Riding the wave

Riding the wave

With the largest wealth transfer in history afoot, involving an estimated USD84 trillion being passed into the hands of younger generations between now and 2045,[1] it is prime time for trustees and families to focus on building relationships with the next generation and to concentrate on generational wealth planning.

Although most businesses focus on succession planning and the next generation, many families miss this opportunity and can often be left rudderless when a patriarch or matriarch dies. Regrettably, the saying ‘clogs to clogs in three generations’ still holds true for many families.

Engaging clients to help prepare for and facilitate these conversations may aid in bridging the intergenerational communication gap and preserving wealth across generations. Although traditional estate planning focuses on the mechanics of transferring wealth, what is often overlooked is whether the infrastructure to sustain wealth exists.

Mission statements and family constitutions

The lack of communication that hinders most wealth transfers can be alleviated by the preparation of a mission statement. Mission statements generally reinforce values, purpose, priorities and goals, ensuring that the family is aligned in these areas. The act of coming together to draft and agree a mission statement is, for many families, a valuable exercise in building trust and confidence. Families might also consider preparing a constitution, which is a document that sets out the family’s objectives and governance structures to determine how important decisions will be made. Knowing that the younger generations will be guided by a commonly agreed mission statement or family constitution can be reassuring.

Observers and financial literacy

Access to conversations about family wealth should be seen as distinct from tangible access to wealth, which comes with the inevitable concerns of demotivation for the next generation. An invaluable way in which to enhance an adult child’s financial literacy is to allow them to become observers on boards or investment committees. The right to participate in meetings, take part in discussions and provide input can prove extremely beneficial. This is especially significant when considering that the primary reason cited as a cause for concern when considering a business transfer was that the next generation was not ready.[2]

Sustainable investing and ESG awareness

Including the next generation in investment decisions may have a positive impact on financial returns due to their interest in ever growing sustainability and the environmental, social and governance (ESG) space. This is an area where the next generation could bring something to the table, as they can be more aware of the issues in this space than their parents might be. The next generation are prioritising sustainability, inclusivity and transparent ESG metrics. Further, the next generation are particularly in tune to where assets are likely to become stranded as the world moves away from, for example, fossil fuel investments. Impact investing has graduated from being solely the domain of socially conscious individuals to being on the radar of those seeking top financial and other returns. Now, more than ever, incorporating sustainability thinking into one’s investment decisions is vital and many of the next generation are perfectly poised to provide valuable input on this subject.

Digital acumen

Many of the next generation have amassed knowledge in areas with which the existing generation may not have experience, such as cybersecurity, digital assets, artificial intelligence, machine learning, digital transformation and social communication. Capabilities in these areas can enhance operational efficiencies and, in some cases, are critical in order to remain competitive.

The future

As the stewards of wealth and legacy, advisors’ focus should be concentrated on educating and involving the next generation, and the support of a trust company business in the education process can prove invaluable. Sustainable success for family legacies will only be possible if the transition process is thought through and embraced as early as possible. The next generation can often bring fresh perspectives and innovative approaches that will better position family businesses for long-term success. Although many view the great wealth transfer with trepidation, with the right planning it will provide ample opportunities for success.

[1] The Cerulli Report—U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2021: Evolving Wealth Demographics

[2] Family Enterprise Foundation—Preparing the next generation: A family business roadmap

‘Riding the wave’ article first published in the STEP (Society of Trust and Estate Practitioners) Journal – Issue 3 2024

Celebrating our Swiss licence as a professional trustee

Geneva Insight

We are thrilled to announce that our Swiss office – Accuro Trust (Switzerland) SA – has been granted the professional Trustee Licence from the Swiss Financial Market Supervisory Authority FINMA.
As one of the largest Swiss Trust companies, this milestone achievement reinforces our commitment to providing market leading services to our clients in collaboration with our esteemed partners.
This is a new and exciting chapter for Accuro.

Industry Challenges

Mustafa Hussain

A potential collision course

Renaissance thinking amongst vanguard families who plan for both their legacy and their wealth is inspirational for the professionals who engage with them. But this new approach also comes with challenges.

In this two minute video, the third and final in a trilogy, Mustafa Hussain considers a number of challenges including how we balance the potential collision course between the need to preserve capital and the sacrifice of income in favour of social returns.

Legacy Evolution

Mustafa Hussain

The new living legacy blueprint

It is unusual but refreshing to see governance documents that use words such as “love, respect, humility and fun” as measures of progress and success.

In this two minute video, the second in a trilogy, Mustafa Hussain explains how the traditional view of family legacy is evolving, with vanguard families providing a blueprint for new living legacies that demonstrate a shift away from status, towards growth, change and values with emotions.

Contentious Trusts – What’s in a name?

Shakespeare said “That which we call a rose by any other name would smell as sweet.” A trustee who actively chooses to take on the role of trustee of a structure involved in contentious matters is often referred to as a “White Knight Trustee” or a “Contentious Trustee”. Neither are quite correct labels to apply but does it matter?

When trust structures are established, it is often done on the back of sophisticated financial planning and extensive expert legal and tax advice but this doesn’t guarantee that any such structure will be problem free for the duration of its existence. Families fall out, mistakes can occur and sometimes, litigation can ensue. Most trustees prefer to avoid litigation for obvious reasons. A “White Knight” or “Contentious Trustee” does the opposite; actively seeking out opportunities to assist with trusts that are trying to navigate their way through contentious matters. 

A trustee of this kind needs to be particularly strong on the technicalities of trust and company administration, able to deal with families that may be in dispute with each other and the volatile emotions that ensue in these circumstances, as well as readily able to deal with the complexities of litigation. It is no surprise therefore that contentious trustees are often experienced lawyers – after all, the labelling of “contentious trusts” derives primarily from the classification by lawyers of matters involving trust disputes. 

That said, in my experience, specialising as a contentious trustee goes much further than just working on entities that are involved in litigation. Over the years, I have gained considerable experience in working with individuals and structures that many trustees actively avoid for a whole host of reasons, including:
  • trust structures that are subject to tax investigations;
  • trust assets are under a seizure order (known in Jersey as a saisie);
  • trust structures subject to a “no consent” restriction following the submission of a suspicious activity report thus preventing the ordinary operation of the structure;
  • one of the connected parties, such as the settlor or a beneficiary, is under criminal and/or tax investigation; and/or,
  • a trust structure is heading towards insolvency.

In these scenarios, there can often be consequential and unusual difficulties to overcome such as the termination of existing banking relationships by a bank or banks thus requiring the establishment of new banking relationships in short order (not something that is easy to achieve with ongoing investigations taking place) and any existing debt to be refinanced. Or where a saisie is in place, all activity is subject to the consent of the Viscount in Jersey, which can lead to a delicate balancing act for the trustee vis-à vis their fiduciary duties towards the beneficiaries.

Despite unusual circumstances of this nature, these so called contentious trusts are the same as any other trust in that they continue to have assets that need to be administered. The primary difference is that the administration of those assets has to be much more carefully undertaken, with a keen regard to whatever the relevant individual circumstances that make that particular structure fall to be labelled as contentious.

Another key difference for trustees to bear in mind, in the management of contentious work within their businesses. In accepting such work, trustees should consider their own internal corporate structuring, with a view to ring fence and manage their own risks (including reputational) as often such work does end up in the public domain via the Courts. They should also ensure that the trustees’ insurers are made aware of and become comfortable with the controls put in place to manage such risks.

It is not all negativity and caution however, there are some upsides of dealing with contentious structures! Often when taking on so-called contentious trusts as the incoming trustee, you tend to be alive to the major issue(s) affecting the structure and can plan accordingly, even on occasion putting conditions in place on appointment as trustee – for example, obtaining written agreement from beneficiaries that there will be no distributions requested or paid whilst there is a tax investigation ongoing. It is always better to know and address issues upfront than to take on a structure unawares and identify them later on.

Correctly managed, being a “Contentious Trustee” can be hugely gratifying, particularly when successful outcomes are reached for all involved and a trust once considered “contentious” reverts to being just a regular trust structure.

Will the post-covid trends of 2022 continue in to 2023?

After a world ravaged by Covid-19 during the course of 2020 and 2021, with most of us having endured a lockdown of some sort or another, we were cautiously optimistic about 2022. Now that we are nearing the end of 2022 it would seem that our optimism about a rosy year was rather short-lived.

Conflict continues to escalate in various countries around the world, and the climate crisis is as much of a concern as it has ever been, if not more so, with serious water and food shortages around the globe continuing to put pressure on daily life for many.

Monitoring and Communication

For most of our clients, the main impact of these pressures has seemingly been confined to the value of the assets we hold for their benefit. As trustee, we are very aware of the assets that we administer and the effect that a turbulent world with high market volatility has on those assets. After all it is our duty as trustee to preserve and enhance the value of the trust assets in our care; inflation alone is rapidly eroding even the most cautious of assets.

Regular communication and consultation with the appointed asset managers regarding the performance of an investment portfolio, or property managers in respect of tenants and tenancies, has always been an important part of meeting this duty and never more so when the normal order has been replaced with chaos.

Increased Use of Technology

Throughout the 20th and early 21st century, trustees were often found travelling the globe to see beneficiaries and intermediaries. During 2020 and 2021, the Covid-19 pandemic brought travelling to an abrupt halt and we were forced to embrace technology. Never before have we seen such advances in technology with regard to asset management, reporting and video conferencing. Skype, Zoom, Teams, all allowed us to monitor and manage assets, and attend meetings around the world when the pandemic prevented us from doing so.

What has become apparent over time however, is the importance of conversations we have with families over a cup of coffee or meal after the scheduled meetings. It is often once the agenda has fallen away that families relax and talk about the things that they don’t realise are important pieces of information for a trustee. So it is understandable that 2022 has seen a rush by many to return to in person meetings. But how does that sit in a world that is trying to become carbon neutral? 
Undoubtedly the environment received a benefit from reduced travel during the pandemic. There were fewer planes in the sky and less traffic on the road which meant less pollution. In the face of a global commitment to protect our planet, we have to strike a balance with our duties to the families we work with.

In 2023 we will therefore likely see a mixture of face-to-face and e-meetings. The ease of e-meetings enables more frequent and ad-hoc engagement thereby improving communication, however they do not replace the intangible benefits gained from in person dialogue. Both have their place in our future and that of the trusts and families that we look after, and we will all benefit from the greater access to, and use of online reporting and asset management.

Impact Investing

In 2022 we have seen many of the families that we work with, across the generations, asking us to consider ESG, impact investing and philanthropy, in part at least driven by the fall out of the Covid-19 pandemic and the intensification of the challenges faced by society worldwide. Impact investing, a form of sustainable investing, seeks to generate positive, measurable social and/or environmental impact alongside financial return. The risks can be higher but with greater rewards which extend beyond financial return. 
Philanthropy sits at other end of the sustainability spectrum, as there is no desire to generate a financial return from the deployment of capital, capital which is intended to serve a purpose for betterment only.

We have seen increasing numbers of requests to consider the assistance of trust assets to do something positive in a community that could otherwise not afford to do so themselves. On a recent trip to Kenya, we had the privilege of visiting various charities with one of our clients whose family feels very strongly about making a difference in the community that they grew up in as well as internationally. This really brought home the harsh effects of living in impoverished communities where access to water is not a given. For example, drilling a borehole, providing a solar power array to power the pump and ultimately provide a village with running water so that the women and children don’t have to walk 40 kilometres a day to water their animals and bring water back to their villages. 
By providing them with water, the village can plant crops and the children can have an education and a future. As trustee, we have the privilege of being able to assist the families we work with in their endeavours to make the world a better place.

And in 2023…?

As we head in to 2023, we believe that market turbulence will persist, requiring ongoing scrutiny of the assets we hold as to value and suitability, the balancing act of in person versus virtual meetings will continue, and we are likely to see an increasing number of requests to consider impact investing and philanthropy, as the families that we work with try to do their bit in caring for our environment. It’s just another year in the life of a trustee!

The impact of transparency and Court scrutiny on the role of the protector

“Protector” is the title given to an individual, group of individuals or legal entity appointed to participate in the administration of a trust by acting as a check and balance against the trustees in the exercise of the powers granted to them by a trust instrument.  The protector is often appointed by the settlor of a trust when the trust is established in accordance with the terms of the trust instrument, which will also set out those trustee powers which are to be monitored, directed or restrained by the protector.  These powers commonly include a requirement that the protector consents to the distribution of assets, the appointment and removal of beneficiaries and/or changes to the terms of the trust, as well as commonly being granted the power to appoint or remove trustees.  A protector may also have the power to direct other actions to be taken by a trustee, including (by way of example) investment decisions.    

The concept of a protector is not one enshrined in law in Jersey but one that has developed over time, whether because settlors wished to retain a personal connection to the administration of their assets by corporate trust service providers or to provide the settlor with reassurance that the trust will be managed prudently and in accordance with the settlor’s wishes.

More recently, settlors have begun to consider the appointment of professional service providers as protectors. The use of professionals in the form of trust and company service providers (TCSPs) as protectors comes with a myriad of benefits: TCSPs are regulated by supervisory bodies such as the Jersey Financial Services Commission, they generally possess a detailed understanding of trust law, are experienced in the administration of trusts and better equipped to deal with complex matters, and they are more likely to be objective and impartial in the event of a breakdown in relations with the trustee (or even the beneficiaries).

The introduction of transparency regulation on a global basis clearly has many merits not least helping to defeat the funding of terrorism and fighting money laundering.  However it can also result in less financial privacy for some ultra-high net worth individuals and families.  One area that is often overlooked is the impact of transparency on the role of protectors to trust structures. This person may or may not be aware that under the Common Reporting Standard (“CRS”) their names will be reported against the assets of the trust structure.  In accordance with the CRS which was developed to facilitate the automatic exchange of information, financial institutions and trustees of trusts which are classified as Reporting Financial Institutions must report financial information on account holders to local tax authorities.  In accordance with the OECD guidance, “protectors must be treated as an Account Holder irrespective of whether [the protector] has effective control over the trust”.  This means that wealth held in trust is reported against protectors, despite them having no entitlement to the assets in question, which can lead to issues for private individuals acting as protector vis-à-vis their personal tax position.  The use of a TCSP to fulfil the role of protector therefore provides a tidy solution to this problem. Ideally this TCSP should be a firm independent of the TCSP acting as trustee.

A further driver for advocating the use of TCSP’s as protectors is that arising from current case law which has seen the extent of protectors’ powers coming under debate.  The “Narrower View” suggesting that the role of a protector is to consider whether any decision by a trustee is one which a reasonable trustee could reach.  The “Wider View”, that the protector is there to exercise an independent fiduciary function, albeit, on a more limited basis that that of the trustee itself.  In either scenario, TCSPs are well placed to act as protector given their experience in the trust arena, but should the latter view prevail, TCSPs, who are already used to exercising fiduciary powers, are perhaps better placed than those without such background.  It should give a family greater comfort that one professional TCSP is independently overseeing the trustees who invariably are also professional TCSP’s. That ensures that the trustee is kept in check and the family in essence have an experienced and regulated business in place to attend to those very important functions that are often only required in the time of a material decision needing to be made.