When implementing a succession plan for wealthy families, one of the easiest parts is putting the structure into place but the hardest is making it endure through the generations.
It has long held true that wealth rarely survives three generations and there are many reasons behind this, most of which are inherent as families increase in size and the influence of the patriarch wanes.
The key to all enduring wealth planning structures is the separation of the economic enjoyment of wealth from its control. In England and other common law jurisdictions this has been achieved through trusts and their development over many centuries; civil law jurisdictions are relative newcomers, with the first foundations appearing in 1925 in Liechtenstein.
As people and wealth have become more mobile, the role of offshore centres has developed so that today they have a significant role as neutral platforms for hosting wealth planning structures. New vehicles have been introduced, such as civil law style foundations and non-charitable purpose trusts, and trust laws refined to fit modern requirements with the introduction of settlor reserved powers, the abolition of rules against perpetuity and the creation of firewalls.
With the Trusts (Guernsey) 2007 Law and the Foundations Law soon to come into force, Guernsey is an attractive jurisdiction for the establishment of wealth planning structures. Likewise Jersey, where foundations have been possible since 2009 and the soon to come into effect Trusts (Amendment No. 5) (Jersey) Law, which will provide additional clarification on, among other things, the enforceability of foreign court orders against Jersey trusts.
Private trust companies (PTCs) have emerged as a key component of many wealth planning strategies. The reasons for this have been well documented elsewhere but, crucially, through PTCs families can retain much closer control of their underlying wealth. Where appropriate and subject to any constraints in their home jurisdiction, family members can serve on the board of the PTC as well as trusted advisors who have real knowledge of the family and its financial affairs. PTCs and family offices can also work closely together, often with the same persons involved in both.
When a PTC is established to act as trustee of family trusts, it is usually an opportune time to put in place, or revise, an existing long-term family plan especially as the members of the board of the PTC will often have other roles within the family. Every family has a different culture and, within each family, the individual members are all different so each plan has to be bespoke but all should address:
Family vision - are there any particular values, faiths or creeds that the patriarch wants to be respected?
Communication - effective communication and dissemination of information will prevent many disputes from arising between family members. Is there to be a family council type of body and, if so, how is it to be composed?
Disputes - how should family disagreements be dealt with so that small gripes do not end up as expensive full-scale litigation between warring branches of the family?
Who is a family member - how much say should spouses be given and at what ages should children become involved?
Family business succession - what is the patriarch's view for the future of the family business; who should succeed the patriarch in the event of his retirement, death or incapacity; when and how should any sale of the family interests be decided?
Family/business interaction - how should the family be represented within the underlying family business and are there any criteria family members must satisfy before they can hold any executive roles (e.g. business experience, qualifications)?
Non-business assets - who can enjoy these and how should they be managed?
Distributions - how and when should wealth be distributed?
Philanthropy - where the family is well provided for, the patriarch may wish to encourage philanthropy within the family and set out parameters for this.
The form of the plan, the grounds it covers and the amount of detail are a matter of personal choice but it is clear that, with a structure and a plan in place, the family will be better positioned to overcome the inherent obstacles to keeping its wealth intact as well as deal with other obstacles that may be thrown in its way.
The fiduciary team at Collas Crill has much experience of establishing PTC structures and assisting with the preparation of family governance plans.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.