So what are Foundations exactly? A Foundation is a legal person (like a company is) created by its founder, but without shareholders, administered by a council which is in turn supervised by a guardian. The council runs the Foundation with a view to implementing the wishes of the founder, which typically will relate to the holding of property or the distribution of property to persons or causes.
The parallels with a trust are obvious but there are some very significant differences. Because a Foundation is a person nobody can ever claim that it is a sham. Foundations will be registered at the Jersey Financial Services Commission and issued with a registration number. It will have a registered office.
Unlike a trust they are specifically not intended to be a fiduciary relationship i.e. one that imposes burdensome duties upon a person who is administering property with the interests of someone else in mind. Instead the basis of a Foundation is contractual, much as the articles of a company may be seen as a contract between its shareholders.
Here the contract is effectively between the founder and the council of the foundation and the guardian who supervises them. Unlike a trust instrument a Foundation’s charter has to be filed with the authorities. However there is a further document, known as the regulations, in which the details of the Foundation’s objectives will be set out. Consequently there is very little intrusion into the privacy of the arrangements made.
Another important point is that the beneficiaries, the people or causes for whom the assets are being held, have no right to receive any information about the foundation or its affairs.
A practical example will illustrate the implications of this. A rich family patriarch may not want his children or grandchildren to know how very prosperous their family is. He may have concerns about kidnapping or gold digging spouses, or it may be as simple as wanting them to remain motivated to study to the best of their abilities. As Warren Buffet is said to have put it “I would like my children to know they are rich enough to do anything, but not so rich they can do nothing”.
Article 29 of the Trusts Law limits a beneficiary’s right to information about the trust to its accounts, but this word has been widely interpreted to include documents or correspondence relating to the administration and execution of a trust together with a full inventory of trust assets and all information relating to dealings with any real property. This has given rise to quite a bit of case law and the trustees are advised to tread carefully. Compare this situation with that of a Foundation where it is provided at Article 26 that “… a foundation is not required to provide any person (whether or not a beneficiary) with any information about the foundation.”
Although there are exceptions to allow for proper supervision by the Regulator the fact that Article 26 is to be taken seriously is underlined by the fact that every foundation must have a guardian to supervise the council’s activities. This is logical. If the council could keep everything secret and was answerable to no one there could be no means to ensure that the purposes of the Foundation were carried out. The mandatory appointment of a guardian grapples with this. Of course it is not a new idea, many Jersey trusts have protectors and all non-charitable purpose trusts have enforcers whose role is similar to that of a guardian.
Liechtenstein has throughout required that a council member should be a qualified Liechtenstein practitioner. The Jersey law adopts the same approach, reasoning that the mandatory participation of a regulated Jersey financial services provider will provide an essential link between the affairs of the Foundation and the supervision of Jersey’s Financial Services Commission.
Vivat will help in addressing the many issues which arise when initially instructed to establish and administer a Foundation for a client.
One ambition is that the regulations are drafted in clear and jargon free English (although regulations can be in any language the founder wishes) easy for all involved to understand. It is however expected that some compromises may be necessary if the client’s domestic advisor recommends that the Foundation documents should make it look as much like a traditional settlement as possible.
Vivat will act as the qualified person who must submit the papers to set up a foundation and the qualified member who must sit on its council. Deciding with its clients who else would like to and should sit on the council and who should be the guardian will form part of the well informed and considered debate that is the hallmark of a properly considered and successfully administered foundation.