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Part Two - How to avoid family disputes when transferring wealth

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Part Two - How to avoid family disputes when transferring wealth

"Family Offices are now increasingly recommending a greater degree of communication and transparency between the generations."

In part two of this series examining the evolution of Family Offices, Ocorian's Richard Joynt expands upon the talking points that arose from last month's International Association of Young Lawyers (AIJA) Family Office seminar. Here he details how Family Offices are coping with inter-generational transfers and the techniques professionals are using in an attempt to avoid conflict.

Moderator: Richard Joynt, Ocorian         

Panellists:  Amy Collins, Ocorian; Charlotte Senior, Grant Thornton; Niklaus Glatthard, Bratschi Advocates

Conflict within wealthy families is certainly not a new phenomenon; it has been an issue for many generations. Family disputes concerning wealth can be extremely damaging, both financially and emotionally.

Quarrels can quickly escalate into legal wrangling over rights and obligations, leading to irreparable damage within a family. Therefore any diligent wealth professional should be looking for ways to avoid this. As Family Offices continue to evolve, the private wealth industry is coming up with innovative ways to mitigate the risk of conflict escalating into major issues.

Breaking tradition

Traditionally, wealthy families tended to be 'ruled' by the originator of the family wealth and their affluence was transferred down to their offspring (more often than not the offspring expect this transfer!). However, in cases such as these, details about the family's wealth are often internally limited, with younger generations kept in the dark.

The elder generation of wealthy families tend to err on the side of secrecy for a number of reasons. These include:

  • They do not like to reveal their levels of wealth to anyone other than those who, 'need to know'.
  • Will the younger generations be demotivated to study and work hard, thinking that an inheritance will sustain them instead?
  • They worry about what their offspring will do with this knowledge - will they tell their friends?

This level of secrecy has often been a source of tension and conflict within families. As a result, and in an effort to reduce potential conflict, Family Offices are now increasingly recommending a greater degree of communication and transparency between generations.

The importance of communication

In order to nullify inter-generational tension, some of the most effective methods of communication that we are seeing encouraged by Family Offices are:

  • A desire to describe the 'family values' that underpin the family's dealings with the outside world - The hope is that if all the family have their values aligned, they will understand the reasons for financial decisions and will have a greater sense of unity and purpose.
  • A mixture of formal and informal mechanisms to bring the next generation into the decision making 'inner circle' - This can take the form of informal family meetings where key decisions are made. These decisions may be which charities the family should support, or what mechanisms the next generation will adopt when they have to make communal decisions about family homes and wealth managers.

More formal techniques that we are witnessing are the rise in the number of family constitutions, charters and annual family meetings. This is no mean feat however, encouraging active and healthy discussions between family members can be difficult and requires endeavour!

Experience is key

Ocorian's Family Office team have significant experience of conflict avoidance mechanisms, and are able to work with the family's lawyers to implement and manage such regular activities. To learn more about Ocorian's Family Office offering, go here.

Part One - Why are Family Offices on the rise?

The AIJA event was organised by Bedell Cristin and chaired by their partner Ed Drummond.

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