With its sights set on new business from clients based in European civil law jurisdictions and the emerging markets of China, Russia and Latin America where the concept of a ‘trust’ as a means of wealth protection is less familiar than in common law countries such as the UK; Guernsey’s Parliament has sent a Foundations Law to the U.K Privy Council for ratification.
Although the Privy Council used to be a powerful institution whose membership is still mostly made up of senior politicians who are or have been members of the House of Commons or the House of Lords, these days its policy decisions -including those related to the ratification of laws passed by parliaments in the British dependencies – are now exclusively in the hands of one of its committees – the Cabinet.
A trust is a device to provide an ‘equitable’ solution to a number of problems related to the limits of the English Common Law. Basically, a trust is a ‘legal obligation’ where a person (Settlor) places assets in the legal custody of another (Trustee) held for the benefit of some third party (Beneficiary). Since it is an ‘obligation’ between the Settlor and Trustees enforceable under law, the ‘trust’ is not a separate legal entity like a company.
On the other hand a ‘Foundation’ is an independent self-governing legal entity, set up and registered or recorded by an official body within the jurisdiction of where it is set up, in order to hold an endowment provided by the Founder for a particular purpose for the benefit of Beneficiaries and which usually excludes the ability to engage directly in commercial operations, and which exists without shares or other participation.
The Irony of It All.
That the Cameron-Clegg Cabinet will decide on whether to allow financial practitioners in Guernsey – an Offshore Financial Centre – to provide foundations as another means of offshore wealth protection and asset management seems likely a foregone conclusion despite the ‘onshore’ hue and cry about the propriety of wealth taxes, fair taxation for all, Robin Hood type taxation measures, the immorality of tax avoidance and other modern-day rhetoric aimed at providing solace to those who believe that the welfare state must be shored up by the enforced benevolence of the rich.
Expected to be available from early next year, Guernsey’s Foundations Law is a particularly timely addition to the British dependency’s suite of financial products given that the UK Prime Minister at this year’s G-20 Summit in Los Cabos quipped to French President Hollande that the UK stood ready to welcome the new class of affluent French-tax exiles.