The Windsor's - Divided

The interview of Meghan and Harry by Oprah Winfrey was sheer drama – it had everything – Royalty, Racism and Rejection, but beneath the shocking revelations I could not help feeling sad. This was a rift between two brothers brought close through the shared tragic death of their mother and now they have nothing but ‘space’ between them.

It reminds me of a family I worked for in similar circumstances. Ben and Josh (not their real names) had been expected by their father, Mat to run their family business – a household name. After many years, Ben was appointed CEO and Josh the Marketing Director. In due course, Josh got married to an ambitious young Australian woman who thought Josh would make a better CEO than Ben and suggested that he put his forward-thinking ideas to the board which were rejected. In due course, he became disillusioned and distracted.

One day Mat called his son Josh into the board room, on the table was a baseball cap with the word ‘BOSS’ on it

‘Ben’, said Mat – ‘You’re fired’

He then reached into this brief case and took out another baseball cap which he put on with the word ‘FATHER’ embossed on it ‘Son’ said Mat – ‘let’s talk about it’.

Family issues especially if they involve a Family Business, heirloom or Family home are not easy to resolve. Many such family assets are in trust – to distance the family from the decision making, provide privacy and access to the assets on death, asset protection from opportunistic creditors, and in some cases tax benefits – but for all these benefits many families are reluctant to appoint a professional who they do not know well, who will be given total control over the assets and family decisions such as to who gets what and when!

Trustees have a duty of care to act in the best interests of the beneficiaries – but often the difficulty is knowing which one of the beneficiaries should the Trustee listen to!

The situation is often even more complex if the trust – for whatever reason, is offshore – in a country such as Jersey, Isle of Man or the Bahamas – in many cases the Trustees are just not close enough or know enough to exercise their Duty of Care in a timely fashion.

To give an example, last week I was told that a beneficiary of a trust I had set up decades ago – and to which I was not an officer – had been found dead in her apartment; she had been dead for 15 days, her apartment was bare, her bed was a mattress on the floor and there was nothing in the fridge other than a small piece of cheese.

The traditional way to be involved with family members but without jeopardising its tax status is to appoint a Protector – which sounds good, but for tax reasons the Protector must have no pro-active powers other than to appoint and remove the Trustees. As you can imagine a Protector is not always welcomed by professional trustees who would prefer not to have to do their job under the threat of being replaced.

But who in their right mind would want to be a Protector? They have no access to funds to dip into when they need to take advice –no right to financial information on how to make a decision – and no proactive powers other than the blunt instrument to appoint and remove the Trustee - so they usually don’t get as close to the family as they need to be and get called in –only when it is too late to make a difference – or at all.

Where tax and jurisdiction are not an issue – such as I assume with the Queen, a cabinet will be appointed, and decisions taken by the people with the right knowledge and specialist skill about the family business and family members. The conundrum is to get the advantage of a board, which can make pro-active decisions without making the trust tax resident in the country where they meet.

I have seen one solution to this conundrum, which is to appoint an advisory board of experts with the necessary business skill and family knowledge to take the right decisions which are in the best interests of the family and business – the problem from a tax perspective is -  ‘can it be argued that the advisory board is the real decision maker in the trust – in which case the trust could be tax resident where the decisions are taken’? To address this problem – I have seen board members paid a significant sum so as to be treated as advising at arm’s length – which is fine, but then who evaluates their recommendations and implements them – are their decisions just rubber stamped by the Trustee? How much time do they take to this analysis, are they skilled in evaluating the decisions, and how much do they get paid?

The solution that I prefer is to have a structure which gives the right people, with the right experience taking the right decisions at the right time in the right place. This is possible, and much preferable for all – the professional trustee is then not expected to take difficult decisions for which it can be fired, the family founder can appoint a board with the right skills and experience to take the decisions and to take the difficult decisions as and when they arise.

Of course, this type of structure was first conceived for families of significant wealth and for whom their trust offshore was their family office – which engaged skilled administrators, had their own office and staff– but now these structures are mature and can be scaled down to be used by families with much more modest assets – but nevertheless prepared to pay a little extra for the added protection and control

As a Private Client Professional working with families of all shapes and sizes I often require the other Private Client Professionals with the skills and experience I do not have to be able to bring in to serve my clients as and when the need arises. I set up Caroline’s Club; a network of private client professionals who can meet and share their client stories and to promote what they do for their clients using the digital tools at our disposal; podcasts, webinars and a chance to meet in curated network bubbles to share client stories so as not to waste time; effective and efficient networking.

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