Put Simply: Private Wealth

A trust is created when a person (settlor) gives assets to another person (trustee) to hold for the benefit of a third person or people (beneficiary/beneficiaries). The settlor can also be a beneficiary.

A trust is a legal way to hold and protect your assets for the future.

A document called the trust deed is the set of rules for the operation of the trust. It sets out who the beneficiaries are, who the trustees are and how the trust will be administered.

Trusts can hold assets, and the people responsible for them (trustees) can invest and borrow money and operate businesses on behalf of a trust.

After you set up your trust, you hand over legal ownership to a trustee.

The assets get valued at the time they are added to the trust. Once the assets are in the trust, any increase in their value belongs to the trust.

To avoid forced heirship rules

Some countries have forced heirship rules which means the law decides who inherits the trust’s assets. If a settlor from a country with forced heirship rules sets up a trust in Jersey, the settlor can decide who inherits the trust’s assets. They can also decide who should take over as settlor if they leave.

To protect assets

Jersey’s economy and political environment are stable. Because of our clear statutory framework and supporting case law, Jersey is seen as a safe place. It is also a place where assets may continue to grow, free of foreign law interference. This is attractive to non-Jersey settlors who live in countries which may not offer the same stability, security or investment opportunities.

Privacy and confidentiality

Under Jersey law, we do not have a register for trusts and there is no requirement to make it public when a trust is set up in Jersey. Because of this, a beneficiary may not be aware they are a beneficiary. If they are a minor, under 18 years of age, this is particularly helpful because it protects them and allows them to carve out their own path before receiving any money from the trust or come of age.

Tax benefits

If none of the beneficiaries of a Jersey trust live in Jersey, then the trust does not have to pay tax on its foreign income. It will only need to pay tax on any Jersey income (except interest received on a Jersey deposit bank account). So, the trust fund can grow without weighty tax obligations.

If a trustee does not live in Jersey, the trust fund may be subject to tax in that jurisdiction. So, it may be better to have a Jersey-based trustee, not only for tax purposes but also because they will be familiar with Jersey law. If a settlor does not have English as a first language, it could also be best to use a Jersey-based trustee because the language of the trust will be in English.

If a beneficiary does not live in Jersey and receives a distribution, they may be liable to tax in their own jurisdiction. If a beneficiary moves to Jersey however, the trust’s entire income may become subject to tax.

Protecting wealth for future generations

A divorcee set up a trust to protect the wealth generated from her family business in Jersey. The trust was to benefit her, her children, her grandchildren, great-grandchildren and so forth. The trust had a letter of wishes which set out the divorcee’s wishes for the trust during her lifetime and what should happen with it on her death. It also set out her wish that spouses (or spouses of her children, grandchildren and so on) could not be added as beneficiaries to the trust. It also recommended beneficiaries should discuss pre-nuptial agreements with the trustees before getting married.

Focussed support for a disabled son

A father wished to provide for his adult son who had learning disabilities. Due to this disability, the son was unable to work and generate sufficient income to allow him to live in a property of his own. His disabilities also meant he needed the assistance of a full time live-in carer for life.

The father wished to put funds in a trust for his son’s sole benefit during his son’s lifetime. If the son died, the trustees would be free to benefit any of the settlor’s nieces and nephews at their discretion. He set up a life interest trust, supplemented by a letter of wishes explaining his reasons for creating the trust. This ensured the trustees were fully aware of the purpose of the trust and would act in the best interests of the son during his lifetime.

The money made from the trust’s investments paid for the son’s general living expenses, medical costs, a property for him to live in with a carer and alterations to the property.

While the son can manage a weekly budget, he was vulnerable. His father did not want people to take advantage of his son, especially if they learnt of his family wealth. Having wealth in a trust and managed by trustees meant that when the father (the settlor) dies, his son would be looked after and all his needs met. This gave the father peace of mind.

Forward-thinking parents

A husband and wife put a substantial sum into a trust to provide for their children. While the children were under the age of 35, any income generated by the trust was to be used to pay for school fees and general living expenses. When the children turn 35 years old, they would be entitled to their share of the trust, along with any income that had not yet been added. The children would receive their share outright. The parents felt 35 was a suitable age for the children to receive their share; if the children received the money at a younger age then this may have discouraged them from making a living for themselves.

Foundations help people or corporate bodies manage their wealth by holding assets; foundations are asset-holding vehicles.

They combine some of the best features of a company with some of the best features of trusts.

Foundations hold assets for the benefit of:

• beneficiaries
• named people (such as individuals or corporate bodies)
• a non-charitable purpose,
• a charitable purpose; or
• a mixture of both charitable and non-charitable purposes.

Foundations work according to terms set out in their constitutional documents. There are two parts to this document: a public charter and a private set of regulations.

You can see the public charter on the registry section of the Jersey Financial Services Commission’s (JFSC) website. The private set of regulations is usually a longer list of details including who makes the decisions, who the beneficiaries are and who has the power to add and remove beneficiaries, among other things.

Foundations have a lot of positive features, including:

• It can hold assets in its own name and can sue and be sued in its own name, like a company it does not issue shares so it cannot be owned.
• It does not issue shares so it cannot be owned.
• It can last indefinitely or for a fixed period or can come to an end activated by a particular event, for example on the death of a founder.
• It can directly hold any asset, other than immoveable property in Jersey.
• It may not direct commercial trade, for example running a shop, unless it is incidental to its objectives (such as raising money for a charity).

Foundations are used:

• For private family benefit. Foundations can act as a private wealth holding vehicle with its own rules for making decisions on how it distributes money, invests money and manages property it holds. Commonly held assets in such foundations are private companies, property, bank accounts, art, private aircraft and yachts.
• To act as charitable bodies. They can collect donations and perform charitable work in any part of the world.
• For non-charitable purposes. A typical example is a foundation acting as the owner of the shares in a private trustee company. This means ownership and control belongs to the Foundation, not a person.

See why people set up Jersey Foundations

Private family benefit

An entrepreneur chose to set up a foundation in Jersey which is expected to have over US $500 million available for charities supporting education and the environment. The founder was attracted by the stability of Jersey’s Foundations Law and the ability for the wider family to have meaningful engagement in the process over the long term.

Protecting the rainforest

A foundation set up to protect the rainforest in South America bought tracts of the rainforest to prevent them from being deforested and commercially exploited. The founders of this foundation were motivated by a desire to help preserve an oxygen lung for the planet.

Multi-asset structuring across countries

An ultra high net worth individual in the United Arab Emirates has assets including real estate, private equity stakes and financial assets. His assets span many different jurisdictions. Keen to retain an element of control, he set up a private trust company owned by a Jersey foundation with his trusted advisers acting as council members of the foundation, as well as directors of the private trust company.

There isn’t one clear definition explaining what a family office is, because in the same way every family is different, every family office is different. Family offices vary depending on the needs and wishes of the families establishing them.

Generally, the term ‘family office’ is used to describe an organisation dedicated to holding and managing the wealth of a family.

A single family office would operate on behalf of just one family, and a multiple family office would look after the needs of a small number of different families. Usually a family office will be owned by, or on behalf of the family using its services.

Family offices can have different functions. From managing the family’s wealth for the present and future generations, to assisting the family with more day to day tasks such as travel arrangements and personal shopping. These tasks are often referred to as ‘concierge’ services. A family office can also be used to manage the family’s philanthropic activities.

Most family office structures have three or four key parts.

1. An overarching wealth holding structure holds the wealth. This structure can include trusts, foundations, companies or all three. For example, the family business might be held in one trust, real estate (houses, holiday homes, investment properties and so on) might be held in another trust, boats in another, aircrafts in another, and so on.
2. Operations. This part of the structure runs the family office.  Typically, employees will administer the structures that hold the family’s wealth.  Operations are usually run from one main jurisdiction.
3. Charity and philanthropy. A family office usually includes structures for charitable or philanthropic purposes. A dedicated in-house professional or advisory service would manage this part of the structure
4. Investment platform. Some family offices have an in-house investment capability, meaning the family office has its own private investment vehicle. This is often referred to as an investment platform.

Wealthy families could choose to engage a trust company business to manage a trust or a foundation on their behalf. But, if a family has many assets and they want to use these assets for different purposes or activities, then each activity would need to be managed separately – so it’s easier to use a family office structure instead.

If a family has vast amount of wealth and a mix of assets, it may be more efficient for them to have a family office structure dedicated to meeting the family’s needs. A family office pulls together lots of structures and functions under one roof. Family offices are expensive, so the family’s assets need to be substantial for it to be cost effective. Family office structures provide a family with many benefits.

• Flexibility: Family office structures can be tailored to a family’s particular needs and wishes.
• Privacy: Family offices provide a high degree of privacy. They are administered by a small number of employees who are likely to have been hand-picked by the family.
• Participation: Family offices can give family members the opportunity to be more involved in their structures than they might be if their wealth was managed in various separate structures. Family members can be directors of private trust companies, council members of foundations and can be employed by the operational companies.
• Ethos or beliefs: Families can instil a strong sense of their personal ethos into a family office.
• Control: A family retains a high degree of control in a family office scenario. They can easily select and make changes to the personnel who administer the family office structure. Because the family are their only clients, family office personnel are likely to be more aware of and responsive to family needs and make quick decisions.

Family office structure for high profile clients

A finance firm in Jersey created a substantial family office structure involving numerous Jersey trusts, a number of PTCs and overlying purpose trusts, property and asset holding vehicles and an operating company. The structure, for a high profile Middle Eastern family, was established to give oversight of the family’s overseas assets and for estate planning purposes. Holding real estate around the world and significant investment portfolios/private equity investment, the family office structure requires the finance firm to administer structures in multiple jurisdictions. It is currently valued at more than US$2 billion.

Family office for South African family

An ultra-high net worth family living in South Africa opted to establish a family office in Jersey a few years ago. They chose Jersey for its robust regulation, highly qualified workforce, reputation as the pre-eminent offshore centre and ease of access from the UK. The family business spans across more than a dozen African countries and it was important that the proceeds of that business were invested in a stable, low risk environment with a wealth manager who understood their environment.