The author, from Carey Olsen, looks back at the 10th anniversary of Jersey Foundations and revisits their characteristics, and considers the future.

A decade ago Jersey introduced a foundations law designed to add to its wealth structuring toolkit and compete against rival offshore centres. In the following article, Nichola Aldridge, a senior associate for the law firm Carey Olsen, examines what has been achieved so far, how the foundations work and what the future holds.

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2019 marks the tenth anniversary of Jersey foundations, the Foundations (Jersey) Law 2009 (the "Foundations Law") which came into force in July 2009.
   
When the Island first introduced the Foundations Law, uptake of the entity, which is similar to both a company and a trust in some respects, was relatively slow. However, the new product soon began to gain traction in the private client world and, a decade on, Jersey currently has over 200 active foundations - more than double the number of active foundations in Guernsey and the Isle of Man combined.

What is a Jersey foundation?
A Jersey law foundation has been described as a 'hybrid of a trust and a company' or alternatively as an 'incorporated trust structure'. 

Like a company, a Jersey foundation is a body corporate (albeit one without shareholders) with a separate legal personality, therefore able to contract in its own name as well as sue and be sued. A Jersey foundation is governed by a council, in accordance with its charter and regulations, in much the same way that a company is managed by its board of directors in accordance with its memorandum and articles.  The charter and regulations are similar to a company's memorandum and articles of association save that only the charter of a foundation has to be filed with the regulatory authority (and thereby enters the public domain); the regulations (which contain the substantive terms and purposes of the foundation) may remain private. In contrast to a company, a foundation does not have any shareholders or members. Consequently, a Jersey foundation does not have any 'owners' and so is regarded as an orphan entity. 

Like a trust, a Jersey foundation must have one or more objects which may be for a purpose (charitable and/or non-charitable) and/or be for the benefit of any one or more beneficiaries. However, unlike beneficiaries of a trust, beneficiaries of a Jersey foundation have no interest in the foundation's assets nor are they owed any fiduciary duties by the foundation (unless the regulations provide otherwise). 

How do Jersey foundations differ to foundations in other jurisdictions?
Foundations are not a new concept, having existed in civil law jurisdictions for centuries where they were developed for charitable and religious purposes in jurisdictions which do not recognise the concept of equity and trusts. The Principality of Liechtenstein introduced the concept of a private foundation in 1926, followed by Panama in 1995. Around a decade later saw the introduction of foundations in the common and mixed law jurisdictions of St Kitts and Nevis, the Bahamas, Anguilla, Antigua and Malta. 

Since Jersey introduced its foundations legislation in 2009, Guernsey, the Isle of Man, the Cayman Islands, Gibraltar, Dubai International Finance Centre and Abu Dhabi Global Market have followed suit. The wide choice of jurisdictions available to clients seeking to establish a foundation means that jurisdictions need to present legislation which suits the needs of potential clients, whilst also being compliant with global regulatory standards. This is where Jersey excels: the Foundations Law is very flexible in its scope and application and, as a jurisdiction, Jersey offers economic and political stability, a robust regulatory regime and a leading finance industry. 

As a jurisdiction, Jersey wanted to introduce a new type of wealth management vehicle that would be attractive to clients from jurisdictions where the concept of a trust may be unfamiliar; incorporating the best features of foundations from different jurisdictions, as well as including unique Jersey features to ensure that Jersey foundations are professionally run and well regulated, whilst maintaining flexibility for founders. As a result, a Jersey foundation is different in many respects to a foundation established in other jurisdictions. 

Taking Guernsey as a comparison: 
-    Founders in Jersey have such rights in relation to the foundation and its assets as are provided for in the foundation's charter and regulations (which can be drafted as widely or as narrowly as the founder wishes), with the ability for such rights to be assigned to another person. In contrast, Guernsey is more restricted, with certain powers only being capable of being reserved by the founder, either during their lifetime (if the founder is a natural person) or for up to 50 years after the establishment of the foundation (if the founder is a legal person).

-    In Jersey, founders are expressly permitted to be the guardian, even if they are also a council member. In Guernsey, the founder may be a council member or the guardian, but not both;

-    A Jersey foundation owes no fiduciary duties towards its beneficiaries, whereas in Guernsey any guardian appointed owes certain duties to the beneficiaries; and 

-    Guernsey distinguishes between enfranchised and disenfranchised beneficiaries, the former having rights to certain information in relation to the foundation and the latter having no right. The default position in Jersey is that no beneficiaries have any right to information relating to the foundation, unless expressly provided for in the charter and regulations. 

The key feature of the Jersey foundation is its inherent flexibility combined with a format that is readily understood and recognised by clients and advisors from both common and civil law jurisdictions. 

What are Jersey foundations used for?
Jersey foundations are ideally suited for private wealth management, succession planning and philanthropic purposes. In all cases, the following are important and useful features of a Jersey foundation:

-    the ability to create a tailor made structure which caters for individual and specific needs and objectives;
-    the ability to amend the objects of the foundation over time as family dynamics and priorities change;
-    the ability for the founder and/or family members to be involved as much or as little as they wish in the running of the foundation (whether through the reservation of powers and/or by being a council member and/or guardian);
-    the ability for a Jersey foundation to exist indefinitely;
-    unless the regulations provide otherwise, beneficiaries of a Jersey foundation have no interest in the foundation's assets, are not owed any fiduciary duties by the foundation and are not entitled to any information about the foundation;
-    the ability to make a family's venture as public or private as they wish (details of the founder, council members, guardian and specific objects do not need to be a matter of public record unless the family so chooses), including the option of charity registration; 
-    a Jersey foundation can only be incorporated by a 'qualified person' (being an individual or body corporate who is licensed to conduct 'trust company business' in Jersey) and the council of the foundation must always have a 'qualified member' (being a qualified person), which helps to ensure the necessary regulatory oversight required to meet global standards;
-    the ability to establish a Jersey foundation without an initial transfer of property; and
-    the unique 'ownerless' nature of a foundation. 

The “ownerless” nature of a Jersey foundation
As previously mentioned, a Jersey foundation has no members or shareholders and (if it has beneficiaries) the beneficiaries have no interest in its assets. For this reason, Jersey foundations are often referred to as being “ownerless”. Given their unique ownerless nature, we are more frequently seeing Jersey foundations being used in bespoke structures. 

For example, a Jersey foundation can be established specifically to act as trustee, protector or enforcer of one or more family trusts. Family members can sit on the council and so be involved in the management and oversight of the underlying trusts. Alternatively, the foundation could own shares in an underlying company incorporated to perform any such role.

We have also seen foundations being used in complex structures holding crypto-assets, family businesses and an entire group of trading companies (including being party to financing/security documents).  

The future of Jersey foundations
Ten years on, Jersey foundations are an invaluable tool routinely used by individuals looking for a flexible and robust wealth planning vehicle. In particular, in jurisdictions where more conventional structures, such as trusts, are not recognised or else are misunderstood, the same may not be true of foundations and they can often be a more attractive option for some clients: a foundation is registered and its existence is a matter of public record, the assets vest in the foundation itself rather than those administering it; it is a separate legal entity from the founder and administrators and the beneficiaries have no property rights in its assets. Furthermore, given their unique “ownerless” nature, Jersey foundations are increasingly being used in bespoke structures in a variety of different ways. 

Jersey foundations have seen a slow but steady increase in numbers over the last decade. The appeal is clear to see: their flexibility coupled with Jersey's position as a leading jurisdiction for wealth management have seen a new market emerge in Jersey's already thriving financial sector. The future is looking bright for this ultra-flexible vehicle and we expect foundations to be a growing part of our private client business for many years to come.