Equiom recently hosted a STEP roundtable, the participants discussed the best practices and pitfalls in succession planning that trustees and advisors may encounter when exercising their duties. Written by Helen Bradford-Swire.
‘We have all seen the fallout of conflict in high-profile wealthy families’, said Nina Johnston TEP, Managing Director at Equiom Isle of Man and Chair of the roundtable. ‘As trustees and advisors, what good practice should we be looking to follow in writing wills and passing assets to intended beneficiaries?’
Location, location, location
The discussion started with an examination of how best to support clients with assets in multiple jurisdictions. ‘Younger clients whose assets are still actively moving may wish to consider having fewer wills, for the sake of cost and simplicity’, commented Damian Bloom TEP, Partner at Taylor Wessing. ‘But at a certain age, when their assets are more fixed, it is worth a client spending more time on multi-jurisdictional succession planning, particularly when it comes to real estate assets.’
Alex Streeter, Associate at JMW Solicitors and Robert Ham KC TEP, Barrister at Wilberforce Chambers, agreed that multiple wills should be approached with a certain caution as clients can have concerns around the implications for domicile. ‘A will needs to make really clear what assets it deals with and in what jurisdiction’, noted Streeter. ‘If a client has got assets elsewhere and wills in different jurisdictions, we have to take care that putting a new will in place in any of those jurisdictions doesn’t inadvertently revoke others.’
Moreover, Bloom pointed out that trustees managing assets spread over different jurisdictions need to be cognisant of the interaction of common law, civil law, forced-heirship regimes and religious law.
Andrew Dickson, Director at Fieldfisher, said, ‘It’s best to think on an asset-by-asset basis: how each asset passes the relevant succession law applied to it. In the case of civil-law jurisdictions, we have to consider whether they have role of executors and, if not, how a worldwide will that includes civil-law assets should be resolved. Ultimately, taking specific advice is necessary.’
‘Another consideration is privacy: if a client has wills in multiple jurisdictions, in some of those locations the will is a publicly available document once it's admitted to probate,’ added Will Burnell TEP, Partner at Mourant. ‘That can be an issue that speaks in favour of fewer wills for some clients. Currently, we see some clients having a quasi-international will that takes into account all of the jurisdictions that aren't dealt with in separate wills. It's vital for information to be given to the executors of that will as to which other jurisdictions have wills in place, so that one is not missed.’
Keep it simple
The complexity of a multi-jurisdictional asset management plan extends beyond wills: practitioners must consider how it affects different types of ownership structures.
Nancy Chien TEP, Partner at Bedell Cristin, commented that simplicity should ideally be the new normal: ‘Pre-FATCA and CRS, it was very common to have lots of layers of structures in many different jurisdictions, but now those structures serve less of a purpose. It’s better to keep them more understandable, manageable and compliant.’
‘There’s a complexity in terms of the variety of jurisdictions and entities but, certainly within the trust context, there’s also a complexity within the constitutional documents’, said Burnell. He accepted that a committee with appropriate skill sets and knowledge of the assets underlying the structure can be a helpful governance, administration and de-risking tool for a trustee. ‘The education piece is vital’, he advised. ‘It can be important to demonstrate to a settlor that sometimes a professional trustee who is well-engaged with the structures and family would be better than many different control mechanisms with different committees and oversight boards.’
The hardest question
‘The answer to avoiding over-complication is to focus on what client’s objectives are and do no more than is necessary to achieve those objectives’, observed Ham. However, the roundtable participants all agreed that the thorny issue of capacity can complicate matters further.
‘It is a hugely difficult, very emotive topic and it is difficult to bring up the conversation with families when we know that there are some capacity issues and there are very sensitive subjects being discussed,’ said Johnston. ‘Particularly in families where there may be a new partner or step-children; who is the person that makes those decisions? Does the person with loss of capacity have a power of attorney [POA] in place? Has that POA been made validly and registered? There are a lot of different aspects to what is a very difficult topic.’
‘It’s as important to think about beneficiary capacity as testator’s capacity’, commented Streeter. ‘Part of our work is to make sure that clients’ wills are structured appropriately to pre-empt passing a legacy to a beneficiary who might have capacity issues. We meet with clients, understanding everything about their family and whether they want to consider the best way to protect their legacy to a beneficiary and any risks that that person might not be able to deal with an inheritance.’
Chien gave an example of this problem in practice: ‘We have been dealing with a case where the beneficiary has lost capacity. The key message that we have given to the trustees is the importance of considering what is for the benefit of that person: they cannot just liaise with the family members they think represent the beneficiary. They need to take steps to work out who is legally able to represent that person and deal with them directly.’
She noted that the recent decision in Grand View Private Trust Company and another v Wong and others3 was a point of reference for trustees. The UK Privy Council emphasised the core purposes of a trust in the trust instrument, particularly where settlors are contemporaneously forming numerous trusts with different objectives. ‘Following Grand View, trustees should be examining the purpose of a trust at the time it was established, rather than the idea of a moving intention’, Chien said.
Acknowledging that a client’s capacity report can change several times depending on family views, assessor and level of general health, the participants considered how a letter of wishes might help to direct trustees in executing a settlor’s wishes.
Toby Graham TEP, Partner at Farrer & Co, warned, ‘The degree of detail now put in letters of wishes can be overwhelming and we have to be careful that the key messages don’t get lost. Clients can become over-elaborate in the design and so be extremely prescriptive.’ However, he noted that letters of wishes remain a key document, especially in the light of Grand View, with the first iteration framing the purpose and long-term objectives of a trust.
Steve Le Seelleur, Managing Director at Equiom Jersey, commented that from the trustee’s perspective, the more detail and guidance the better, but added ‘the detail has to be clear. It is worth reiterating to settlors that detail is important but clarity is also vital and they have to work in conjunction with the trust deed.’
Despite the value of such a document, participants acknowledged that they can be a drawback in certain circumstances. ‘It’s important that a client isn’t ruling from the grave through a letter of wishes’, pointed out Bloom. ‘If they’re too prescriptive it might be that the letter of wishes is no longer relevant at the time it is actually referred to. It’s better that they cover the principles of the structure that will apply long-term, as well as who will be taking the various decisions once they pass away. If they know that the right people will be making those decisions, they can trust the right decision will be taken at that time. That approach also more comfortably alongside Grand View, on the basis that decisions will be determined by purposes and principles, not driven by conflicts.’
Johnston asked the participants how far a letter of wishes should be shared: should a settlor keep it between themselves and the trustee or gather their family and beneficiaries to discuss it and their intentions for their assets after death.
‘It should be considered on a case-by-case basis, taking into account the dynamics of the family’, suggested Burnell. ‘For some settlors, full disclosure is the ideal route, others they may prefer to put the overarching principles in a letter that is shared with family and the intricacies in a separate private letter. The bottom line is that you need to be clear on how the settlor views disclosure.’
‘“Oversharing” a letter of wishes allows everyone the opportunity to interpret what a settlor means’, said Streeter. ‘However, that has to be balanced with the risk of beneficiaries all having their own disparate ideas. The trustee still has to keep a control on what the settlor actually wanted and they have a duty to see those wishes through.’
Communicating and future-proofing
Many clients choose to include their families in discussions, from the letter of wishes through to trust structures and estate administration details, as part of succession planning for the future. Le Seelleur noted that this is often a key part of family governance, especially for clients in Asia, India and the Middle East. Graham added that it can be useful for trustees to know what the family dynamics are. ‘It can be a problem for the trustee if they are just in touch with one person in the family business’, he explained. ‘Without having a means of touching base with the other family members, it’s difficult for them to know what’s actually happening on the ground and what the family members are really thinking.’
Communication is an important aspect of future-proofing structures. ‘It is about creating a training ground for the next generation to get to know each other, learning the asset pots and understand the principles behind the structures’, said Olivia Ellis, Vice President at JP Morgan.
It is also key, said Le Seelleur, in fulfilling the trustee obligation to ensure beneficiaries and clients are tax compliant: communicating fully with them to ensure they are aware of all their reporting obligations and the information they need to share with trustees and advisors.
‘Finding out a client is planning to move to a different jurisdiction with different tax implications can have hugely detrimental consequences if they only inform practitioners after the fact’, agreed Dickson. ‘We need to be communicating to beneficiaries that they are responsible for their own tax reporting and feeding back to the trustee who is maintaining logs specific to particular tax systems. Keeping up-to-date with the beneficiaries is generally important but first and foremost it’s vital to make them aware of their responsibilities.’
Referring back to trustee log-keeping, Johnston asked the participants their views on the value of record-keeping and the degree to when it should be done. ‘A trust structure will last 150 years or more and no trustee will be present for the entire duration of the trust period: how do we ensure we have proper records and how do we define what is essential to document?’ she asked.
‘The discipline of actually taking minutes and undertaking detailed record-keeping is calculated to improve the quality of our decision-making’, observed Ham. ‘It focuses advisors and trustees in on the considerations that they need to take into account.’
Bloom added that there are still a large number of structures emerging from low-tax, low-regulation jurisdictions that have very little documentation to support them in terms of minutes and information regarding decision-making processes. Chien agreed and said that with many jurisdictions now offering professional trusteeship, courts expect a higher standard of documentation and record-keeping than they would have done previously. All agreed that it is a key element of keeping structures as secure and robust as possible.
Nevertheless, Burnell pointed out that it is impossible to know with certainty that any structure is absolutely robust, with potential trigger events arising that cause unexpected problems or deviations in settlors’ plans.
‘We have to manage those relationships to ensure the family, trustees and advisors are all aligned’, advised Ellis. ‘For example, some beneficiaries are now starting to expressing concerns that they need to be investing their pots of cash in a more sustainable way. Trustees and advisors are therefore working with them to look at how investment portfolios can be updated.’
From trigger events such as divorce to societal shifts in environmental, social and governance (ESG) investing, practitioners are more aware than ever of the need for structures that are both future-proofed against risks and flexible in the face of change.
‘What is true today isn’t necessarily true tomorrow’, concluded Johnston. ‘It’s up to us as practitioners to educate clients that clear purpose and future-proofing is beneficial for them and their families, as it is key to the security and longevity of their assets and structures.’
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained within this article without obtaining specific professional advice. Please contact Equiom Group to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.