28 August 2018
Jersey and private wealth
Jersey is a leading international finance centre that continues to be a jurisdiction of choice for private wealth structuring. This article explores why that is the case and what Jersey has to offer to families wishing to safeguard their wealth.
A few facts about Jersey and its private wealth industry
Jersey is an internationally recognised, well-regulated jurisdiction that has focused on providing financial services to an international client base for over 50 years. Over 13,000 professionals work in Jersey's financial services industry and there are almost 200 regulated trust company service providers in Jersey, so there is significant experience and expertise in the Island. It is estimated that assets totalling £1.3 trillion are held in or through Jersey, of which £400 billion is held in Jersey trusts.
Unlike other international finance centres, the finance industry in Jersey has been regulated for nearly 20 years, since 2001, so it has a mature regulatory system that is able to support and help maintain the finance industry.
Jersey has been recognised internationally as a jurisdiction with high regulatory standards. For example, in November 2017 Jersey became one of six countries in the world to be found to be entirely compliant with the standards set by the Organisation of Economic Development. Moneyval has also assessed Jersey as having the joint highest ranking for compliance with international standards. Jersey also has a (non-public) central register of beneficial ownership that meets international standards. Its regulatory regime means that Jersey is able to balance the importance to clients of preserving their confidentiality, whilst also complying with international standards. Further, and importantly, Jersey's regulatory system gives comfort to clients that any assets they place in Jersey will be safeguarded.
Regulation is key to the success of the Island's private wealth industry, as is the Island's political and economic system. Jersey is not part of the UK and has its own directly elected legislative assembly and accordingly Jersey is responsible for its own domestic (including fiscal) policy. Jersey has a stable political and economic system, whose government fully supports the Island's financial services industry and recognises that it is key to Jersey's economy. Part of Jersey's success as a finance centre is due to the active and constructive dialogue between finance industry bodies, the regulator and government, and government has committed to maintain and promote Jersey's strong reputation as an international finance centre.
Why do individuals choose to set up private wealth structures?
Private wealth structures, such as trusts or foundations, are set up by wealthy individuals for any number of reasons. Some examples are given below. These examples are given in the context of why someone might wish to establish a trust, but would equally apply to foundations.
Asset management and protection
Individuals capable of handling their own investments may be concerned about the ability of their heirs to do so after their death. A trust can be established reserving investment powers to the settlor during his lifetime. On the death of the settlor, either a person nominated by the settlor or the trustees may assume responsibility for the investment of the trust fund.
Settling assets onto trust can also serve important asset protection functions, so long as the trust is not established with the intention of defrauding creditors and the settlor does not reserve to himself unrestricted powers to revoke the trust or otherwise recover trust assets. Transferring assets to a trustee on the terms of a discretionary trust can serve to ensure that the assets are not available to creditors and that the assets are protected in the event of family breakdown among members of the beneficial class.
Avoidance of probate formalities
Assets owned by an individual usually pass on death in accordance with the terms of a will. If the assets are held in a wide variety of countries it may be necessary to obtain a grant of probate to the will in each country where assets are located. This can be onerous, expensive and time-consuming. In addition, there may be estate duties and taxes payable before the estate can be settled and the assets distributed to the heirs of the deceased. However, if such assets are held in a trust, they can continue to be held for the benefit of succeeding generations in accordance with the terms of the trust instrument. The death of the individual should have no detrimental consequences for the continued operation of the trust.
Privacy, confidentiality and anonymity
Trusts are generally created by a private document to which the settlor and the trustees are the only parties. The trust instrument does not have to be filed with any public body in Jersey and information relating to the trust is not accessible by the general public. There are however certain exceptions to this, in particular, beneficiaries of a trust may be entitled to financial information relating to the trust.
Assets held in a trust can be distributed in any manner that the settlor desires. An individual from a country with rigid legal or religious inheritance laws may wish to arrange for a distribution of assets on his death that is different to that required under the law of that person's country of domicile. By establishing a trust outside that country in Jersey, and depending on the location of the assets that will constitute the trust fund, the assets can often be distributed in the manner desired by the settlor.
Prevention of division of assets
An individual who has built up a sizeable private company may have some children who are interested in the running of the business and some who are not. The individual may wish to benefit the children equally but would not like any of them to be able to dispose of their interest in the family company to non-family members. Such arrangements can be achieved through the use of a trust. Family assets may also take the form of works of art or real estate which, by their nature, cannot be divided but from which a number of individuals benefit. Such property can be held in trust for the beneficiaries without disturbing the underlying property.
Control of spending
In some cases, individuals may be unfit to manage their own affairs due to age, infirmity or profligacy. A trust structure can allow trustees to help in the management and preservation of wealth by controlling the manner in which trust funds are spent.
Why choose Jersey?
Having given some examples of why an individual might wish to establish a private wealth structure, why would that person choose Jersey? In addition to Jersey's strong regulatory regime, Jersey's legal framework for private wealth structures is robust, modern and flexible. Jersey's trusts law has formed the model for trust legislation adopted in other jurisdictions and is the subject of regular review by industry experts to ensure that it remains robust and fit for purpose.
Similarly, Jersey's foundations law is flexible and offers many of the attractions of a trust arrangement, as well as a number of the benefits that come with a company structure, such as separate legal status.
A private wealth structure can range from a simple structure with a trust and one or more underlying companies, to a more complicated arrangement with a large number of trusts, foundations and underlying companies. These structures can be managed by one of Jersey's experienced trust company businesses. Alternatively, and increasingly, private trust companies (PTCs) are being used for the more complex and high value structures. A PTC is a corporate trustee established by a family to act as trustee of the trusts established for the benefit of that family. Under Jersey's regulatory regime, such PTCs are exempt from regulation as they are not providing services to the general public.
Jersey is also seeing an increasing number of family offices being established in the Island to hold and manage the wealth of a single family (a single family office) or a small number of different families (a multiple family office). The role of the family office might range from managing the family's wealth for the present and future generations, to assisting the family with more day to day life management tasks (often referred to 'concierge' services) to managing the family's philanthropic efforts. Jersey's regulatory regime and its experienced workforce with significant expertise make Jersey an attractive place in which to establish a family office.
What about philanthropy?
Wealthy families are increasingly looking to dedicate some of their wealth to philanthropic purposes. Jersey's private wealth industry allows families to do that. Both trusts and foundations are well suited to philanthropic giving; they are flexible and robust and can be tailored to each family's particular philanthropic goals and an increasing number of philanthropic structures are being established in the Island.
With a finance industry that has been in operation for over 50 years, Jersey has a reputation as a stable, secure and robust jurisdiction in which to establish a private wealth structure. It has a robust yet flexible legal system and financial service providers with significant experience and expertise, which enables private wealth structures ranging from the simple to the high value and complex to be established in the Island. Jersey's place as a leading international finance centre is demonstrated by the significant number of private wealth structures that have been and continue to be established in the Island.
An original version of this article was published by Executive Global, August 2018.
© Carey Olsen 2018.