Foundations at five

Five years after its introduction, the Jersey foundation has established its position as a popular addition to structuring opportunities in Jersey.

From the beginning, three broad categories of use for the Jersey foundation were clearly identified - for succession planning, as orphan structures for specified purposes, and for philanthropy - and these continue to develop, utilising the flexibility offered by the Foundations (Jersey) Law 2009.

As a new form of incorporated vehicle, rather than an exact equivalent of foundations established in other jurisdictions, the Jersey foundation appeals both to clients who are already familiar with foundations, and to those for whom particular features suit their specific structuring requirements.

Key features

The key features of the Jersey foundation include:

• Incorporated vehicle: a foundation is an incorporated vehicle which is brought into existence following the completion of a registration process.

• Legal personality: a foundation is a separate legal entity which holds assets and enters into contracts in its own name.

• Public record: a foundation’s existence can be determined as a matter of public record by conducting a search of the register of foundations.

• No ultra vires: the doctrine of ultra vires does not apply and a foundation can exercise all the functions of a body corporate, save only that it cannot directly (a) acquire, hold or dispose of immovable property in Jersey, or (b) engage in commercial trading that is not incidental to the attainment of its objects. However, both restrictions can be overcome by interposing an underlying company.

• Orphan vehicle: a foundation does not have shareholders or any other form of owner.

• Indefinite existence: foundations can exist for an indefinite period.

Structure

The principal components of a Jersey foundation’s structure are:

• Founder: this is the person upon whose instructions a foundation is incorporated. A founder need not endow assets upon the foundation; it can come into existence without assets.

• Constitutional documents: these are the charter (which is registered and open to public inspection) and regulations (which are private and not registered).

• Objects: the objects can be charitable or non-charitable, or both, and either to benefit people, or to carry out a specified purpose.

• Council: the council administers the foundation’s assets and carries out its objects. It can have one or more members, with one being a ‘qualified person’ (known as the qualified member) with an appropriate regulatory licence. Council members are required to act honestly and in good faith with the foundation’s best interests in mind, and to exercise the care, diligence and skill that reasonably prudent persons would exercise in comparable circumstances.

• Guardian: the guardian’s role is to take such steps as are reasonable in all the circumstances to ensure that
  
  the council carries out its functions. The founder and the qualified member may fulfil a dual role as both council member and guardian.

What are Jersey foundations used for?

In view of the law’s flexibility, Jersey foundations are used for a wide variety of reasons with three broad categories clearly identified:

1. Succession planning

Significant numbers of clients choose foundations for succession planning, influenced by an inherent preference for a foundation over a trust, and by particular features of the Jersey foundation which suit specific structuring requirements:

• Disclosure of information: save for the extent expressly required by the law or by its constitutional documents, a foundation is not required to provide beneficiaries, or others, with information about the foundation. In relation to express statutory requirements, the law provides for copies of the regulations to be supplied to those appointed under the regulations (council members, the guardian and anyone else appointed under the regulations to carry out a function in relation to the foundation). This feature of the law can be very important as it allows for a tailored and individual approach to be taken in relation to the topic of disclosure. For some, it may be desirable that there should be no disclosure, while for others, it may
  
  be considered that beneficiaries should be given information, but not until a pre-determined age or in pre-defined circumstances.

• Fiduciary duties: another important feature is that, where a foundation’s objectives are to benefit people (either exclusively or in conjunction with the carrying out of a purpose), the beneficiaries have no interest in the foundation’s assets and are not owed a duty (by the foundation, the council, the guardian or anyone else appointed under the regulations to carry out a function in relation to the foundation) that is, or is analogous to, a fiduciary duty. However, where a beneficiary becomes entitled to a benefit pursuant to the foundation’s constitutional documents, and that benefit is not provided, the beneficiary can apply to the courts in Jersey for an order that the foundation provides the benefit.

• Separate existence: for some clients, it is important that assets will be held in the name of the foundation and will continue to be held in that name throughout the foundation’s existence.

• Nature of assets: the nature of the assets to be held can influence the choice of structure. A foundation can be established with the express object of holding specified assets and this, coupled with the absence of fiduciary duties being owed to beneficiaries, can make it an attractive choice where, for example, wasting assets, such as boats or aeroplanes, or ‘family silver’ assets, such as shares in a family business, are concerned. The use of a foundation can be helpful to manage or avoid some of the tensions that can arise between different groups of family members, with some being keen for a particular asset to be retained, whilse others would prefer it to be sold in order to maximise investment returns.

• Family governance: while required to contain certain information, a foundation’s regulations can also incorporate additional material and can therefore be used to document family governance issues.

• Reservation of powers: a founder can be both a council member and a guardian, and can also have such rights, if any, in respect of the foundation and its assets as the constitutional documents provide. These features can be important for clients who wish to retain a significant degree of control in relation to the structure which is being created.

2. Orphan structures for specified purposes

Significant numbers of foundations have been incorporated as orphan structures for specified purposes, whether to own certain assets or to perform particular roles:

• PTCs: a key example is that of a foundation being used to hold the shares in a private trust company (PTC) which acts as trustee of one or more family trusts. This ownership structure can be an attractive alternative to the PTC being owned by the trustees of a charitable or non-charitable purpose trust.

A foundation can also act as a trustee itself, in place of, or as, the PTC. This option simplifies the structuring as it involves just one vehicle (the foundation) rather than two (the PTC and the vehicle which owns the PTC).

• Other examples: other examples to mention are of foundations holding the shares in a company which acts as a protector of a trust, an enforcer of a non-charitable purpose trust, or a council member of a foundation. Alternatively, a foundation can discharge any of these roles itself.

3. Philanthropy

One of the most important uses for Jersey foundations is in relation to philanthropy:

• Choice of objects: a foundation can be incorporated to pursue a client’s chosen causes (causes that he or she is passionate about), whether or not they are technically charitable. This flexibility is clearly attractive and significant numbers of foundations have been incorporated with philanthropic objects, either alone or in conjunction with objects for the benefit of people.

• Incorporated vehicle: a foundation holds assets and enters into contracts in its own name. The ability to refer to a foundation as such, and, for example, to use the foundation’s name when making distributions, can be important for clients when considering how their philanthropic giving will work in practice.

• Ongoing involvement: another attraction is that foundations allow opportunities for ongoing involvement. For example, the founder can choose to be a council member (and participate in a giving committee, distributing the foundation’s assets) or the guardian (with a monitoring role, to ensure that the council administers the foundation’s assets and carries out its objects).

• Open profile: for some clients, it is important that a foundation’s existence is a matter of public record and that its charter can be viewed by conducting a search of the register of foundations. With a structure established for philanthropic purposes, it can often be appropriate to maintain an open profile, and information can be included in the charter to satisfy a client’s particular objectives in this regard.

• Choice of name: another important factor is that there is considerable flexibility as to the choice of name for a foundation, provided that it ends with the word “foundation” or a foreign language equivalent. A family name, or other name of personal significance can therefore be chosen or, alternatively, a name which preserves the anonymity of the client.

The number of incorporations and variety of uses seen over the five years since its introduction suggests that the Jersey foundation has added significantly to the structuring opportunities available in the jurisdiction.

Clients familiar with foundations, and those wishing to take advantage of the features and flexibility offered by the law, are also attracted by the political, economic and geographic stability, and robust and highly regarded regulatory regime, which combine to make Jersey’s foundations law an attractive choice for private wealth management purposes.

Zillah Howard is a partner at ?Bedell Cristin?