be established for an unlimited period, so that both can be used for long-term dynastic planning.
- 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, assets are held, and transactions are entered into, in the names of the trustees, rather than in the name of the trust.
- A trust can be established for the benefit of people or purposes (whether charitable or non-charitable) and a foundation can be incorporated with objects which are charitable or non-charitable (or a combination of both) and be either to benefit people, or to carry out a purpose, or to do both.
- For those concerned in relation to confidentiality, there is no public registration of trusts created in the Island. Foundations are registered and certain information is maintained on a public register: for further information on Jersey foundations, please refer to the briefings on our website.
Reasons for establishing a structure
The particular reasons for establishing a trust or foundation will vary from one client to another, and can include:
- to preserve family wealth so that it can be passed on to future generations;
- to protect younger family members from exposure to extreme wealth so that they can be encouraged to become independent and to forge their own careers;
- to provide a means of introducing future generations to family values and culture in a controlled and structured environment;
- to guard against the fragmentation of a family business;
- to guard against the possibility of divorce;
- to allow for philanthropy;
- to address concerns in relation to political instability and personal safety.
A trust or foundation might be intended to have a relatively short duration, or it may be intended as a dynastic structure, to last well into the future and across several generations.
Whichever objectives a client might have, Jersey trusts and foundations can be used and tailored appropriately. For many clients, a discretionary structure will be preferred, recognising that it can be helpful to preserve flexibility for the future to accommodate circumstances as they evolve. For others, a more restricted regime is required, to address particular concerns that have already been identified.
Influence or control
For Russian and CIS clients coming to Jersey for the first time, there can be concerns at the prospect of transferring wealth to a professional service provider in a new jurisdiction. It may therefore be helpful to consider opportunities for the client, or someone else (such as a trusted adviser), to have a measure of influence or control in relation to the structure which is being established.
With trusts, three key options to consider are:
- To use a discretionary trust with a professional service provider as trustee, together with a letter of wishes from the settlor.
This approach offers simplicity and flexibility and is a very popular choice with Russian and CIS clients. The trustees have discretionary powers which they exercise in the interests of the beneficiaries, taking account of circumstances as they evolve over the years. The settlor can offer guidance as to how particular beneficiaries might benefit, and can readily update his or her letter of wishes as and when he or she chooses. It is clearly accepted that trustees can (and should) have regard to such wishes.
- To structure the trust so that certain powers are not given to the trustees, but are retained by the client (as settlor) or given to someone else, such as a trusted adviser.
The Trusts Law provides expressly that the reservation or grant of any of a specified list of powers will not affect the validity of the trust, nor delay its taking effect. Examples listed in the Trusts Law are of powers to revoke or amend the trust; to give binding directions to the trustees in connection with the purchase, retention or sale of trust property; and to appoint or remove trustees, beneficiaries or investment advisers.
- To establish a private trust company (a PTC) to act as a dedicated trustee to the trust or trusts being established, as an alternative to using a professional service provider's corporate trustee.
Chosen individuals, with knowledge of the family and/or family business or other assets being transferred into trust, can become board members of the PTC alongside professional service provider personnel. Having relevant knowledge available within the trustee itself can often be helpful in allowing decisions to be taken swiftly where circumstances require. A role on the board of a PTC can also be a good way of introducing younger generations to family wealth and values, and of allowing them to play a role in relation to the family's business interests. PTCs can be established quickly and easily in Jersey, and are becoming increasingly popular.
With foundations, there is again a variety of options to consider:
- The client (as founder) might wish to have certain rights in relation to the foundation and its assets in his or her own capacity.
An example, here, might be a power to amend the foundation's charter or regulations. The constitutional documents of the foundation can also be drafted to allow for the founder's rights to be assigned, in due course, to someone else.
- Alternatively, the client might prefer to become a member of the council (which is similar to a company's board of directors) and/or for trusted advisers to be appointed to that role.
Such council members will then act alongside the professional service provider, which will discharge the role of "qualified member" and have an appropriate regulatory licence under the Financial Services (Jersey) Law 1998.
- Another option is for the client or a trusted adviser to become the foundation's guardian, with a monitoring role, to ensure that the council carries out its functions.
There is no regulatory requirement in relation to the office of guardian and there is considerable flexibility as to who should be appointed to this position. For example, the client (as founder) could, in an appropriate case, be both a council member and the guardian.
Importance of objectives
Jersey recognises the importance of flexibility, allowing Russian and CIS clients to create robust structures of substance in a stable, respected and well-regulated jurisdiction: structures designed to achieve individual objectives, and allowing for measures of influence or control consistent with those objectives.