We are at a time of great transition in relation to the private wealth of international families. What is referred to as the Great Wealth Transfer will see significant values passing across the generations over the coming years. For example, it is suggested that some US$2 trillion will pass away from wealth creators across the globe in the next 15 years and that, in the countries of the Gulf Co-operation Council (GCC), somewhere in the region of US$1 trillion will transition over the next decade.
For some families, the wealth is already held within a structure, and questions might be asked as to whether it continues to be appropriate or should perhaps be changed or replaced in order to better suit the needs of the next generation. For other families, assets will be held directly by the wealth creators, and consideration might be given to the creation of a structure to allow for appropriate estate and succession planning.
As families and their advisers approach the Great Wealth Transfer, it is important that they choose a location which will suit their particular requirements.
Families will often have a global footprint, with different branches and generations being widely dispersed across the world. This can mean that there may not be a single home to focus on, so that questions arise as to which location might be best placed to suit the differing needs of the various family members.
Another big factor for many families is regional instability in their home jurisdiction. Whether this might be political, economic or geographic, the objective will be to identify a location which offers stability and protection for particular assets.
In addition, reputation management is key for a growing number of families. Recent years have seen a significant drive towards greater transparency and international reporting with the advent of the Common Reporting Standard, the Foreign Account Tax Compliance Act, and the European Union's General Data Protection Regulation. This drive, together with the increased use of social media and concerns in relation to data theft and cyber-security, have led families to be more aware of the importance of reputational issues when choosing a jurisdiction.
Some of the core strengths that Jersey offers 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 structure: trusts and foundations
As well as identifying a location that will work for them, it is also important that families are able to create structures which will achieve their chosen objectives.
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 (the "Foundations Law"). The Trusts Law and the Foundations Law both recognise the importance of flexibility and allow for structures to be tailored to suit individual objectives. In addition, there are particular features of Jersey trusts and foundations which will appeal to certain families and enable them to create a structure of their choosing.
Some features to note 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.
- Trusts and foundations can be registered as charities in the Island, with Jersey's innovative and voluntary system of charity registration allowing for registration on either the general or the restricted section of the register. The latter 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 publicly available.
- A foundation does not have shareholders or any other form of owner and can therefore provide an appropriate solution in family office and other contexts. For example, a foundation might be used to own the shares in a private trust company ("PTC") or a company established to act as the protector or enforcer of a trust or, alternatively, a foundation might discharge any of these roles itself.
- The Trusts Law and the Foundations Law both contain extensive "firewall" provisions the effect of which is that many questions regarding trusts and foundations will be determined in accordance with Jersey law, rather than in accordance with a foreign law.
Reasons for establishing a structure
The particular reasons for establishing a trust or foundation will vary from one family 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.
Influence or control
Whichever objectives a family might have, Jersey trusts and foundations can be used and tailored appropriately. For many families, 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.
One of the key requirements of many families is to be able to retain a measure of influence or control in relation to a structure. For example, entrepreneurial families from the Middle East who have played significant roles in growing their businesses and wealth are often reluctant to relinquish control when transferring their wealth to a trust or foundation. There is also the understandable concern - particularly at the outset - that families do not yet have sufficiently strong relationships with their chosen professional service providers to allow them to feel ready to hand over complete control.
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: 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 wealth creator (as settlor) or given to someone else, such as a trusted adviser. The Trusts Law provides expressly that the reservation or grant 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 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 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 position 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.
With foundations, there is again a variety of options to consider:
- The wealth creator (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 constitutional documents (i.e. its charter or regulations). Those documents can also be drafted to allow for the founder's rights to be assigned, in due course, to someone else.
- Alternatively, the wealth creator 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 wealth creator 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 wealth creator (as founder) could, in an appropriate case, be both a council member and the guardian.
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.