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Owning Private Trust Companies
Uses of Jersey Foundations: To own family "Private Trust Companies" (PTCs)
Uses of Jersey Foundation to own family "Private Trust Companies"
Although the foundation is a rival concept to the trust, and has many advantages compared with the trust (e.g. incorporated status) it is a fact that the trust concept will continue to be widely used in international tax and wealth planning for two reasons: i) many countries do not recognise the concept of trusts. It is often assumed this is a disadvantage, but in fact it is an advantage as countries that do not recognise the trust concept cannot enact specific anti-avoidance legislation against trusts; ii) even where countries recognise and enact anti-avoidance legislation against trusts at least one can advise with certainty in relation to such legislation and its impact on settlors and beneficiaries; Trusts have been widely used as family succession planning vehicles, and will continue to be so used.
However a well-known problem confronting would-be settlors of trusts is that they must transfer ownership and control of valuable assets to third party professional trustees who they may not know well.
There are various solutions to mitigate this problem one of which is the private family trust company (PTC). A PTC is a company which is the sole corporate trustee of the family trust. The board of directors of the PTC will include family members, together with offshore professionals. In some PTC arrangements the Patriarch, or Head of the Family, will own all the shares of the PTC.
The Patriarch transfers valuable assets under his ownership or control to the offshore trustee, which is the PTC. As the Patriarch ultimately owns the PTC, his concerns about transferring the assets to the trustee are greatly reduced.
However, this arrangement carries risk that the Patriarch will be regarded as the focus of central mind and management of the PTC, with potentially adverse tax or other legal consequences for the trust, or the Patriarch.
It is therefore preferable that the PTC is "orphaned" i.e. not owned by the Patriarch or his family.
Prior to the enactment of the Foundations (Jersey) Law 2009, a solution often adopted to orphan Jersey PTCs was to have the shares of the PTC owned by a purpose trust. However the ownership of a trustee of a trust by another trust is conceptually complicated and somewhat artificial. A more logical approach is to have the PTC owned by a parent company. This is a role that a foundation can fill.
The Jersey foundation separates the ownership and control of the PTC from the Patriarch. However the Patriarch is content because:
i) he is a director of the PTC;
ii) even if he is not a beneficial owner of the Jersey foundation (this is a legal impossibility) he
may be appointed as the foundation's Guardian. The Guardian oversees the management Council of the Foundation and may be given powers of veto of and consent to Council decisions.
Note also that the foundation in this case study need not even have beneficiaries, but may instead be a "purpose foundation". This measure further protects the Patriarch from potential onshore taxation, or other unwanted legal consequences in his home State.