Jersey trusts
Jersey's new Foundations Law
Alicia Lewis, a senior manager in Volaw’s wealth structuring department, examines the intricacies of Jersey’s new Foundations Law and the benefits it will bring to Jersey’s finance industry.
Jersey has developed its own Foundations Law distinct from that of jurisdictions such as Panama and Liechtenstein. The Foundations (Jersey) Law was passed by the States of Jersey on October 21, 2008, and is awaiting Privy Council sanction and registration with Jersey’s Royal Court before the Law comes into force 28 days later.
Foundations have their origins in Roman civil law, when the Roman Empire was crumbling and Christendom needed to manage its “divine assets”. During the Middle Ages, Canon Law developed the judicial concept of a structure whose aims were essentially charitable.
More recently, foundations have evolved into versatile financial planning vehicles that provide an alternative to company and trust structures. Foundations will appeal to those seeking wealth management and estate planning solutions but are not familiar or comfortable with the trust concept, and require a distinct corporate personality over which they may exercise a high degree of control.
The fact that Jersey foundations are registered with the Jersey Financial Services Commission upon creation and their existence is therefore a matter of public record also adds a degree of transparency that is absent with trusts. Foundations cannot directly engage in commercial trading, except in the case of, for example, shops for charitable institutions, or such trading that is in line with its objective.
Foundations can, however, own corporations which trade and hold property in Jersey and elsewhere. They can also hold foreign property directly, but not Jersey property. Jersey’s draft regulations have extensive provision for merger and continuance as well as winding up or dissolution, along similar lines to Jersey companies.
A Jersey foundation is an incorporated body of infinite duration able to hold assets, sue and be sued, and transact with third parties in its own name. It must be registered with the registrar, but rather than having directors, shareholders or shares, it has a council acting as its executive body to administer assets and carry out its stated objects. These objects may be charitable, to act as the owner of companies, or for family and/or inheritance purposes.
The council can be constituted by one or more members who must act in the best interests of the Foundation, acting honestly and in good faith while exercising care, diligence and skill of reasonably prudent persons – much like company directors. It is by being able to sit on the council that a client may have the degree of control they need to feel comfortable with an offshore structure.
Foundations must have at least one qualified person who sits on the council, who is registered under Financial Services (Jersey) Law 1998 to conduct this type of financial services business. Volaw is of course able to provide a qualified council member. The business address in Jersey will be the business address and seat of the foundation, where a copy of the current charter and regulations and register of the names and addresses of the council must be kept.
Records must be kept of the appointment of the guardian, business address in Jersey of the qualified member, details of transactions, financial position and details of the endowers. Changes to the charter, founder, seat and qualified person must be notified to the registrar. Volaw is well placed to maintain a foundation’s statutory records in its normal course of business. The founder is the individual or corporate body who instructs a qualified person to apply for incorporation. A person can become the founder by assignment (for example on the death of a founder), or by endowing the foundation, although the founder need not endow the foundation, as no assets are necessary to create a foundation.
The founder’s rights regarding the management of the foundation and its assets must be described in the charter and regulations. The founder’s details are a matter of public record. The charter governs the operation of the foundation and details the initial endowment, if one was made, as well as its objects. As the charter must be lodged with the registrar, it is open to public inspection, however beneficiaries can be named in the Regulations, which are not publicly available, to keep their identity private. Endowments can also be dealt with in the regulations. The charter may also contain details of the termination date or event that gives rise to termination, details of any power to wind up and dissolve and any other discretionary matters. Amendments can be made, but only become effective upon registration.
Regulations are private documents detailing how the foundation will operate and only available to persons appointed under the regulations. They can include the identity of beneficiaries and how assets are to be distributed and in what proportion. The regulations must describe the parameters for the council: its rules for appointment, retirement or removal of members; their remuneration (if any); the decision making process; the administrative functions; details of third party approvals that are required; and the extent to which delegation of powers is permitted.
Among other matters, the regulations must also provide for succession of the qualified member of the council and the succession and remuneration of the guardian. Under the new law, the founder has the power to determine all of these aspects. In conjunction with Voisin, Volaw will be able to provide widely drawn regulations. Uniquely to Jersey, a guardian must be appointed for all foundations. The guardian is accountable for, and polices the actions of, the council, and for ensuring it carries out its functions. The guardian may be compared to a protector of a trust and adds an element of accountability and regulatory compliance, in line with Jersey’s well-regulated regime.
The guardian cannot be a member of the council unless it is the founder or qualified member, but interestingly one person may hold all three roles, so the founder can exercise a high level of control, ensuring accountability while maintaining flexibility. The guardian has the power to limit beneficiaries’ rights to information and sanction actions that are not permitted by charter or regulations and can require the council to account for its actions. The appointment of a client as Guardian is another option to afford them comfort.
There is no requirement for a foundation to have beneficiaries at inception or if the foundation exists for a particular purpose. Beneficiaries are not owed any fiduciary or other duty by the foundation or its appointees. They have no interest in the assets of the foundation and have no right to information unless the charter or regulations stipulate otherwise. If they are entitled to benefit, they can apply to Jersey’s Royal Court to order benefit to be provided, although this is time-constrained. Jersey foundations can be drawn to match the beneficiaries’ share with that of any particular law of their home country; conversely the law is written so that a Foundation can defeat forced heirship rules and rulings of foreign courts.
Jersey foundations are an attractive alternative to trusts and companies, particularly to those from civil law jurisdictions, as well as those wishing to retain control over the assets and maintain privacy on such matters as administration or assets, which need not be divulged to any party – not even the beneficiaries.
Foundations employ the most useful aspects of companies and trusts to create a very versatile hybrid structure that will augment Jersey’s attractiveness as a high quality international finance centre. All in all the foundation is a flexible vehicle that can offer clients the degree of control they often seek, while not being viewed as a sham in the Jersey Courts. The very fact that they are incorporated should prove the founder’s intention to create the foundation, thereby (and only litigation will bear this out) defeating a legal sham in a foreign court. Once the law has passed Privy Council sanction both Voisin and Volaw look forward to being able to offer another solution to meet the needs of our clients and their advisers.
