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BUSINESS Succession

“Establishing a clear plan for how assets should be handled is essential to securing a healthy future for the business”

trusts can offer the high degree of flexibility necessary when confronted with widely differing circumstances among beneficiaries. In the usual way, the trustee will have broad powers to enable it to respond, in light of changing circumstances, to the settlor’s wishes. This flexibility is valuable for estate-planning purposes because none of us, even those with neat, nuclear families, can be sure what the future holds.

Careful planning For the purposes of such a trust, care is needed when it comes to naming the beneficiaries. In the case of fixed-interest trusts (such as life-interest settlements), one would expect the trust deed to identify the beneficiaries specifically and precisely. By contrast, in the case of discretionary trusts, one option is for beneficiaries to be widely defined as a class (to include all or any children, grandchildren and stepchildren, plus every variety of spouse and partner). Another option would be to establish a more limited class of beneficiaries (e.g. just the children), but to give the trustee power to add people to that class in appropriate cases. A letter of wishes accompanying the trust will give the settlor the chance to set out in detail, and confidentially, all their thoughts about their heirs: about who should (and who should not) benefit and in what circumstances, and what role they may be entitled to take in the business.

The flexibility of these arrangements can be used to achieve many positive estate-planning goals. Equally, they can be used to mitigate risks and threats to family wealth. There are instances where it is necessary to contemplate how the family business might need protecting from the consequences of unhappy marriages in the family, or from beneficiaries in other difficulties. We know that a trust may have some asset-protection value on divorce (although advisors will be aware of the limitations in this area, in the English courts at least). A prenuptial agreement can be another line of defence, and a letter of wishes can make it clear that before any future weddings, the beneficiary in question must enter into a prenuptial agreement if they want to inherit under the trust. Working with families to establish a clear plan

for how assets should be handled is essential to securing a healthy future for the business, and is likely to prevent acrimony among beneficiaries on the death of the principal. Whereas a will



becomes a public document when admitted to probate, trust documents and letters of wishes have the advantage of being private documents. Another advantage of trust structures is the

way they can be used as a shelter from foreign inheritance laws that may apply to the family. This is important because many jurisdictions do not allow testamentary freedom and prescribe how assets are divided among beneficiaries. European forced-heirship regimes are one example; Shariah inheritance laws are another. Shariah rules, which mandate an unequal division between sons and daughters, can throw up some interesting cases. In a recent client example, a trust was used (in conjunction with the family’s religious advisor) to achieve a Shariah-compliant result that recognised the particular needs of a disabled daughter in comparison to her financially successful and able-bodied brothers. Whether a family business is handed down to the next generation as a going concern or sold to allow beneficiaries to enjoy the resultant wealth, there is little doubt that making succession plans well in advance is essential to protecting assets and preventing disputes after death. Advisors need to be prepared to guide their clients through what can be a complex and sensitive process to draw up, and from time to time review, a comprehensive plan that reflects the circumstances of their clients, with their complicated families and businesses.

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