When families create a trust, the goal is to preserve wealth within the family. Unfortunately, some trusts have been used as a vehicle to perpetrate theft and fail to achieve their goal of protecting and growing wealth for families. A trust is a legal arrangement that is created when the ownership of an asset is transferred to trustees to be secured for the intended beneficiaries. A trust deed is drafted to guide the management of the trust by the trustees. How can families ensure that their trusts achieve their intended goal of preserving wealth?
Trustees
It is important to appoint trustees who are well-suited to the task. A trustee should be objective and skilled to carry on their duties which include but are not limited to trust administration and governance. To ensure the success of the trust, the trustee must understand their responsibilities in terms of the law and the trust deed. Where individual trustees are appointed, they should get appropriate training to enable them to fulfill their responsibilities. Family trusts can also consider bringing onboard corporate trustees as co-trustees to bring about much-needed independent expertise, continuity, objectivity, and governance in managing the trust.
Strong family relationships
For the family wealth to be sustainable, the family itself must be sustainable. Therefore, for a strong family trust, you need strong family relationships. The family needs to come together to define its values, and purpose for existence which will then define how it will govern the family trust. Family members should participate in and contribute to the development of a shared purpose that is agreeable to all. Members of the next generation should be involved in the trust so they understand.
Investments
Real estate has been the primary object of many family trusts. Where family trusts restrict selling and borrowing against property, there is a risk of having a dead asset that families are unable to leverage for economic gain. As such, trustees should consider diversifying investments that can enable the family trust to be self-sustaining in the future. For example, trustees can consider partnering with investors to develop land while ensuring that beneficial interest is still secured with trust beneficiaries and that the purpose of the trust is not compromised. Families that achieve multi-generational success and sustainability view their family business and other assets as part of wider family wealth portfolios. They ensure that they have a clear investment policy that guides investment decision-making. They identify their entire portfolio of wealth and grow it over time to meet the family’s needs from generation to generation. With the right governance, family trusts can be a strong vehicle for creating and preserving multi-generational family wealth.
*Disclosures: This material does not provide individually tailored advice. It has been prepared without regard to the individual circumstances and objectives of the person(s) who receive it.
