Trusts aren’t only way to guard family wealth
Trusts aren’t only way to guard family wealth
Mention succession planning and most people will think of trusts - for good reason. Few legal structures have proved as enduring, adaptable or effective in helping families preserve wealth across generations. Their longevity is no accident. Trusts can provide asset protection, flexibility and a degree of control that is difficult to replicate elsewhere. For many families, they remain the cornerstone of a well-considered succession plan. Yet modern succession planning is about more than trusts alone.
Family Investment Companies, or FICs, have become an increasingly familiar feature of modern succession planning. For many families, the question is no longer whether to use a trust, but whether a trust, a FIC, or a combination of the two provides the most effective route to achieving their long-term objectives.
At its simplest, a FIC is a private company established to hold and manage family wealth. Parents or grandparents will often provide the initial capital and act as directors, whilst different classes of shares can be used to benefit children and future generations. This enables founders to retain control of investment decisions whilst beginning the process of transferring value beyond their estates.
Much of the attention surrounding FICs has focused on tax. While taxation remains an important consideration, succession planning has never been solely about tax. The most successful arrangements are often those that balance tax efficiency with control, governance and the long-term stewardship of family wealth. It is here that many families see the attraction of a FIC.
A FIC allows those who have created the wealth to retain oversight of investment strategy and decision-making whilst gradually involving younger generations in the management of family assets. In many cases, the objective is not merely to pass wealth on, but to prepare future generations for the responsibilities that accompany it.
FICs can also offer a degree of asset protection. Through carefully drafted constitutional documents, families can regulate decision-making, restrict transfers of shares and introduce safeguards against risks such as divorce, bankruptcy and family disputes.
The growing prominence of FICs should not, however, be mistaken for a decline in the relevance of trusts. Far from it. Trusts remain amongst the most versatile and effective succession planning structures available. They can protect assets, accommodate changing family circumstances and help ensure that wealth is applied in accordance with a family's wishes long after it has left the original owner's estate.
That is why the debate is not really about whether trusts or Family Investment Companies are "better". Each has distinct strengths. Each can be highly effective in the right circumstances.
Indeed, some of the most sophisticated succession planning arrangements utilise both. A trust and a FIC can sit alongside one another, combining the flexibility and protective features of a trust with the governance and control offered by a corporate structure.
Perhaps that is the real development in modern succession planning. Families are moving away from searching for a single solution and towards building structures that reflect their particular objectives, assets and family dynamics.
Trusts remain at the heart of that process and are likely to do so for many years to come. The emergence of Family Investment Companies has not displaced them. Rather, it has broadened the conversation and expanded the options available to families seeking to preserve wealth, exercise responsible stewardship and plan confidently for future generations.
Alec Stewart is a Partner at Murray Beith Murray