Jersey has signed a new law on foundations, paving the way for these financial structures to become an important part of the wealth planning landscape.

From next month for the first time, intermediaries working in the UK will be able to establish a foundation through one of the British Crown Dependencies. It follows Privy Council approval in June for Jersey foundations, which paves the way for their introduction into law from 17 July 2009.

The arrival of foundations is an important development for Jersey’s Finance Industry, adding significantly to the range of structures available for wealth management and succession planning and is an attractive addition to the range of options.

Jersey-based practitioners are already reporting considerable interest and the first foundation structures should be established from mid-July.

Unlike a trust, a foundation is a distinct legal entity similar to a company, although it has no shareholders. The powers of the foundation will be exercised by a council, one of whose members must be registered under the Financial Services (Jersey) Law 1998 to conduct financial services business of this type.

The foundation’s charter will need to be lodged with the Registrar’s department of the Jersey Financial Services Commission, setting out the name and broad objectives of the foundation.  However, the regulations of a foundation form a private document that does not need to be lodged with the Jersey Financial Services Commission.

Under the Jersey legislation, it is proposed that the founder of the foundation would be able to hold both the post of guardian and council member, therefore permitting a greater level of control over the assets if required.

It has taken some time to reach the point where foundations have acquired such status. However, the time has been well spent, ensuring that the vehicle sits well with the modern needs of clients and complies with international regulations. The industry has consulted extensively learning from the experiences of other jurisdictions and has worked closely with the regulators and legislators in the formation of the rules which will govern their use in Jersey.

Foundations sit alongside existing vehicles such as companies, trusts and limited partnerships as one of a range of vehicles for wealth management structures.  Importantly, the Jersey version is not a carbon copy of similar foundation vehicles available in other locations, partly because it embraces additional regulatory oversight. This is an important consideration for those planning to transfer existing foundations from another jurisdiction to Jersey or those transferring assets from an existing foundation to a Jersey one.

Although it is similar in design to foundations in other jurisdiction, the Jersey structure introduces the concept of a "guardian" with oversight on the council’s activities in relation to the foundation and ensures that it achieves the broad objectives outlined in its constitutive documents.

The legislation also includes a requirement for the council of every Jersey Foundation to include "a qualified member" regulated by the Jersey Financial Services Commission. The result of this measure is that foundations cannot exist in limbo of the Jersey’s regulatory framework.

There will be a significant element of administration connected with any Jersey foundation carried out in the island, while the law also requires that critical records of the structure have to be held at the offices of the qualified member; this will of course include stringent legislation and laws which Jersey embraces wholeheartedly. 

There has been significant interest in Jersey foundations for some time now. We expect them to be a particularly attractive option for wealthy clients in civil law jurisdictions where the concept of a trust vehicle is not so familiar or for clients who are not comfortable with some aspects of the trust. An example of this would be clients who are not comfortable with the idea of giving away assets to the care of trustees who are not known to them.  The foundation would also be an effective financial planning vehicle for clients.

As well as featuring some of the attractions of a trust vehicle, foundations also have some of the benefits of a company structure including separate legal status, which will enhance their appeal to private clients and their advisors who may not previously have considered Jersey as a location to place assets. 

Foundations are a new type of legal entity for Jersey. They offer flexibility and provide more options to financial intermediaries advising high net worth clients and wealthy families world-wide. Their introduction brings further momentum overall to Jersey’s evolving range of financial services for intermediaries, where there remains an emphasis on offering greater choice to international investors within a stable, well-regulated, legal and transparent environment.