Introduction
Line of succession
Working together long-term
Investing and next generations


This article is part of a series on future wealth and succession planning, and long-term investing.

Introduction

The importance of looking ahead can be highlighted in Guernsey through succession planning, long-term investing and engaging with the next generation. Ultimately, by preparing for and staying up to speed with possible developments, families and their advisers are able to move with the times and prepare for what may come, even if that seems difficult to predict in the current economic climate.

These are difficult times – from the first global pandemic in 100 years to geo-political instability and the cost-of-living crisis. When the present seems so uncertain, it can be hard to plan for the future. This feeling is amplified further by how quickly the world is evolving, from the enhancement of disclosure and transparency measures to the exponential rise of social media and the online world.

However, for many clients and families, a wait-and-see approach is not realistic. Perhaps it is because they are getting older, individuals are unwell, or they feel a real need to do something to protect and enhance their wealth due to the world's economic position. This is combined with higher numbers of divorces and non-traditional family arrangements. Leaving matters to fate ignores the opportunities to enact effective plans, even though the future is uncertain.

The question is: what can families do now to best "invest" in their futures, both literally and figuratively speaking?

This article sets out a few of the ways in which Guernsey's robust legislative and regulatory framework helps provide a stable, modern and forward-thinking environment in which to plan for and invest in the future.

Line of succession

Succession is often at the heart of a family's wealth generation and preservation goals. However, if a structure is to stand the test of time, it cannot just be legally effective and robust; it must also be flexible.

Flexibility is a fundamental point that all Guernsey vehicles have in common. Two of the most popular succession planning vehicles are trusts and foundations. These remain popular for many reasons, but clients and families often mention:

  • the ability to flexibly structure the distribution or dissemination of wealth across individuals and generations;
  • that there is no need to obtain a grant of probate or similar formalities in order to deal with the trust fund upon the death of the settlor;
  • the ability to set up trusts for charitable and non-charitable purposes as well as for the benefit of beneficiaries; and
  • that family members, who may not have otherwise had the ability to, can benefit from the assets – for example, by enabling the transfer of wealth to family members in proportions different to those dictated by rules of forced heirship that may apply in their country of domicile.

Helpfully, the creation and operation of trusts and foundations is governed by the Trusts (Guernsey) Law 2007 and the Foundations (Guernsey) Law 2012 (as amended). This modern and flexible legislation allows trusts and foundations to continue to be convenient and appropriate structures even as the world moves on and new innovations emerge.

Further, there is legal certainty as the statutes have been well tested and understood by the Guernsey judiciary in a collection of contentious and non-contentious applications over the years. This complements a well-established, highly regarded fiduciary services industry with many years of experience and a focus on the future standards of services in the island.

Alongside trusts and foundations, wills and will trusts, pensions and incentive schemes, companies and limited partnerships are also available. All of these are popular succession planning tools and can be used, to a greater or lesser extent, to provide all levels of flexibility.

Working together long-term

It cannot be ignored that flexibility can come with risks. Over time, families, their common interests and goals can grow, change or diverge. So, how can the flexibility afforded by Guernsey vehicles be kept in line when it comes to families?

One way is to work with advisers and service providers to ensure that the wishes of the first generation are understood and reflected in the form of vehicle and documentation put in place.

What is appropriate will differ from case to case. Some examples seen in practice include:

  • the use of discretionary trusts, where the trustee ultimately decides how and when to exercise its powers;
  • the use of letters of wishes; and
  • the involvement of family members and trusted persons within the structure to provide guidance, act as gatekeepers or be a form of check and balance.

In other circumstances, the use of governance arrangements and documents will be desirable.

Over the past few years, the use of the terms "good governance" and "family constitutions" have grown, although how they are used and what people understand them to mean may not always be the same.

The two terms are most commonly associated with family businesses. However, these principles are sometimes reflected in other circumstances where communication and interaction between family members and families may benefit from some form of regularisation or procedure.

Having such regularisation in place can help to embed the first generation's values in their family without alienating the next generation. Instead, it builds a bond between them and ultimately helps to preserve and enhance the family's wealth and avoid disagreements in the future.

Investing and next generations

Another way of helping ensure families work together over time is to involve the next generation at appropriate stages. A well-structured succession plan can fracture if the recipients do not understand how to manage their wealth or feel it should be managed differently.

By involving the next generation, advisers can facilitate a smoother transition when the time comes and a stronger relationship between clients, families and their service providers. In return, the older generation, advisers and service providers will get to know the next generation, understanding early how they see the future, their role in it and how their wealth should be managed and used.

This is more important than ever in light of the intergenerational wealth transfer anticipated in the next two decades, predicted to be the largest seen.

Both generations have a lot to learn from each other. A future generation that understands the structures put in place and, more importantly, the overarching aims of those structures will avoid the risk of unmet expectations and disputes. And a first generation that is open to the next generation's thoughts and ideas can allow for innovation and for future-proofing strategies to be adopted.

Among the next generation, there has been an increase in crypto and developing asset classes and less interest in the asset classes preferred by their predecessors. These conversations between both generations are therefore vital to create succession plans that meet the wishes of the first generation but also embrace the innovative approaches favoured by the next generation.

For further information on this topic please contact Catherine Moore or Tehya Morgan at Ogier by telephone (+44 1481 721672) or email ([email protected] or [email protected]). The Ogier website can be accessed at www.ogier.com.