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25/10/2016

A family charter

How collaborating with your family to lay down some ground rules can help to put your house in order

How collaborating with your family to lay down some ground rules can help to put your house in order for future generations

With substantial wealth come complex affairs

Managing a family’s wealth may involve trusts, companies, investment vehicles, and charities. On top of the structures come multigenerational, and probably international, responsibilities. Throw a family business into the mix, and family decisions impact the lives of employees and the wider community, with a blend of management, family and ownership issues. Careful consideration and planning, with the help of your wider team of advisers, is strongly advised.

How can I point the way?

When setting up a trust, a person may accompany it with a letter of wishes – an indication by the settlor of the way in which he or she wishes the trustees to exercise their discretion in relation to a discretionary trust. Common with Will Trusts and Charitable Trusts, such letters can never be binding, but can give the Trustees some very helpful guidance for many years to come.

In a similar way, a family charter or constitution can set out agreed principles about how a family would like to operate. This would include addressing the rights and responsibilities that come with the wealth, but also perhaps formalising thoughts on, for example, philanthropy. Like a letter of wishes, a family charter is not legally binding, but, as it is usually produced in collaboration with the wider family, it can have more influence. Involvement in the process helps to achieve buy-in from the family members concerned.

The practicalities of arranging a charter

That process is quite straightforward, at least in theory: a family comes together and formalises a document on the family ethos. It will encompass a statement of agreed values; something around what matters to that family and the ways in which people agree things should be approached.

The family “summit” is a good way of gathering the input of various family members and aligning their collective views. In the context of a family-owned company, the charter may incorporate a mechanism to separate family matters from the day-to-day running of the business and may set some ground rules about how this separation of interests might actually be made to work in practical terms.

At a higher level, a family charter will also explain the importance of certain family values or traditions. The summit really helps here as a thoroughgoing discussion is often required. Opinions may differ around the family group and reaching a consensus on, for example, what values have underpinned the growth of family wealth or business can be tricky. Although more difficult to define, these are important issues to discuss as they will impact the family brand in the greater community – an emphasis on charitable donation, or a link to corporate social responsibility for a business, for example.

Once the charter has been developed, family relationship-building events and activities are beneficial in continuing to strengthen bonds and can be helpful to keep everyone on the same page. As the family grows, regular meetings and reaffirming family values can help with a sense of cohesion and common purpose, which can save larger arguments later on down the line.

Working with your trusted advisers

A family charter, like all elements of wealth planning, is something that should be discussed with and shared with your usual advisers. Not only will they have a broad understanding of your own family’s affairs, but they can bring insights from their experiences with other families who have been through a similar process.

 

Kleinwort Benson – working with families for over 200 years

Our trust directors work with individuals and families all over the world, putting in place structures to hold and protect wealth. Please do get in touch if you would like to discuss this or any of the issues raised in the article.

Simon Rees is Head of Kleinwort Benson Trustees Limited. He has specialised in advising private clients and trustees for 35 years. In his career, Simon has worked in major firms of accountants, focusing on private client tax and trusts, in a private bank as head of Private Client Tax and Trust Company director, and as Director of Trust Services in a specialist private client law firm. This breadth of experience enables him to advise trustees, private clients and their families from a very broad perspective. Simon is a member of the Society of Trust and Estate Practitioners.

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