What core challenges do families face when succession planning?

It is sometimes proposed that the family’s purpose be formalised through a written family constitution (mission statement). This is not a formal, binding document and does not have an agreed precedent.

It is generally a set of motives or principles agreed between family members that sets out the family’s purpose and the key philosophies they aspire to. 

It is often said that the value of the constitution is in its creation, namely the hours spent by a family understanding each other’s motivation and vision for the future, but also establishing where the fault lines lie. 

Detractors will argue that a family constitution offers limited value, on the basis that the discussions will create tension and the constitution itself will ultimately reflect the patriarch/matriarch’s vision for the future (on the assumption they maintain control) and will simply delay the problem until his/her death.

This line of argument should not be dismissed, not least because a constitution is not binding and it is unquestionable that dynamics shift following a death. 

However, steps can be taken to turn what has been agreed into a binding format, as described below.             

Wills

These are the ultimate succession planning tool, but they are sometimes dismissed as a side show to the bigger picture, presumably because they are viewed as a simplistic solution to a more far-reaching conundrum.

Wills are in fact complex documents that need as much consideration as any other structure that a family decides to put in place.  

Trusts have a reputation as being tax-avoidance vehicles but this is a blinkered view. 

In the UK wills are based on trust law and often have trusts embedded that develop into significant asset-holding vehicles for future generations. 

They also send a strong emotional message at a difficult time for any family. Why are certain family members trusted to act as executor/trustee while others are not? Why was it appropriate to leave certain assets outright to individuals while others are ‘mere’ beneficiaries of a trust?   

Lifetime gifting

While wills self-evidently deal with planning on death, the concept of lifetime gifting is altogether broader, encompassing direct transfers of wealth and the establishment of structures intended to benefit families over generations. 

Typically, UK and US-centric families will look to companies and trusts to plan for the future, but there are other entities and ownership regimes that may be appropriate when planning for international families.

Trusts

A trust is a legal relationship in which an individual (the settlor) transfers assets to a trusted individual/company (the trustee) to manage in the best interest of named individuals (beneficiaries) or for prescribed purposes.  

Trusts have a reputation as being tax-avoidance vehicles but this is a blinkered view.