Contentious Trusts: prevention by anticipation

5 Apr 2023

When it comes to family offices, arguably the most valuable, and potentially volatile, asset in any structure is the relationships between the family members.

Similar to how an investment adviser will analyse market trends in an attempt to foresee potential losses, a prudent trustee should seek to anticipate risks of contention within the dynamics of a family and work proactively to mitigate them.

Shifts in interpersonal relationships, whether sudden or a slow burn, are inevitable in any family, but can become particularly contentious when it comes to wealth. While the depreciation of some material assets can be forecasted and calculated, the deterioration of family relationships cannot be predicted in the same manner. Potential areas of dispute can be best identified by asking the right questions at the right time, and listening carefully to what information is, or is not, volunteered in the answer.

The ability to ask those questions without being intrusive, and the comfort of the client in answering them, is a delicate balancing act between maintaining clear professional boundaries, while building trusting personal relationships.

Family dynamics are deeply personal and private; a trustee cannot bulldoze their way through the walls each family member has built. It is only through long-established relationships, underpinned by the consistent delivery of excellent client service, that a trustee will be able to break down barriers and understand the roles and objectives of individuals within the collective.

A hugely important part of building and maintaining those relationships is to meet with clients in person. Nuances in body language, tone and any hesitation on particular topics can be helpful indicators of areas of current or potential disagreement.

Understandably, emotions can run high when contentious matters arise within family structures. It is essential that a trustee remains objective, planted firmly in the middle ground on any issue. Our role is to preserve and protect the wealth for all beneficiaries of a structure, not to take sides or fan the flames of disharmony.

Whether dealing with a divorce, death or dispute, clients often turn to a trustee in times of familial conflict. The stage at which a trustee becomes involved is subjective; sometimes we are advised at the outset, other times we are only told of a problem once a resolution has been found.

In instances where our advice is sought, we act as facilitators, connecting family members to specialist advisers and professionals – for example lawyers or counsellors – who are best placed to support conflict resolution.

A trustee must be mindful that they are only able to deal with the information they have been given access to. If a trustee has only ever had contact with the Settlor of a trust, for example, it would be impossible to know the full story as, inevitably, the trustee would only ever have one side. To avoid this pitfall, we endeavour to get to know every member of the family where possible. There are instances where this is not possible, for example in the case of minors, or in structures where the beneficiaries may not be privy to the details, or existence, of the trust.

Seeking to be proactive – rather than reactive – to matters which may result in disaccord, we often suggest that our clients instruct a suitable third-party to prepare a family charter. A charter is a means of addressing contentious matters before they arise, with each adult family member agreeing to the terms on its establishment. The charter may direct how assets are to be distributed between beneficiaries or how matters of contention should be discussed.

A family charter differs to a letter of wishes, which is written by the settlor and not usually seen by beneficiaries until after the settlor’s death, if at all. A letter of wishes will be personal to its author and may not necessarily reflect the wishes of the inheriting generation. A prudent trustee should be conscious when dealing with a letter of wishes that, while not legally binding, adhering to, or straying from, its guidance can be legally challenged.

Decades of experience in individual and family client service, as well as personal experiences with our own families, allow us to recognise where issues may arise. This experience, coupled with building relationships with all members of the family, can direct us in our careful questioning of family dynamics. For example, our independent relationships with both a parent and child may result in identifying fundamental differences in their objectives for any family business, or their opinions on wealth.

It is important for trustees to understand the potential impacts of “The Great Wealth Transfer” – whereby the generation inheriting family wealth are often more socially and environmentally conscious – which may lead to a shift in priorities when it comes to investments and growing and redistributing wealth.

Responsible trustees should be prepared for potentially conflicting views arising from this shift. Ideologies continue to evolve as the landscape in which each generation operates changes, and the impact of the actions of previous generations are felt by the next, a trend which is not unique to wealthy families.

With a shift towards corporate social responsibility and environmental, social and governance initiatives, it is likely that inheriting generations will scrutinise the origins of their family wealth. For example, it could be the case that a family business was established in an environmentally unfriendly industry which, although deemed acceptable when the wealth was generated, is now criticised for its unsustainability. This could lead to members of the inheriting generation seeking to distance their wealth from the industry in which it was generated or look to increase philanthropic investments to balance the scales, both of which have the potential to be polarising for members of the family.

By keeping a weather eye on the horizon and understanding not only individual family members but also generational trends, a responsible trustee can play an integral role in alleviating the impact of contentious matters.

This article was first published in the Thought Leaders 4 Private Client Magazine (Issue 10 – Contentious Trusts).