Building wealth on firm foundations

Guernsey is on the brink of introducing its Foundation Law. Hannah Beecham reports on what a Foundation is and why Guernsey believes its new legislation will earn this latest product a place in the premier division

Offshore finance centres thrive on their  ability to deliver niche products to their markets.

And today’s global client-base means jurisdictions like the Channel Islands must ensure their windows display a complete oeuvre appealing to all client persuasions and traditions.

Which is exactly the purpose of Guernsey’s latest product development - foundations.

A foundation fits within the fiduciary range of tools, improving upon the trust model as it slots more readily into civil law jurisdictions’ understanding of such devices.

Guernsey Finance CEO Peter Niven explains that the new legislation has been a long time in preparation.

“It’s not been easy putting a foundations’ law together in a non-civil jurisdiction, so it’s had its stresses and strains.”

Watching Jersey rush ahead and enact its own foundations’ legislation back in 2009 no doubt added to the pressure.

But Guernsey’s legislators wisely refused to be hurried, preferring instead to learn from Jersey’s model and use it to make its own even better.

“There’s a saying often quoted on the conference circuit, that Guernsey does it later, but does it better,” jokes Keith Corbin, Executive Group Chairman, Nerine Trust. But the point is echoed more seriously by a number of practitioners on Guernsey.

Gavin Ferguson, Managing Partner of law firm Appleby, confirms that fiduciary sector practitioners have quickly identified two factors that make the Guernsey legislation more attractive than its rivals. 

“Guernsey’s law allows the founder (of the foundation) to decide what rights beneficiaries should have, whereas the Jersey law provides that the beneficiaries should have no rights, unless otherwise provided for. And the second advantage is that the Jersey law would appear to negate any fiduciary duty within the structure, which the Guernsey law does not.”

Ferguson explains the consequential detail of the second point.  The role of the trustee (for trusts) or council member (for foundations) entails a duty to act in the best interests of the beneficiaries - that is your fiduciary duty.

If you fail in that duty then you are potentially liable. But if you don’t have fiduciary duty, asks Ferguson, why are you charging a responsibility fee? All of the fees that offshore companies in offshore jurisdictions charge are for time spent but also imply for an element of responsibility.

“|f you’ve got millions of pounds under your control, then it’s only fair to assume that you are going to be acting properly and in the best interests of the beneficiaries of the foundation or the trust, That’s why it’s essential that there should be some sort of fiduciary duty in the structure.”

Another major factor that takes Guernsey’s foundation law into the top league is the purely practical advantage that this law has been drafted with civil advisers in mind. It’s been  crafted in a style and using language familiar to civil lawyers.

Furthermore, it will be conceptually recognisable; for example, a foundation will have, as a pre-requisite the establishment of an initial endowment -  you need to put some sort of property (assets) in to get it off the ground. And, that’s not the case under existing Jersey law.