Introduction
Structuring sophistication
Succession
Family offices
Impact investing
Regulation, oversight and transparency
This article sets out a few of the reasons why Guernsey is at the forefront of impact and philanthropic structuring for high-net-worth and ultra-high-net-worth clients.
The positive impact of private wealth is nothing new – for centuries international families have used their wealth to positively benefit social, economic and environmental causes, as well as philanthropic and charitable movements.
However, there have been numerous changes over recent decades, including:
- the need for sophisticated professional advice surrounding the structuring of such ventures;
- the desire to correlate new wealth generation with positive impact, as reflected in the growth of impact investing (and the key performance indicators used for its assessment); and
- the expectation of corporate sustainability, both at a business and governmental level.
Philanthropic endeavours among private clients in Guernsey have been around for some time(1) and they are increasing as a result of the transfer of wealth to the next generation, which has been seen to potentially have a greater desire for better social and environmental credentials.(2)
The covid-19 pandemic has led many to consider their own mortality and legacy,(3) in particular, their family's needs weighed against those of society. Some may question the point of having wealth in a world in which they do not want to spend it. One example of this is the Giving Pledge, which was founded in 2010, with more than 200 of the world's wealthiest individuals committing to:
- donating the majority of their wealth to philanthropic and charitable causes; and
- participating in a community which seeks to positively impact the world in a variety of ways.
How wealthy families can most sensibly make a difference is now a common area of practice for private wealth advisers and wealth managers. The structuring toolbox available in Guernsey and the ability to obtain high-calibre professional assistance make Guernsey a popular jurisdiction for establishing and managing private wealth structures with a focus on "doing good".
Guernsey has a long history of philanthropic structuring, long before the first specific statutes were introduced. For example, laws from at least the early 20th century demonstrate the use of trusts in Guernsey for the benefit of children, healthcare and education.
Guernsey has since built up its legal framework for philanthropic endeavours through the introduction of flexible but robust structures designed to benefit others or for specific purposes such as trusts and foundations. Trusts have historically been the most popular structure choice; however, foundations have recently gained more popularity.
Unlike some other jurisdictions, Guernsey law permits the use of trusts for the benefit of purposes, both charitable and non-charitable.(4) The latter can be important where the purpose is considered to be philanthropic but not strictly charitable under Guernsey law. As such, settlors have the comfort of knowing that their desired intention can be fulfilled whether or not the law in Guernsey, or any other jurisdiction, would agree that it is strictly charitable.
Foundations were introduced as an additional string to Guernsey's bow and they have proven popular as a structure for charitable and philanthropic purposes (with more than 200 having been registered, many of which are for charitable purposes). This is not surprising given how foundations are often used in civil law jurisdictions, and Guernsey's legislation has been credited as preserving the fundamental civil law concepts of a foundation within a common law framework.(5)
Aside from the more traditional private wealth structures of trusts and foundations, there has been an observed increase in the popularity of using funds for philanthropic purposes – for example, with the use of private investment funds. Guernsey is a popular choice of jurisdiction to establish these funds as it is considered a world-leading jurisdiction for green and sustainable finance.(6) Recently, a third private investment fund route was introduced that helps families to take advantage of Guernsey's funds regime (for further details please see "Quick guide to new Private Investment Fund Rules"). Despite the pandemic, this trend has continued to grow in light of a marked change in mentality within the investment world, led by investors' drive to put their wealth to good use.(7)
Despite private clients undertaking valuable philanthropic work and making charitable donations during their lifetimes, considerable wealth may remain after a client's death which they wish to be applied for these purposes. Under Guernsey law, there are a number of structuring options which can continue or be created upon a person's death, from provisions in wills to the establishment or continuation of trusts and foundations which focus on:
- philanthropic objectives;
- charitable objectives;
- environmental, social and governance (ESG) objectives; or
- impact objectives.
With a strong reputation and history for the provision of private wealth services, supported by a professional financial services industry and well-regarded judicial system, it is no surprise that Guernsey has become a popular jurisdiction for establishing family offices.(8) In addition, Guernsey is a politically stable jurisdiction with modern legislation and regulation, including as regards:
- data protection;
- beneficial ownership;
- substance; and
- tax information exchange.
Families with family offices, or those looking to establish such an office, are often multi-jurisdictional and multi-generational. As such, their needs, tax considerations and aims are diverse and complex. A family office can be well suited to dealing with the unique and ever-evolving position of the family.
There has been an observed growth in the use of family offices for wealthy families, including the next generation, wishing not only to protect and enhance their wealth, but also to ensure their wealth is managed as effectively as possible.(9)
A family office can be a desirable option for a number of purposes, including:
- establishing the family's own philanthropic arrangements;
- managing significant donations; or
- ESG investments.
A family office allows for a dedicated, experienced and professional team to manage the complexities of utilising wealth to make an impact in an increasingly complex, regulated and globalised business environment – whether they include specialist philanthropy advisers within the family office or seek out specialists in ESG or impact investing.
Interest in impact and ESG investing has grown over the past 15 years (if not longer) and as a result, there has been an observed increase in the need and demand for specific advice for trustees, settlors and families on the options available to them, as well as the management and monitoring of such investments.
Provisions regarding such investments can be built into constitutional documents or structure regulations, including in relation to permitted and prohibited investments (which, for example, can be tailored to the settlor's personal, religious or ethical views).
What is clear is that these types of structures are often highly bespoke, with significant underlying value, and it is important that legal advice is sought to ensure that the structure achieves what the settlor envisioned at the outset. Legal advice should also be sought in relation to the management of such structures and investments by fiduciary service providers, to ensure they can fully address their fiduciary duties.
Regulation, oversight and transparency
As the International Monetary Fund has identified, it cannot be overlooked that there are risks associated with the operation of charitable and non-profit structures as a result of the potential for their misuse or abuse for money laundering and terrorist financing purposes. It is for this reason that over the past decade, Guernsey's legislature and regulator have introduced requirements to ensure that Guernsey is at the forefront of anti-abuse methods to combat these potential risks; Her Majesty's Procureur is concerned with charities and any proceedings commenced regarding charities, charitable trusts or charitable gifts, similar to an attorney general in other jurisdictions.
Charities and non-profit organisations in Guernsey are required to register with the charities registrar only if they meet the requirements for registration in the Charities and Non-Profit Organisations (Registration) (Guernsey) Law 2008. The Policy and Resources Committee of the States of Guernsey has recently published guidance on the governance measures expected of charities and non-profit organisations. It is anticipated that this guidance is the precursor to updated legislation.
From an investment perspective, with the increase in impact and ESG investing, it remains to be seen whether there will be a global standard for impact investing or whether jurisdictions decide to release their own. Ultimately, it will be important to be able to quantitatively and qualitatively measure impact pursuant to a set of recognised standards.
For years, Guernsey has prided itself on being at the forefront of regulations and it is expected that it will continue to do so as the attitudes and mentalities of clients and their families change over time. This will help to ensure that philanthropic giving and impact investing in which Guernsey structures are involved are carried out to the highest of standards, with helpful modern guidance from within the industry.(10)
For further information on this topic please contact Catherine Moore at Ogier by telephone (+44 1481 721672) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.
Endnotes
(1) For more details, please see "The latest trends in philanthropy".
(2) The Guernsey Private Wealth Report 2020/21 by Gibson Strategy.
(3) 64% of those surveyed for the Guernsey Private Wealth Report 2020/21 agreed that their concern for the next generation is a factor in their increased interest in green and sustainable investment.
(4) For more details, please see "Non-Charitable Purpose Trusts in Guernsey".
(5) For more details, please see "Guernsey foundations and private trust foundations".
(6) Guernsey is a member of the United Nations' Financial Centres for Sustainability network and it has approximately £2.7 billion in net assets in value in Guernsey Green Funds according to the Guernsey Private Wealth Report 2020/21.
(7) For further details on this drive towards philanthropy, please see "The changing ESG landscape: keeping Guernsey ahead of the curve" and "Green finance in Guernsey: helping US investors realise their ESG potential".
- a single-family office;
- a multi-family office; or
- a family office service provider.
(9) For further details on establishing family offices in Guernsey, please see "Family matters: why the world's wealthiest are setting up family offices in Guernsey" and "Keeping it in the family? – An introduction to family offices".
(10) We are Guernsey has published a number of guides, including "Governance and Sustainability", a guide to private wealth structures for single and multiple family offices, and "Impact Investing and Sustainability".