From multiple marriages and sibling rivalry to global living and cultural shifts, the wealthy modern family is constantly changing – and that poses a wide range of challenges for those who advise them
Think your family is a mess? In 2003, Susan Gore, the daughter of Bill and Genevieve Gore, who founded the company behind the Gore-Tex waterproof fabric, adopted her former husband Jan Otto in a bid to get their sons an equal slice of the family fortune. Yes, you read that right – she adopted her ex-husband.
Her parents had left equal shares of company stock in a trust for their grandchildren – but while Susan Gore’s siblings each had four children, she only had three, and so adopted the 65-year-old Otto to level the playing field, only for Otto to keep the shares for himself. A Delaware court finally ruled in 2012 that the extra shares would go to… none of them.
As an example of a family feud, this is certainly extreme – and fitting, perhaps, for wealth built on outdoor gear. But even regular family dynamics have become increasingly complex over recent decades. Cultures are mixing, remarriages are common, and kids and assets are spreading ever further from home as the nuclear family explodes across borders.
And as family relationships gain complexity, so the pool of potential beneficiaries to a family estate gets larger, bringing the risk that some will feel left out and bring claims.
As a result, wealth advisers are having to adapt to the new reality if they wish to keep families’ assets safe across the generations. One of the biggest recent changes is the rise of the ‘blended’ family, where the traditional unit is muddied by half-siblings and ex-spouses.
“The most common issue we see, in terms of the modern family and arguments around trust funds, is divorce and children from other marriages,” says James Cohen, a Partner at GSC Solicitors.
Changing habits
There have, however, been more positive changes too. These days families are keen to give women and younger siblings their fair share of the pie, rather than simply handing everything to the eldest son.
Meanwhile, the cultural landscape keeps evolving too. Prior to the Finance Act of 2008, the majority of trust planning in the Channel Islands was carried out on behalf of UK families for tax purposes. Client families now come from everywhere – ranging from Africa and India to Kazakhstan and the Far and Middle East.
Unsurprisingly, this has brought greater complications. “We’ve had lots of issues surrounding second wives or multiple wives,” says Cohen. “One client from Yemen passed away with two wives, two distinct families, and no will. Now, no one can reach terms that allow the situation to move forward.”
There’s also often conflict within such families because the children have become more westernised and married outside their religious beliefs. “The younger generation in these cultures tends to be more tolerant in terms of gay marriage, divorce, co-habiting and having children out of wedlock,” says Cohen.
“But it’s the older generation who have the wealth and want to pass it down. It’s a real challenge for us sometimes to convince the client to let go and acknowledge that they can’t control everything.”
As mentioned, advisers have had to adapt to these changes. Many teams will now divide along geographical specialisms, becoming familiar with issues affecting one particular region. Lawyers will work more closely with the families themselves.
“The roles are now a lot more holistic,” says Angela Calnan, Group Partner at law firm Collas Crill. “Rather than just needing to be a good lawyer, you have to get into the psyche of the family and play the politics a bit more. The lawyer has become more of a trusted adviser, rather than just dealing with legal documents.”
Business matters
While many families will be looking for asset protection, others will also be looking to run their family business through a trust. Succession in a family business is crucial, and demonstrates better than anything the importance of getting your affairs straight right from the word go.
If you lack effective documentation between beneficiaries at the trust level, or between shareholders, which dictate how things should play, inheritors can easily come to disagree over the running of the business.
“Some beneficiaries are disappointed about not receiving anything,” says Calnan. “Others get involved in the business with no training, so it doesn’t work – or it goes to someone who the staff and management don’t like and the business fails.”
Many family businesses will therefore be placed into a private trust company (PTC), an example of trust vehicles becoming more advanced to deal with evolving demands. Here the client can establish their own trustee and take a place on the board. “They get all the benefits of giving things to a trustee to look after, but it’s a trustee they already know,” says Calnan. “In the last two or three years, we’ve seen huge numbers being set up.”
And it’s not just about protecting family businesses. As well as drafting the trust, many will draw up family charters prescribing where the patriarch sees the family going in future generations. Calnan describes these family documents as the “big change of the past five to 10 years”.
PTC reach
PTCs have also proved popular among sprawling Middle Eastern families looking to do right by their many beneficiaries. “Each person may have a very different idea of what they want to do with their part of the family wealth,” says Richard Tribe, Equiom’s Head of Family Office for Europe.
“Under the PTC, there are various planning options, and you can have different trusts for different parts of the family. One person may direct their share towards ethical investments, for example; another may say they want all the returns they can get for theirs. Trust vehicles now allow us to deal with each individual and what they want to do with their part of the funds – four kids, four smaller pots, for example.”
The thing with families is that they’re unpredictable. Even if things seem in order right now, nobody knows what’s going to happen further down the line. As such, it’s always worth building flexibility into the trust, to ensure that the smooth sailing when the settlor is alive doesn’t take a nasty turn after they die.
“These days settlors and families are certainly putting provisions in to make sure that if their children or grandchildren get divorced, the family money is looked after,” says Derek Rhodes, Director at Alex Picot Trust.
Spouses or partners are typically excluded. If the family stays together, that spouse benefits, and if not they have no claim and the assets are protected. “We’ve recently seen some trusts insisting that children or grandchildren get post-nups in order to benefit,” Rhodes adds. “That makes it easier for the head of the family – it saves an embarrassing chat with the in-laws at the wedding, as it’s all down to the trustees to handle.”
Staying flexible
Yet most trusts remain flexible enough for trustees to vary the instruction during its life. “It’s a fluid vehicle,” says Calnan. “If there’s a divorce or family conflict during the life of the trust, you can exclude people from that beneficial class. The structure often evolves with the family.”
With that in mind, clients should review and revise wills and trusts at least every five years, especially between the age of 30 and 60, when there’s likely to be more fluctuation and change in the family structure and the extent of their wealth. They’re also worth revisiting when there’s a major change in the family – a death, birth or catastrophe.
Larger families may wish to pre-empt conflict by establishing a family council, which works like a board of directors and is often made up of family members and external advisers such as lawyers. The council decides the course of action for the structure, be it channelling funds to cover education costs for future generations, or philanthropic causes, which are becoming increasingly popular.
Family councils are useful in large or complex families, where trying to give everyone a say would be simply unworkable.
The vast majority of wealthy families won’t have to resort to Gore-Tex-style measures to secure their fortune. But there’s one common mistake that even the most level-headed of families can make when planning wills and trusts – ploughing ahead without proper advice.
This is especially true of tax, an area where a rapidly changing legislative landscape not only makes errors more likely, but also potentially crippling. There was, for example, a time when placing residential property in a trust would save on inheritance tax, but these days it’s likely to land the beneficiary with a hefty bill.
“Making decisions without advice is an absolute no-no,” says Calnan. “I’ve seen people go it alone, but it’s so easy to walk into an elephant trap.” Wise words indeed.