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Family governance for family offices and UHNW families

Posted on 31 January 2023

Family governance arrangements are increasingly popular for UHNW families with a global footprint. The substance and mechanics are unique and bespoke to each specific family's concerns and requirements, but there is usually a similar process that can be followed to draw out the relevant issues for discussion and resolution.

Our Private Tax and Wealth Planning team has worked with a number of families and family offices on governance arrangements. We summarise some of the key steps and considerations below.

Step one: put together a 'family balance sheet' so as to understand all of the family's assets and the wealth holding structures in which these are owned. This helps the advisers to understand the family's vision for the use and management of its wealth in the future, its goals and aspirations and how future generations will be involved.

In tandem, we can consider whether the existing structures are optimised (for example, from an international tax perspective) and are suitable to achieve the family's objectives.

In setting out the family's vision for the future, the governance arrangements usually include parameters around:

  • investment decision-making;
  • attitudes to leverage and third party investment;
  • how and to what extent economic benefits should be conferred on family members;
  • the roles of family members in any family businesses;
  • the approach to spouses, civil partners and long term relationships including the terms of pre- and post-nuptial policies (if any); and
  • attitude to tax minimisation and philanthropic goals.

For some families this may include some commentary around any applicable forced heirship rules and how the rules should apply to each of the family's assets.

Identifying and formalising the handling of these issues in a 'family charter' document guides future generations as to the family's wishes. Historically, this has proven to be absolutely vital to mitigate the risk of family in-fighting and, potentially, litigation following the death of the head of the family that can often arise in the absence of a clear legacy and guiding set of principles.

Step two: consider with the family whether, and to what extent, it is appropriate to give the contents of the family charter 'teeth'. To achieve this, the terms of the family's structures need to be reviewed, including any trusts, private trust companies, foundations and/or corporate vehicles with a view to potentially implementing some of the terms of the family charter. For example, the wealth generator's wishes could be reflected in a letter of wishes or a trustee distribution policy, or even in the legally binding default provisions of the trust deed or similar. The terms of corporate vehicles should be considered to prepare shareholders' agreements, formalising robust corporate governance arrangements between family members and other investors. This would delineate the derivation of economic benefits from operational decision-making, set out the desired process for appointing/removing family directors. It could also provide for sub-committees to whom authority over certain decisions could be delegated, for example an investment committee and who should sit on this committee.

For further information on how to put in place family governance arrangements, please feel free to contact us.

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