Foundation Case Study

Succession Planning

Mr B is in his seventies and is Muslim, as are the rest of his family.  He is resident in the United Arab Emirates and is married with a son and a daughter.  Mr B’s wealth is self-made and he is keen to ensure that his wealth, including his business, passes down to the next generation in line with his personal wishes.

 

Family dynamics…and the right to choose… 

Mr B’s son, who has no interest in the family business, has had very little contact with his parents since he married, other than when he needs money.  He does not work and is living a life of leisure in Europe.  Mr B was not in favour of the marriage as he believes that his son’s wife is only interested in the family’s wealth. He is therefore keen to protect the family wealth, and the family business, against the risk that his son might drain the family of its assets. Mr B’s daughter has worked hard for her father in the family business, having been willing to start at the bottom and learn the business from the inside out.  It is important to Mr B that his daughter is able to inherit a significant share of the business upon his death.  However, under Sharia Law, the majority of Mr B’s estate would pass to his son, which is contrary to Mr B’s wishes.  

Over recent years Mr B has discussed his options with a number of lawyers and other advisors and, while the establishment of a trust seems to fulfil all of the requirements, Mr B is not at all comfortable with passing the ownership and control of his hard-earned wealth over to trustees, as this is not something that he has any experience of.

The possibility of incorporating a Private Trust Company (“PTC”) to act as trustee, with Mr B being appointed as a director of the PTC, had been suggested. However, the ownership of the PTC would have been within a purpose trust and outside of his control.

The solution…

One of his advisors met a representative of NWH Global who told him about the merits of a Guernsey foundation and how establishing such an entity may fulfil Mr B’s wishes. The foundation could act as trustee of a trust settled by Mr B just like a PTC but, as a foundation has no shareholders and is effectively an orphan entity, there is no loss of control.    

Mr B’s advisors carried out all of the necessary research and came to the conclusion that a foundation would indeed meet all the needs of Mr B. 

A Guernsey foundation can be established with beneficiaries or with just a purpose. In this instance it was decided that the foundation would have no beneficiaries, and its purpose would be to act as trustee of the family trusts to be settled by Mr B.  The council is made up of Mr B and his fellow directors of the family business, thus enabling the control of the business to remain consistent when the shares were settled into the trust. NWH, as a professional council member, ensures that all statutory requirements of the foundation are met and that the trust is correctly managed as established under Guernsey law. 

Mr B as founder has retained the power to amend and terminate the foundation during his lifetime and his best friend has been chosen to act as Guardian, which is a requirement where the foundation has no beneficiaries, with the right to hold the council to account (“enfranchised beneficiaries”).

By establishing the foundation Mr B has achieved his key aims, as he is not in any way giving up the control of the family business. Most importantly to him, there will be no requirement to comply with Sharia law in respect of the inheritance of his assets when he dies as Guernsey has a strong legal framework which would result in a rebuttal of any forced heirship claims.