Guernsey foundations – a local solution providing global appeal
17 June 2015
Tom Amy, Managing Director of Elian in Guernsey looks at one of the island’s more recent innovations, the Guernsey Foundations Law, and explores its global appeal in areas of asset protection, estate and succession management, philanthropy and wealth planning.
Clayton Christensen, a Professor at the Harvard Business School and regarded as one of the world’s top experts on innovation and growth, quoted: “An innovation will get traction only if it helps people get something that they’re already doing in their lives done better.”
With over 50 years’ experience in providing private wealth and family office solutions; Guernsey has an enviable reputation as a leading international fiduciary centre.
Guernsey has embraced change and has developed a successful track record of realigning existing products and launching new solutions which reflect customer needs, provide a competitive differentiation, and which continue to stand up to international scrutiny.
One of the Island’s more recent innovations was the introduction of foundations, which it made a splash with in 2012. Following an immediate flurry of registrations, the ripples have now travelled throughout the global private wealth industry. The Island is now witnessing the fruits of its efforts as clients and advisers consider the most suitable mechanisms for asset protection, estate and succession management, philanthropy and wealth planning.
Foundations can broadly be described as looking like a company but working like a trust. Unlike a company, it does not have shareholders to whom the board are accountable. Instead, the foundation holds assets (in its own name) on behalf of beneficiaries, particular purposes, or both, in accordance with the foundation’s constitution.
Therefore, although it looks similar to a company, its operation is more akin to that of a trust. The foundation has appeal not only to existing clients who have traditionally used a trust, but also to potential clients who previously would have felt uncomfortable due to a trust’s common-law roots.
Its attraction is driven by the following distinguishing features:
- The foundation has separate legal personality but is not described as a “body corporate”.
- The foundation is registered with the Guernsey Registry, however unlike other jurisdictions where the full charter of a foundation may be accessed, only limited information comprising a foundation’s name, registered address, registration date and names of officials are publically available.
- The Foundations (Guernsey) Law, 2012 (the Law) provides for the classification of beneficiaries as either being ‘enfranchised’ or ‘disenfranchised’, whereby enfranchised beneficiaries have rights to certain information regarding the foundation, and disenfranchised beneficiaries are not entitled to any information at all. Further, the Law specifically envisages the promotion and demotion of beneficiaries between these classes.
- The Law does not require a Guernsey fiduciary licence holder, such as Elian, to be on the foundation’s council, thereby avoiding the influence of third party “controller” which can be desirable for holding vehicles to operating companies. In this instance, a Guernsey licence holder will instead be required to be appointed Registered Agent to the foundation.
- The foundation’s reserved powers are restricted to enabling the founder to amend, revoke, vary and terminate the foundation, and are only available during the founder’s lifetime or, where the founder is an entity, for 50 years. Other jurisdictions’ reserved powers offer much greater flexibility.
- The Law only requires a Guardian where there is a purpose in respect of which there are no beneficiaries, or there are disenfranchised beneficiaries.
Elian in Guernsey has supported the registration of the two most recent foundations in Guernsey and is working on a third. Working closely with their advisers, these clients are sophisticated and have each chosen a Guernsey foundation based on the merits set out above.
Further, these clients were previously embedded with other jurisdictions and have recognised Guernsey’s innovation which will facilitate a “better way”, just as Clayton Christensen suggests. Whilst not necessarily suggesting that a wave of new registrations are about to follow, these new foundations emphasize the widespread application of Guernsey foundations, from asset protection and succession management, to philanthropy.
The indicators from the tax and legal profession on-island are positive and Elian certainly expects to see further foundation activity. As a Guernsey licensee, Elian is able to be appointed to a foundation’s council or, in certain cases, solely as registered agent. Elian can also provide complimentary administration and accounting services to a foundation.Back to News
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