...EVEN IF YOU’D RATHER NOT HAVE ONE!
HOW TO GET THE BEST OUT OF YOUR TRUSTEE...
Many family offices are established with a stated aim of bringing new organisational design and governance processes to family wealth, only to quickly establish that a family trust is already in place and cannot really be unwound or amended without significant tax or estate planning consequences.
This can lead to a situation where family office executives are left feeling that a significant part of what they are employed to govern is actually outside their control. This can lead to a poor or ineffective relationship between family office and trustees, leading to significant delays and frustrations when swift and pragmatic commercial decisions are needed.
First step – make sure the communication lines are (legally) open
The trustee may be initially reticent to provide information to the family office – their client is after all the family, not the office executives. A letter from the family authorising the trustees to disclose information to the family office is a must – as is a clear steer from the family to their trustee that not only are they permitted to disclose, but it is actually imperative and a key client expectation.
Design a good communication plan
How will the two parties talk to each other (frequent calls, physical meetings)? How will information be shared – via a portal or suchlike? The trustee will have policies and procedures and it’s important for the family office to know what they are so that they get what they need, when they need it.
Remember that this is a real piece of structuring
It is easy for the family office to see the presence of the trustees as a nuisance and complain that they sometimes “get in the way” or are “not easy to work with”. However, a trust is a legal arrangement between the client family and the trustee and must be respected if it is to be an effective estate planning tool. If the trustee does not observe the terms of the trust deed, the main terms of the letter of wishes, or case law established in their jurisdiction, they could be prosecuted for breach of fiduciary duty, a very serious issue.
Consider establishing a family governance committee
One of the most best communication platforms I have seen to encourage good relations between family office and trustee is a family governance committee. This includes members of the family, the members of the family office and the trustee – this focuses the collective mind as to what the ultimate objectives for the family are and how these can be implemented within the framework of the family office and the core trust documentation.
Consider changing trustee
It is genuinely possible that the trustee fails to engage in the family office objectives and may not be the best business partner. Examples provided to me are that they remain obstinate and determined to slavishly follow the trust documentation or are secretive and uncommunicative.
In such circumstances it may be best to consider changing trustee. Certain jurisdictions have higher standards and have more robust, better qualified and professional trustees, or it may be that they are more willing to engage with the family and family office to potentially make changes to the trust deeds to better reflect the updated circumstances and objectives of the family.
Take it as an opportunity to take a fresh eye to the estate planning and the family objectives
What might at first seem like an obstacle to good family office organisational design might actually be turned into a good opportunity to “re-set” the overall family estate planning. It is rare for trusts to be so rigid as to be incapable of being altered or amended. There are many cases of dynastic family trusts being changed or varied with the support of the family and the trustees. By way of example, this can be driven by one of the following:
• Death of the initial settlor leading to a change in family dynamics
• Potentially outdated concepts in the trust deed (same sex marriage, adoption or surrogacy not contemplated/considered)
• Different family branches wanting financial independence from each other
• A shift in family values and focus – perhaps more towards philanthropy, or ESG
• A shift in investment focus and preference –perhaps away from more traditional asset classes (such as real estate or fixed income) towards more complex financial assets / digital assets or passion assets (classic cars, artwork etc)
Conclusion
Trying to ignore or work around a frustrating or ineffective family office / trustee relationship is rarely an option. From my experience, trustees and family office executives working collaboratively can actually lead to transformational change which benefits the family overall.
