32 the Oath • DECEMBER 2013
Guernsey foundations –
An attractive alternative for asset protection
Fiona Le Poidevin, chief executive of Guernsey Finance, explores why the Island’s
new foundations legislation offers an attractive alternative for wealthy Middle Eastern
individuals to protect their assets.
G uernsey Finance, the promotional agency
for the Island’s finance industry, was
exhibiting at the Opal Middle Eastern
Family Office Symposium in Dubai during
November and a key trend to emerge was the extent to
which wealthy Middle Eastern clients are seeking out
ways to protect their assets.
Trusts vs. Foundations
Guernsey is a leading International Finance Centre
(IFC) which has significant experience in servicing
structures, such as companies, partnerships and
trusts, formed for the protection of assets. Indeed,
many of the Island’s 150 licensed fiduciaries already
have Middle Eastern clients who have established
structures, including trusts.
However, the trust is rooted in common law and
therefore, while it is a tool that is popular in the US,
UK, and India, some clients based in other parts of
the world aremore comfortable with constructs of
their native law.
For example, Middle Eastern clients are more
familiar with religious concepts such as the waqf,
which is a specific Islamic law vehicle for providing
charitable donations, and civil law structures, such as
the foundation, which does not split legal and beneficial
ownership like a trust. Indeed, compared to a trust,
a foundation is more like a company in that it is an
incorporated entity with a separate legal personality.
Having said that, a foundation differs from a
company in that it does not have shareholders to
whom the board are accountable but instead it holds
assets (in its own name) on behalf of the beneficiaries,
for particular purposes, or both. There are no trustees
but instead council members provide much the
same role of acting in good faith and cannot, without
express authorisation, profit from their position.
As such, although a foundation looks similar to a
company, its operation is more akin to that of a trust
but in fact, it is neither.
The Guernsey Foundation
The foundation’s constitution comprises: a charter
setting out the foundation’s purposes, initial assets
and duration, which may be unlimited; and rules
prescribing (among other things) the functions of the
council and procedures they must follow.
As with Guernsey law trusts, the level of involvement
that the founder or the beneficiaries may have in
running the foundation is flexible.
Nothing in the law prevents a founder becoming
a council member, guardian or (if suitably qualified)
an investment adviser. Also, in principle, it is
possible for the founder to appoint themselves as a
beneficiary. The founder may reserve a number of
As with trusts, however, there may be tax or asset
protection implications of reserving certain powers
so it may be preferable to provide for the consent of
the founder before the council can act in a certain
way, for example adding beneficiaries or making
payments to beneficiaries.
Beneficiaries have a number of rights, including to
full and accurate information about the foundation
property and they can also be council members.
However, it is possible for the constitution to
‘disenfranchise’ the beneficiaries, meaning that they
have no right to information at all.
In that case, or if there are no beneficiaries, then a
guardian must be appointed to supervise the council.
If there are enfranchised beneficiaries then there is no
requirement for a guardian but some local lawyers are
advising that it is prudent to appoint a protector to act
in good faith as an administrator of family wealth.
Where the settlor of a trust may retain control in
the family i.e. by setting up a Private Trust Company
(PTC) to act as a trustee, this is not necessary with
foundations as the council can consist of the same
people who would have formed the board of the
PTC. It is also possible to use the foundation as an
alternative to the PTC – the foundation’s purpose
can be to act as a trustee of underlying trusts.
However, if neither a council member nor a
guardian is a Guernsey-licensed fiduciary, one must be
appointed as a ‘resident agent’ with powers to request
foundation documents and supervise its running.
Foundations are suitable for asset protection as they
divorce ownership of assets from the founder. Like
trusts, their ability to protect assets in the face of
legal claims depends on a number of variables but
the Guernsey courts have a strong reputation for not
theoath-me.com • the Oath 33
Text by: Fiona Le Poidevin, chief
executive, Guernsey Finance
recognising the judgements of foreign courts unless
it is in the interest of the beneficiaries.
Some clients may worry that because foundations are
registered entities, they are, unlike trusts, publicly
visible. However, under Guernsey law, only limited
details are publicly available and while the whole
charter is filed with the registry, unlike some other
jurisdictions, it is not visible to all. Yet, this limited
visibility is also of great benefit when dealing with
third parties (such as banks) to be able to quickly
prove the entity’s existence.
The foundation provides a great alternative to the
discretionary trust for preserving family wealth
for future generations. One of the reasons that it
is particularly attractive to Middle Eastern clients
(beyond asset protection) is that it also allows
the patriarch to be prescriptive about succession
planning rather than being required by law to follow
forced heirship rules of their own country.
Guernsey has significant expertise in servicing
structures established for protecting and preserving
private family wealth and the Guernsey Foundation
provides another alternative which is expected to
be particularly attractive for clients from civil law
The Guernsey legislation not only provides some
aspects which differentiate the Guernsey Foundation
from others in the marketplace but there are also
provisions which allow for the easy migration of
foundations already established elsewhere.
Guernsey has the advantage of offering political and
economic stability – there is no external government
borrowing – and a highly respected judicial system
experienced in making judgements on fiduciary matters.
The Island is also renowned for being well regulated
and providing tax transparency while retaining client
confidentiality within a tax neutral environment.
Guernsey is English speaking, uses the British pound
Sterling and is in the same time zone and with close
proximity to the UK while also being on the doorstep
of continental Europe. Indeed, there are strong links
between Guernsey’s financial services industry and
Switzerland, including a number of the Guernseylicensed
fiduciaries, ranging from large organisations
to independent, boutique firms, who have offices in
Geneva. Middle Eastern clients with assets already in
Switzerland may wish to take advantage of these links
as a way to access a Guernsey Foundation.
Registrations of the Guernsey Foundations are
continuing to gather pace and we expect that it will
prove particularly popular among wealthy Middle
Eastern individuals and families.
PO Box 655, North Plantation, St
Peter Port, Guernsey, GY1 3PN
Phone: +44 (0) 1481 720071;
Fax: +44 (0) 1481 720091