With 2019 marking the tenth anniversary of the introduction of Jersey foundations into Jersey law, in a series of articles Grant Barbour, Managing Director - Private Client breaks down their key features, components and use-case.
What are foundations being used for?
In view of the Foundations (Jersey) Law 2009's (the "Law") flexibility, Jersey foundations are being used for a wide variety of reasons, of which three broad categories of use stand out; succession and estate planning, orphan structures for specified purposes, and philanthropy. In this article, we'll highlight why the Jersey foundation is particularly popular for succession and estate planning.
Succession and estate planning
Features of the Jersey foundation which make it an attractive product for succession and estate planning include:
- Disclosure of information: Save to the extent expressly required by the Law or by its constitutional documents, a Jersey foundation is not required to provide beneficiaries (or others) with information about the foundation. In relation to express statutory requirements, the 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 Law can be very important as it allows 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 predetermined 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.
- Fiduciary duties: Another feature which can be important is that, where a Jersey foundation's objects are to benefit a person or class of persons (either exclusively or in conjunction with the carrying out of a purpose), the beneficiaries have no interest in the foundation's assets and are not owed a duty (by the foundation, or by the council, the guardian or anyone else appointed under the regulations to carry out a function in relation to the foundation) that is, or is analogous to, a fiduciary duty. However, where a beneficiary becomes entitled to a benefit pursuant to the foundation's constitutional documents, and that benefit is not provided, the beneficiary can apply to the courts in Jersey for an order that the Jersey foundation should provide the benefit. 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 Law.
- Legal personality: The fact that, unlike a trust, a Jersey foundation is an incorporated vehicle with a separate legal personality is an important factor for some clients, influencing their choice of structure.
- Separate existence: For some clients, it is important that assets will be held in the name of the newly created Jersey 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 client 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.
- Nature of assets: In some cases, the nature of the assets to be held will influence the choice of structure. A Jersey foundation can be established with the express object of holding specified assets and this (coupled with the absence of fiduciary duties being owed to beneficiaries) can make it an attractive choice where, for example, wasting assets (such as boats or aeroplanes) or "family silver" assets (such as shares in a family business) are concerned. The use of a foundation to hold such assets can be helpful to manage or avoid some of the tensions that can arise between different groups of family members, with some being keen for a particular asset to be retained whilst others would prefer it to be sold in order to maximise investment returns.
- Family Governance: A Jersey 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 in a client's consideration of family governance issues. 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).
- Reservation of powers: A founder can be both a council member and a guardian of a Jersey foundation, and can also have such rights (if any) in respect of the foundation and its assets as the constitutional documents provide. These features can be important for clients who wish to retain a significant degree of control in relation to the structure which is being created.
Part four of the series will analyse why Jersey foundations are popular as orphan structures for specified purposes.
Be it for succession and estate planning, as philanthropic entities, or for more specific purposes, we work with you to create a bespoke solution to meet your specific structuring needs, utilising over 50 years' experience in private wealth planning. Find out more about our foundation services here.
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.