The role of mediation in wealth succession

Article by Lucia Perchard as featured in Channel Eye Media

We are in the midst of an era in which billions are being transferred within the world’s wealthiest families from one generation to the next.

The figures are staggering, at a recent Jersey Finance webinar on family office issues, it was highlighted that by the year 2030 more than US$15 trillion will be transferred to the next generation.

“By 2030 more than US$15 trillion will be transferred to the next generation”

This transfer of wealth within these ultra-high net worth families can be fraught with difficulties, especially given that the wealth might be dispersed across various jurisdictions with different regulatory and tax regimes and that family members from different generations may have wildly divergent views on how investments should be managed.

The new generation will frequently want direct input into how these sums are allocated as they seek to reflect their own identity and ideals as well as the values of their family.  In addition, advisers also have to take into account the likely personal conflicts and disputes that inevitably arise within family networks which may impact on how that wealth is managed for the future.

Pandemic

Into an already complex environment, we now need to consider the impact of the global pandemic on the family. It has brought some of those family issues into sharper context.  In some cases lockdowns has forced families to live together under one roof for far longer than would perhaps normally be the case and, as with any family unit, this can place incredible strain on already tense relationships leading to their breakdown.  Rising conflicts within the family set-up could lead to separations and even divorce and in such a scenario, the fate of the wealth of that family can become more problematic.

These issues further highlight the importance that the appropriate family governance is in place, by that I mean the structures, principles and processes that families adopt to ensure an orderly transfer and preservation of wealth. The part played by the independent trustee in handling the issues that arise with tact and sensitivity can be crucial in these circumstances.

Jersey structures, especially the private trust company structure and foundation, are becoming more commonly employed by those advising families and their offices on succession planning matters.  Jersey based trustees with both their hands-on experience and working understanding of these structures and their advantages are ideally placed to work with both the families and their advisors in providing the guidance required in forming these solutions that can be tailored to suit the needs of these clients with their often complex global interests.  However, an understanding of the structures and explaining their value is only one part of a more nuanced process in which the needs of the entire family has to be heard and appreciated.

Next Generation

“The next generation are far more focused on how their investments can make a positive impact on the world”

The role of the independent trustee is to keep the family and its wealth intact and, where necessary, to play a supportive role with the younger upcoming family members who, as noted previously, may have different objectives about how to invest and utilise their wealth in comparison to the prior generations.

Surveys show that the next generation are far more focused on how their investments can make a positive impact on the world and the increasing focus on sustainable investments is evident. For instance, UBS’s 2019 Global Family Office report predicted portfolio shares in sustainable investing would rise from 19% to 32% within the next five years.

Although family members of later generations may have a different outlook on how they may wish to see their family wealth invested, trustees can have a role to play which is more than just a trusted adviser.  Sensitive trustees, with the appropriate skills base, can act as a mediator in the face of the conflicts that arise, smoothing the path to a resolution among families that are sometimes at loggerheads.  They can bring family members together, discuss the financial issues that have created any divisions, and assist them to devise a family charter, or a set of governance principals which all sides agree to abide by.

It is my experience that family members are much more likely to respect and adhere to a framework that they have created and agreed to themselves.  It can be a much more cost effective approach and can prevent the need for these families to have to turn to lawyers and other third parties in an effort to legally resolve issues.  By ensuring everyone in the process has contributed, it is more likely to maintain the harmony of the family network and ensure that the values they share are passed on in the future.  In tune with that thinking, one of the unanimous conclusions drawn at the Jersey Finance webinar amongst the family office panellists was that, keeping the family together and avoiding the in-fighting that would affect succession planning, was a sure sign of success for practitioners and a key objective. The mediation role can be a crucial aspect in achieving that success.

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