What is a Foundation?
Foundations to be established under the Foundations
(Jersey) Law 2009 (the “Law”) are vehicles for holding
assets. They will be incorporated and therefore have
separate legal personality. Foundations must be
established with one or more objects. With the sole
caveat that the objects must be lawful, they can be
charitable, non-charitable or a mixture of both.
Permissible objects might include, for example, benefiting
a particular person or class of persons or carrying out a
specific purpose or holding a particular asset.
A Foundation’s powers will be exercised by its Council,
which is similar to a company’s board of directors. The
Law will require however that at least one Council
Member is registered under the Financial Services
(Jersey) Law 1998 (the “FSL”) to carry on foundation
services business of this type (the “Qualified Member”).
A further requirement of the Law is that every Foundation
has a Guardian. The main job of the Guardian will be to
ensure that the Council carries out its functions in order to
achieve the objects. It will be possible for a Founder or
the Qualified Member to be both a Council Member and
the Guardian.
If there are beneficiaries of a Foundation, those
beneficiaries are not owed duties either by the Council or
the Foundation itself. It will also be possible to prevent
beneficiaries from having any information in relation to a
Foundation. The protection for beneficiaries provided by
the Law comes through the requirement for a Qualified
Member and the role of the Guardian.
Potential Uses
1. Discrete structures for high net worth clients
Currently where a family establishes a private trust
company (“PTC”) to act as trustee to a number of trusts,
the shares of the PTC will typically be owned by a noncharitable
purpose trust or by a company limited by
guarantee. In future it will be possible for a Foundation to
be the owner of the PTC shares or even be the trustee
itself. Clients from regions more familiar with
Foundations may prefer this.
Foundations could also be used to own shares of any
corporate protector or enforcer.
The attraction of the PTC is that family members or family
advisers are able to be directors of the PTC. Equally
those individuals will be able to be Council Members of a
Foundation.
2. The holding of assets which are “wasting” or
subject to volatility in value
In traditional trust structures, careful drafting of the trust
instrument is often necessary where the purpose of the
trust is to hold a single asset such as a business, artwork,
an aeroplane or a boat. Given the trustee’s duty to
diversify, act prudently, and in the best (financial)
interests of the beneficiaries trustees are often nervous
about holding such assets. Foundations may become the
preferred vehicle for such assets. It is possible under the
Law to establish a Foundation specifically to hold such an
asset and the Council (with its Qualified Member) will not
be subject to the same duties as trustees referred to
above. The Council’s duty (and indeed ultimately the
Guardian’s) is to ensure the object of the Foundation
(namely the holding of the asset) is achieved.
3. A Foundation for Discretionary Distributions
Clients may want to incorporate the type of appointment
and advancement provisions which are typically found in
discretionary trusts into a Foundation. Accordingly, the
Regulations would be drafted on the basis that the
Foundation’s assets were to be held for the benefit of a
class of beneficiaries, with the Council (or the Guardian or
some other third party such as the Founder) having the
power to select from within the class (or indeed to add to
or exclude from the class) who and when benefits might
be provided.
4. A Foundation for Charitable and Non-Charitable
Purposes
In certain jurisdictions, it is common for high net worth
clients to use Foundations for their charitable and
benevolent giving. Foundations under Jersey law can be
created for both charitable and non-charitable purposes
and the flexibility the Law allows in respect of the drafting
of the Charter and Regulations, makes Jersey
Foundations attractive for this purpose.
5. Reservation of Powers
Frequently trust deeds will be drafted with an express
reservation of powers in the hands of the settlor of the
Trust (or a third party of his choice), the most common
power to be reserved being that of investment. In much
the same way it will be possible for powers to be reserved
to a Founder of a Foundation. Alternatively, powers can
be reserved to the Guardian or indeed any other person
depending on the Founder’s preference.
The attraction to using a Foundation as opposed to a trust
where the power to direct investments is to be reserved is
that the Council has no overriding duty to monitor the
performance of the investment.
6. An Executive or Supervisory Role for the Guardian
As stated, each Foundation must have a Council
containing a Qualified Member and a Guardian. The
Guardian’s role is to ensure that the Council is carrying
out the objects of the Foundation. However, it would be
possible to limit the powers of the Council and to reserve
to the Guardian the most significant powers. In this way,
the Guardian would have an executive role. An attraction
for potential clients is that the Founder (or his appointee)
could be the Guardian. Alternatively, we have seen other
Foundation structures, in which the family, through a
corporate Guardian, would have a supervisory role only,
whereby they can oversee the actions of the Council; this
could be achieved by requiring the Council to obtain the
Guardian’s consent before exercising a particular power.
7. Holding “orphan” assets
Traditionally charitable trusts have been used to hold
SPV companies in a variety of financing structures and
there may be a wide variety of reasons why a company
may need to be established but it needs to be owned
separately from the rest of a structure. A Foundation is
an “ownerless” incorporated vehicle which is ideally
suited to this type of planning.