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Foundations - The Trust Alternative

By Lowtax Editorial
12 October, 2017

Foundations have existed for many decades in civil law countries where the concept of an Anglo-Saxon trust is unfamiliar. But as competition for a larger slice of the global wealth management cake has intensified in recent years, several, mainly offshore, common law jurisdictions are now introducing foundations laws into their own legislative frameworks as they cater to the wealth management need of a new breed of wealthy individuals and families in emerging economies. As we see in this feature however, foundation regimes are also catching on in the Gulf region.

Foundations – What Are They, and How do They Work?

Globally, foundations come in all shapes and sizes and can be used for a wide variety of purposes. In the context of wealth management, the objective of a foundation is much the same as that of a trust. The manner in which a foundation is established and run, however, is quite distinct from a trust. Unlike a common law trust, a foundation is a legal entity more akin to a company and as such, it is usually entered onto the Companies registry in the jurisdiction concerned.

Foundations are formed by a founder who provides the initial assets of the foundation, otherwise known as the endowment. Unlike a trust, assets are held by a foundation for the purposes set out in its constitutive documents and are administered according to contractual rather than fiduciary principles.

Whereas trust assets are held by a trustee, a foundation has a council which acts much like a company board and which is responsible for fulfilling the purpose of the foundation, although there are no shareholders. Beneficiaries have contractual rights to enforce the operation of the foundation in accordance with its constitutive document, rather than proprietorial rights in its assets.

Common Law Foundations

Foundations have been in existence in Europe since the 1920s and notable jurisdictions with foundations laws include Austria, Liechtenstein, the Netherlands and Sweden. They are also to be found in Asia and Latin America, with Panama a notable foundation jurisdiction.

However, as mentioned above, foundation laws are no longer the exclusive domain of the civil law countries, and a number of common law jurisdictions have developed, or are in the process of developing, their own equivalents. Some examples are summarized below:

The Bahamas

Foundations were introduced by the Foundations Act 2004 and accompanying regulations. Under this law, there are no perpetuity period rules applicable to Bahamian foundations, which immediately provides for continual unending succession if it is desired by the founder. A Bahamian foundation is not subject to forced heirship laws of a foreign jurisdiction.

A Bahamian foundation is a distinct legal entity which is convenient for 'proper law' questions. Assets placed within the foundation are owned solely by it, and a change in a Bahamian foundation's governing body does not change the legal ownership of the foundation's assets. There is no statutory requirement for an external audit unless the foundation's charter so provides.

A foundation established in another country may re-domicile in the Bahamas; and a Bahamian foundation may re-domicile into another country, provided such a move is permitted in that country.

The registration process for a Bahamian foundation is comparable to that of a company registration, making it a legal entity that must be filed with the Registrar General of the Bahamas. Like that of a company, the name of the Bahamian foundation must be reserved at the Registrar General's office prior to submission of the necessary documentation. The registrar will confirm that the foundation name is valid for use and that the name has been reserved for a period of 90 days.

Officers of the foundation must keep proper records and accounts, which can be inspected by any officer, foundation council member, founder, auditor or any other supervisory person at any time. However, confidentiality provisions restrict any person acquiring information from disclosing such information relating to the foundation, without the expressed consent from the founder and the beneficiaries, or as required by law, or a Bahamian court.


In June 2009, Jersey's Privy Council approved an order allowing Foundations to be set up in Jersey - the first of the Crown Dependencies (Guernsey, Jersey and the Isle of Man) to bring in a genuine foundation product. The Foundations (Jersey) Law 2009, entered into force on July 17, 2009 and the regulations permit foundations to migrate in and out of Jersey. They also provide for existing Jersey companies to convert to foundations.

A foundation must have regulations. These regulations must:

  • Establish a council to administer the foundation's assets and to carry out its objects;
  • Provide for the appointment, retirement, removal and remuneration (if any) of its members;
  • Set out how the decisions of the council are to be made and, if any decision requires the approval of any other person, specify the decisions and that person; and
  • Set out the functions of the council, and, if they must or may be delegated or exercised in conjunction with any other person, the extent to which this must or may be done.

In particular, the regulations of a foundation must set out a procedure that ensures that a qualified person is appointed to be the qualified member of its council as soon as reasonably practicable if its qualified member dies, retires, or otherwise ceases to act or to be able to act.

Whilst similar in design to foundations in other jurisdictions, the Jersey structure introduces the concept of a 'guardian' with oversight over the council's activities in relation to the foundation and ensures that it achieves the broad objectives outlined in its constitutive documents.

A foundation must have a council to administer the assets of the foundation; and to carry out its objects. The council of a foundation may have one or more members and must include a qualified person. However, although the council of a foundation may include more than one qualified person it may not have more than one qualified member at any one time.

An act of a member of the council of a foundation is valid despite any defect that may afterwards be found in the appointment of the member; or the member's qualifications.

A beneficiary under a foundation has no interest in the foundation's assets; and is not owed by the foundation or by a person appointed under the regulations of the foundation any duty that is or is analogous to a fiduciary duty. However, if a beneficiary under a foundation becomes entitled to a benefit under the foundation in accordance with the charter or the regulations of the foundation and the benefit is not provided, the beneficiary may seek an order of the Royal Court ordering the foundation to provide the benefit.

The beneficiary must seek the order within the period of three years from the time when the beneficiary became aware of his or her entitlement to the benefit, provided they have reached the age of 18.

Jersey has established itself as a dominant player in the foundation industry with a formation rate of 5.5 per month as at August 2014, outpacing both that of the Isle of Man (1.3) and Guernsey (0.7). By June 2015 some 282 foundations had been formed in the jurisdiction.

Jersey estimates that around a third of Jersey foundations have been formed for philanthropic or charitable purposes, with a further third being used specifically by ultra-high-net-worth families as wealth and inheritance planning structures. Foundations are also being used for commercial purposes, for holding high value or luxury assets.

According to Geoff Cook, CEO of Jersey Finance, the promotional agency for the island's financial services industry, the Jersey foundation "continues to prove itself to be a flexible and attractive proposition, equally suited to charitable administration as to orphan structuring and private wealth management."

"The strength of the foundation, combined with its trust and company vehicles, means that Jersey provides a good platform that can cater for a broad range of bespoke family, philanthropic and commercial needs," he added.


The Foundations (Guernsey) Law, 2012 was approved by Guernsey's legislative assembly, the States, in July 2012 and given the green light by the UK Privy Council on January 7, 2013. The Guernsey Registry began accepting applications for the formation of Guernsey Foundations from January 9 that same year.

Like foundation structures in other jurisdictions, the Guernsey foundation is an incorporated entity with a separate legal personality. It does not have shareholders to whom the board are accountable, but instead holds assets (in its own name) on behalf of beneficiaries, particular purposes, or both, in accordance with the foundation's constitution.

The foundation's constitution comprises a charter setting out the foundation's purposes, initial assets and duration (which may be unlimited) as well as rules prescribing, among other things, the functions of the council and procedures they must follow. There are no 'trustees' and instead, council members perform a similar role by having a duty to the foundation to act in good faith, and cannot, without express authorization, profit directly or indirectly from their position.

Guernsey has taken note of the fact that some clients may worry about confidentiality because as foundations are registered entities, they are, unlike trusts, publicly visible. In Guernsey, limited details are available to the public, and although full disclosure must be made to the registrar, in other jurisdictions the whole charter is commonly visible. Guernsey's approach means that this limited visibility offers the benefit of being able to prove the foundation's existence quickly when dealing with third parties.

In Guernsey, the founder's role is flexible but perhaps more restrictive than in some other jurisdictions. However, Guernsey has taken an approach which will be more familiar to those versed in the traditional civil law model where the foundation not only has a separate legal personality but also one that is independent of the founder. This may also help to clarify the appropriate tax treatment for the founder in their own country of residence.

A particular innovation of the Guernsey foundation is the ability for beneficiaries to be classed as either being 'enfranchised' or 'disenfranchised.' Enfranchised beneficiaries will have rights to certain information regarding the foundation, whereas disenfranchised beneficiaries are not entitled to any at all. Where there are disenfranchised beneficiaries then the foundation is required to have a guardian with a duty to act in good faith and en bon père de famille.

A foundation is also useful for corporate entities looking to create an orphan structure where the assets of a particular entity can be held in a foundation, rather than having a parent company and being an asset on that company's balance sheet. This means that the foundation may be used in investment fund structuring as well as for other corporate purposes.

Guernsey authorities appear reasonably pleased with results so far since foundations were introduced in early 2013. Certainly, the fact that a foundation has migrated from Liechtenstein – where foundations are long established – as well as other jurisdictions to Guernsey must represent something of an endorsement of the island's foundations regime.

In article written for the Society of Trust and Estate Practitioners in 2016, Dominic Wheatley, Chief Executive of Guernsey Finance, reported that since the new law came into effect "we have seen steady growth in the number of foundations being registered in the island."

"The Law has certainly given Guernsey service providers an added level of flexibility and expanded the menu of options available for best meeting client needs via Guernsey structures," he wrote.

"Service providers have reported that the Guernsey foundation is particularly appealing to clients in the Middle East, Asia and South America. This is primarily because of how the foundation can offer a similar feel to a private family company set-up, unlike trusts, which are rooted in common law," Wheatley observed.

Abu Dhabi

Abu Dhabi Global Market (ADGM), the international financial center in Abu Dhabi, confirmed in August 2017 the launch of its own foundations regime.

Understood to be the first regime of its kind offered in the United Arab Emirates, it enables local advisors to use ADGM foundations as an alternative to trusts and corporate vehicles for family succession planning, tax planning, asset protection, wealth management, and corporate structuring.

According to the ADGM, an Abu Dhabi foundation provides the following benefits:

  • Enhanced asset protection;
  • A robust governance structure;
  • Additional assurance through guardian oversight;
  • A Distinct legal personality, unlike a trust;
  • Separation of liability whilst maintaining control of assets; and
  • Perpetual existence after lifetime of the founder.

The regime was developed in close consultation with the advisory community to be highly flexible and to strike an appropriate balance between transparency and discretion, as well as competitiveness in terms of cost and ease of process, with features benchmarked globally; the ADGM foundation regime resembles those in place in Guernsey and Jersey.

There has also been a strong demand from Private Banks who want to be able to provide locally a full suite of structuring solutions to local and regional clients.

ADGM foundations are said to be fast and simple to set up (set-up time is three to five days) and manage (registered agents are voluntary), with straightforward ongoing reporting requirements.

ADGM Foundations can be used for a variety of purposes, including but not limited to, wealth management and preservation, family succession planning, tax planning, asset protection, corporate structuring, and for public interest foundations (excluding charities).

A foundation set up in the ADGM also provides access to the UAE's double taxation avoidance treaty network.

ADGM foundations can be utilized by international as well as local clients, and foundations established in other jurisdictions can be migrated to Abu Dhabi (and vice versa). Like other common law jurisdictions, ADGM has incorporated "asset protection mechanisms" into its foundations regime. These are known as "firewall provisions," and are a familiar feature in common law trust jurisdictions, as well as foundations jurisdictions.

ADGM courts have jurisdiction over ADGM foundations, as part their overall jurisdiction under Article 13 of Abu Dhabi Law No. 4 of 2013. The ADGM Foundations Regulations preserve a pro-active role for ADGM Courts.

The ADGM has sought to balance preserving client confidentiality and maintaining transparency of ownership by splitting the formation process into two separate elements:

  • Public Disclosure: A Foundation Charter, which contains limited information (the name of the foundation and the name of a fiduciary or nominee founder) will be submitted to the Registrar as part of registration requirements. This would be publicly available (along with the registered address, registration date and service provider) and would allow third parties to verify the existence of the foundation and enable the foundation to demonstrate that it is properly constituted and in good standing.
  • Private/Confidential Disclosure Foundation By-Laws governing, for example, the constitution of the foundation council would remain private and would only be provided to the Registrar upon request (and, if requested, would not to be made available for public inspection without consent of the founder). However, the Foundation By-Laws and other non-public information would be disclosed to governmental authorities in limited circumstances, such as those prescribed in the ADGM Companies Regulations 2015.

Commenting on the new foundations regime, Dhaher Bin Dhaher Al Mheiri, CEO of the Registration Authority of ADGM, said: "ADGM has been working closely with local and international stakeholders and [a] market panel of experts to understand their needs and develop a foundations regime that addresses the unique requirements of families and asset owners in Abu Dhabi, regionally and globally. The new foundations regime, together with the existing world-class legislative and regulatory framework, adds to ADGM's extensive corporate and legal structure offerings. This is part of ADGM's ongoing commitment to enhance its ecosystem and serve the needs of its stakeholders by introducing innovative and efficient business solutions."


Gibraltar is another non-civil law jurisdiction to have recently entered the foundations club, with a bill to permit the establishment of private foundations in Gibraltar passed by Parliament together with the consequential amendments to the Income Tax (2010) Act in March 2017.

Commenting on the new legislation, Albert Isola, Minister for Commerce, said:

"I am delighted that Parliament has passed these bills. There has been a considerable amount of work undertaken by a number of private sector practitioners to get to this successful conclusion. In addition, there has been significant further involvement by the public sector and wider private sector financial services community in participating in an extensive consultation process."

"Private foundations have long been on the wish list of those professionals who advise their clients in complex financial engineering and I am grateful to the STEP organization in Gibraltar for lobbying for this legislation over a number of years. It offers them a platform to create new business opportunities and adds to the strength of the Gibraltar proposition as a leading transparent and compliant onshore financial services jurisdiction in Europe."

"It also fulfils this Government's commitment to create an excellent suite of private client legislation. Our research tells us that there is international demand for this product and our ability to serve clients with this legislation continues to promote our financial services industry very positively."

Other Foundation Jurisdictions

Other common law jurisdictions with foundations regimes include: Antigua and Barbuda, Anguilla, Belize, Cook Islands, Isle of Man, Labuan, Mauritius, Seychelles, and Vanuatu.


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