More Than a Trust? Foundations in the Crown Dependencies
Wealth can be a reward, a privilege or the result of good fortune. But it can bring problems: there are plenty of ways to lose it and it can spoil lives and split families.
The prudent take care with their wealth, to:-
Protect it from outsiders
Invest it
Put it to work
Prevent it from bringing family problems
Direct its management and distribution, even after death
There are various international financial centres (“IFCs”) well-suited to provide the necessary services. Trusts are well established legal vehicles in IFCs, but they have European cousins that offer a powerful alternative: foundations. Jurisdictions that previously offered trusts alone are introducing foundations.
What is a Foundation?
The Isle of Man, Jersey and Guernsey (“the CD’s”) now have foundations laws. While the legislation differs to some extent between them the fundamentals remain the same: a founder dedicates property to a specified purpose (such as family or charitable purposes). The foundation is registered and becomes a legal entity. Its affairs are conducted by a council under its constitution.
What does a foundation offer?
The following advantages of a foundation are available through one or more of the CD’s. Most (but not all) are available in all of the CD’s:-
It is a registered legal entity
Registration gives confidence: the foundation’s very existence and identity is clear
Being a separate legal entity simplifies management
It can be for private or public purposes
The foundation can be used to hold and manage wealth for the purposes of the founder and his family, for commercial purposes or for charitable purposes
Private foundations can be supervised through the court, giving comfort to the founder and any beneficiaries
The founder can exercise control through reserved powers over the foundation
The founder can reserve powers or confer them on favoured, trusted people
The founder can, for example, control investment, distributions, sale of foundation assets and the make-up of the council that administers the foundation
The founder and his advisers can have a role
They can be appointed to the foundation council (and can even comprise the entire council)
If not council members, they can still be given powers
It can last indefinitely
Trusts have only a limited lifespan in some jurisdictions, so the foundation offers more chances to plan for dynastic planning
“Firewall” legislation insulates it from foreign law
To guard foundation assets from foreign law (including laws governing succession, divorce and creditors’ claims), only the relevant CD’s law applies to most issues concerning the foundation
Any challenge is confined to the legal framework for the foundation
It can be personally designed
There is no need for a “one-size-fits-all” solution
The constitution can be designed for the specific case, matching founder’s wishes
Asset protection: a barrier to creditors’ and matrimonial claims
Separating beneficiaries, council members and the founder from personal ownership of the foundation assets means that, provided the foundation has been set up and funded in good faith, creditors and divorcing spouses may be less able to reach them
Having the foundation run by professionals can enable property to withstand greater pressure than in family hands
It is tax-neutral in the CD’s
The CD’s offer a tax-neutral base from which wealth can be managed and controlled
You will still need to check tax treatment in your own jurisdiction and comply with all necessary laws
Confidentiality
The CD’s forbid the unlawful sharing of confidential information
Those holding confidential information are also regulated as to the purposes for which data can be held and shared
Management by dedicated professionals in a well-regulated environment
The huge range of service-providers in the CD’s, well-qualified and highly experienced, keen for work and prepared to offer a high level of personal service, is unsurpassed
The CD’s provide the highest levels of technical and personalised services
The courts in the CD’s apply strict legal principle, so law is predictably and reliably enforced
There is a regulatory authority in each of the CD’s that uses a legislative framework to oversee the financial services provided
Experienced lawyers, accountants and other advisers support the running of foundations and other legal structures
The professionals are familiar with coping with the compliance legislation
Which is the Best Model?
The key aspects of the existing (Jersey and Isle of Man) foundations are similar
The particular CD used may not matter
But there are subtle differences between foundations in the three jurisdictions so a comparison would be best to identify whether one CD might be better than another in the individual case
And don’t forget:-
You need good advice, at home as well as in the location of the foundation
The foundation property will no longer belong to the founder, and he will need to ensure that he reserves or confers adequate rights and levels of control as he will require in the constitution
Choose professionals with care – not only must they be properly regulated, technically able and cost-effective but the founder and they should be content with the relationship!
We can advise on the establishment of foundations in the Isle of Man and assist with obtaining advice in the Channel Islands.