17 May 2018

The year of the fiduciary anniversary

Carey Olsen partner Russell Clark shares his thoughts on what a year of legislative milestones say about Guernsey's fiduciary sector.

2018 is a year of notable legislative anniversaries for Guernsey's private wealth industry.

The first of these on 8 January marked five years since the introduction of the Foundations (Guernsey) Law, 2012, while 17 March signalled 10 years since the Trusts (Guernsey) Law, 2007 came into effect. Together, these anniversaries are a reminder of the jurisdiction's ability to innovate and to adapt to changing market conditions.

Foundations

The introduction of the Guernsey foundation provided clients with a solution to use alongside or instead of a traditional trust. It marked an important development for Guernsey, which has a long association with the trust, a common-law concept, but one that was arguably less well understood in civil law jurisdictions and some of the emerging markets.

It was always envisaged that Guernsey foundations could be established for philanthropy purposes and I'm pleased to report that a sizeable new stream of business is emerging here for local service providers.

At Carey Olsen we have helped to set up several substantial philanthropic foundations to hold shares in a client's multinational business for the benefit of a charitable cause. What is pleasing about these instructions is that they could have gone elsewhere, but they are choosing Guernsey. It shows an appreciation that Guernsey is experienced in administering high-value and complex structures.

As well as philanthropic establishments, foundations have been used as an alternative to trusts for some families and as holding vehicles for family offices. The Guernsey foundation law, which more closely follows the model of the civil law foundation, is quite different from that in Jersey and provides families with a choice. There are now a significant number of foundations in the island being used in both the private wealth and investment industries in a variety of novel ways.  

We were pleased to have established the first ‘Private Trust Foundation’ where, in an interesting combination of common law and civil law ideas, a foundation was created to itself act as trustee of a trust.

It is not the case that foundations are better than trusts, or vice versa, but now Guernsey has another useful tool in the toolbox.

Trusts

The introduction of new trust legislation 10 years ago created a more flexible framework for local industry. The law was ahead of its time and that continues to be the case today with many of its innovations still being adopted in other jurisdictions.

Some of the key changes were the introduction of purpose trusts, a removal of limits on the length of a trust's duration and clarification around both the position of retiring trustees and the rights of beneficiaries to information.

Clarifying the circumstances under which information has to be given to beneficiaries is a notable element of the Guernsey Trust Law. It is something that has becoming increasingly pertinent for many settlors who worry that if successive generations rely upon the family wealth, rather than making their own way in the world, then this may be an impediment to their development and character.

For industry, the introduction of reserved powers provisions has been particularly welcome. It was always the case that a properly crafted trust could grant or reserve certain powers but now the position has been usefully clarified. It is certainly an area where professional advice is essential.

The future

As I alluded to earlier, the introduction of foundations legislation locally has given us an extra tool to meet client needs. This is particularly true for clients from countries in the Middle East, which has emerged as a key market in recent years for fiduciary business coming into Guernsey for asset protection and estate planning reasons.

The island's stability and strong rule of law provide reassurance in uncertain times, while trusts and foundations established in Guernsey also enable settlors to pass assets to successive generations outside of the rigidity of the Sharia law that would otherwise apply to their estates.

It is understandable that those who have worked hard to build their wealth will wish to protect it. Properly advised structures, like those found in Guernsey with good corporate governance, are an essential tool in preserving family wealth.

Being a small jurisdiction gives Guernsey the ability to innovate and to do so quickly. Government and industry can work together to introduce laws which ensure that the excellent reputation of the jurisdiction is retained, while also providing a platform that allows industry to best meet the needs of a sophisticated and discerning client base.

 

An original version of this article was published in En Voyage (Issue 10), May 2018.

© Carey Olsen 2018.