The private trust foundation – an alternative to private trust companies
16 December 2015
Natasha Kapp, Partner at Carey Olsen, considers how the introduction of foundations in Guernsey offer a rather neat alternative to the typical private wealth structures used by HNWIs.
Private trust companies (PTCs) are well-known in private wealth planning and are particularly attractive to ultrahigh net worth families wanting to consolidate their various family interests in a bespoke private structure to take advantage of the many benefits, such as dedicated close involvement in management, in-house specialist knowledge and expertise, continuity, flexibility and potential costs efficiency which PTCs offer.
Usually a double structure of a company and a trust are used to establish the PTC arrangement. A typical PTC is a limited company established for the sole purpose of acting as trustee of a trust or group of related trusts. In order to avoid issues arising from ownership or control of the PTC, the shares in the PTC are usually ‘orphaned’. In Guernsey this can be achieved by the shares being held by the trustee of a non-charitable purpose trust. Charitable trusts and companies limited by guarantee are also sometimes used to hold the shares in a PTC.
The introduction of foundations in Guernsey offers a rather neat alternative to the typical structure. A Guernsey Foundation can be used to replace both the PTC and the purpose trust, removing an additional layer of administration and cost.
A foundation can be established for the sole purpose of acting as a trustee. As a legal person of full corporate capacity, a foundation could act and exercise all the powers and would be bound to the obligations of a trustee in the same manner as any trustee which is a company. Unlike a company, a foundation has no members or shareholders, and is therefore already an orphaned structure. Accordingly, there is no need to establish a trust or other holding vehicle to deal with issues arising from ownership and control.
The result is a simplified single structure consisting of a private trust foundation (PTF).
In contrast to directors of companies who owe fiduciary duties to the company, councilors owe a duty to the foundation to act in good faith in the exercise of their functions. As the foundation is established for a purpose guardian has a duty to the founder and the beneficiaries to act in good faith and ‘en bon pere de famille’ to enforce the constitution and the purpose. It is not mandatory to have a Guernsey licensed fiduciary on the council or as guardian.
As The Regulation of Fiduciaries, Administration Businesses and Company Directors, etc (Bailiwick of Guernsey) Law, 2000 (‘the Fiduciaries Law’) only applies to fiduciary services provided by way of business, like a PTC, a PTF does not need a fiduciary license in Guernsey if the PTF is not paid for its services as trustee. If it is paid, directly or indirectly, a PTF will be deemed to be carrying on business and fall within the ambit of the Fiduciaries Law. PTFs will generally need on-going funding, particularly in complicated structures, and rather than having to fund the PTF upfront, the PTF may wish to charge administrative or management fees to the structures under its control. In that case the PTF will either need to apply for a fiduciary license or alternatively an exemption under the Fiduciaries Law. The Guernsey Financial Services Commission (‘the Commission’) has a discretion whether or not to grant such an exemption.
The Commission evaluates each application on its own merits. Historically exemptions have generally been granted for PTCs on condition that the PTC does not offer its services to the public but that these are limited to a particular family or connected group of persons. The Commission would normally require that the board of the PTC includes at least one corporate director holding a full fiduciary license and that the licensee is responsible for the administration of the PTC. The same considerations should apply as for any application for an exemption for a PTC. The Commission considers applications on a case by case basis and has a discretion whether or not to grant a PTF an exemption from the requirement to hold a fiduciary license.
The establishment of a private trust foundation may be a useful alternative to the customary PTC. Benefits of the PTF would include the avoidance of the complexity and cost required by the ‘double’ company and trust required for the typical PTC structure and the simplicity of a single entity with real personality. A PTF should be able to obtain an exemption from the requirement to hold a fiduciary license under the Fiduciaries Law provided it does not provide services to the public but acts as trustee of trusts established for a family or closely defined group of beneficiaries and there is an appropriate level of involvement by a local fully licensed fiduciary.
An original version of this article was published in IFC Economic Report, December 2015.Back to News
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