Jersey: Trusts and Foundations, vehicles fit for purpose?
The recent promulgation of the Foundations (Jersey) Law of 2009 provided a further choice to investors and clients looking to manage their financial affairs through the incorporation of an offshore structure.
At first glance it may be difficult to identify the advantages that a Foundation may present over a Trust and vice versa, beyond the obvious that has been stated in media briefings namely that a Trust feels more comfortable to the common law investor and a Foundation is better received in civil law jurisdictions. The reality is that both entities have been developed and transformed over time to be able to bridge the historical divide, and at present provide a very sophisticated choice to the discerning individual.
There are certainly many similarities between the two financial structures. Both are essentially tailor made vehicles for asset holding and estate planning purposes, as well as offering opportunities for family business continuity and charitable purposes. So does it simply gear down to a preference of brand as when buying a luxury car, or is there a spanner in the works regarding performance, consumption, carbon index and especially which is the preferred seat? 
Trusts in Jersey are regulated by the Trusts (Jersey) Law of 1984 (as amended) and in essence are non-legal sui generis entities that can hold assets through the appointed Trustees. Trusts are not registered in a Public Registry and the Trust Instrument is not a public document. A Trust is founded by the transfer of the initial trust assets by the Settlor to the appointed trustees and is managed by the trustees according to the powers and obligations conferred on them in the trust instrument. The trustees therefore take control of the assets of the Trust, and the settlor consequently loses full control over the assets and decision making regarding the assets. In practice the trustees will take note of the initial letter of wishes of the settlor, if applicable, and within their powers and the stated object of the Trust accommodate the ongoing wishes of the settlor.
A significant advantage is also that a Trust can choose the Law that applies to it, so it will not necessarily be subject to Jersey law beyond the administrative and regulatory requirements. It may, however, be difficult to amend the trust instrument or to remove beneficiaries and change the object of the Trust, and the trustees are always required to act reasonably and within the parameters of their duties and obligations including their fiduciary duties to the beneficiaries. The Trust can be held to be a “sham trust” if it is in practice seen as the alter ego of the settlor by being under his direct control, and will then forfeit all the advantages of being a separate entity, including tax and estate planning benefits.
The settlor is therefore no longer in the driver’s seat regarding the assets that he transferred to the Trust, but in a well regulated jurisdiction, the Trust is a well designed vehicle for estate and family wealth planning requiring minimal input from the Settlor if that is the preferred option.
Foundations are legal entities with a distinct separate legal persona, registered with a Public Registry, and are regulated by the Foundations (Jersey) Law of 2009 (as amended). Assets are owned by the Foundation after it is endowed to the Foundation by the Founder or any other person and can be transferred to the Foundation by all legal means, subject to applicable tax, legislative and practical considerations, similar to a Trust.
Some of the advantages offered by a Foundation are that by being a separate and registered legal entity, it offers the advantage of the existence of a corporate veil, the assets and liabilities vest in the Foundation itself and not in the Council that controls it or a member of management, and the Founder can also be a Council Member and Beneficiary as well as act as Guardian, which offer the Founder the ability to be in the proverbial driver’s seat instead of navigating, but also the option to be chauffeur driven if preferred.
Further aspects worth considering are that a Foundation can be set up without an initial endowment and that a beneficiary will have no legal interest in the assets and will not be owed any fiduciary duty by the Council. There is also no obligation to provide any person, including beneficiaries, with any information regarding the Foundation.
Foundations can be used in the following circumstances as estate planning and investment vehicles:
- To manage family wealth and to protect it from fragmentation and outside persons gaining control of decisions regarding the assets,
- To provide for specific beneficiaries such as minors or incapacitated persons,
- To further specific purposes such as charitable, philanthropic and scientific activities,
- To do business that aligns with the objects of the Foundation,
- To substitute a pre-nuptial agreement or a will in personal estate planning,
- To protect specific assets,
- To administer schemes for employee benefits,
- To merge more than one foundation or a company can be incorporated as a Foundation.
Trusts and Foundations do have several inherent similarities such as the transfer of assets from a personal estate, may be revocable, can be created either inter-vivos or mortis-causa, may be unlimited in duration, assets are protected from potential personal disasters, proper regulation and required oversight and confidentiality apply to both.
The more obvious differences are therefore that a Foundation is a registered separate legal entity and therefore publicly registered by name and a charter that provide limited public information has to be registered. The assets of a Foundation do not vest in the Council, but in the legal entity of the Foundation itself, similar to a company. The Founder can legally retain a large measure of control over the assets within the Foundation structure without the possible risk of the structure being declared as a “sham”.
Both a Trust and a Foundation is a purposely designed investment and estate planning vehicle, and now the investor will have the luxury of choosing the option which will suit his or her investment and planning requirements best.
The International Advisory Service can provide more information regarding International and Cross Border transactions and investments on request.
Rudi Bodenstein, Legal Consultant: FirstRand Private Wealth Management Limited.
