The cards spread out on a table in a Swiss private bank define the values, principles and activities of different families and would look at home in a therapist’s room. But they actually help facilitate difficult conversations about wealth and inheritance.
Evidence that such a discussion is necessary is not difficult to find. In the UK, for example, inheritance disputes have increased rapidly in recent years, many of them involving wealthy families.
In one case, a family is reported to have lost millions of pounds after a relative changed their will via text message from their deathbed. Conflict has proven costly in the United States, too. Earlier this year, one beneficiary of a will lost his share of a multimillion-dollar trust after contesting the rights of others because the will contained a “no challenge” clause.
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Advisors to wealthy families say that with the rise of so-called “blended families,” the need for clarity on financial intentions and strong legal structures to facilitate those wishes has never been greater. states.
“Complexity is a key point where clients need help,” said Marco Serra Rollando, head of Wealth Planning International at private bank Julius Baer. uses the “values” card mentioned above.
He points out that wealthy families are often spread across multiple countries on multiple continents, and so are their assets. This will require addressing not only regulatory and tax changes, but also growing concerns about geopolitical risks.
And the fact that many wealthy families have stepchildren or children from multiple marriages only adds to the difficulty.
Sera Rolando said Julius Baer is trying to become a “problem identifier.” He says practicing with cards can be helpful. When families choose a card and explain why the values ​​the card represents are important to them, bank-trained advisors tell these “wealth holders” that younger generations feel differently. In many cases, it can make you realize for the first time that you may be in trouble.
A more honest discussion usually lays the groundwork for creating a family charter and clarifying the family’s intentions in relation to inheritance, division of assets, philanthropy, etc., for example. It is also possible to specify, for example, what financial measures should be taken for members who do not want to join the family business. Although such agreements are not necessarily legally binding, they can be helpful in “remembering” the family’s intentions.
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Such a discussion may also lead to an understanding of the need for a prenuptial agreement.
Brett Frankl, a partner at the law firm Wizards who specializes in stress testing divorces, prenuptial and postnuptial agreements, trusts and other structures, has a cautionary tale.
The most common mistake clients make when drafting a prenuptial agreement is that “the agreement is not transparent in that both husband and wife understand what they are signing. “This is not the case,” he warns. Fairness cannot be ensured. and failed to meet the needs of both parties and the children. He points out that failure to pass these tests, either before or after marriage, can still be challenged in court.
Mr Frankl said this could cause problems if the case were to be brought in the UK, particularly as the UK is the “divorce capital” of the world, as the country has laws that treat parties equally in terms of assets they have built up since their marriage. He says it has a good reputation. .
This could encourage ‘forum shopping’, where the economically weaker partner could, for example, send their children to school in the UK or buy a house in the UK and spend part of the year there. There is a possibility that they will try to strengthen their relationship with that country. Such an arrangement could be enough to persuade a British judge to overturn economic agreements such as prenuptial agreements.
But a landmark case in 2010 in which a British judge ruled in favor of a prenuptial agreement that protects a German heir’s estate has helped strengthen these agreements.
Another mistake that Frankl highlights is not understanding that children cannot legally waive their rights and therefore cannot be covered by prenuptial agreements.
Outside the UK, families wishing to think about inheritance in complex blended families should also be aware that they are exposed to forced inheritance jurisdictions, which are common across continental Europe. “Compulsory inheritance means that in some countries children, including adult children, have an automatic right to inherit, but in the UK there is no such right by law,” Frankl explained. do.
Lucy Spencer, director of financial planning at asset management firm Evelyn Partners, says the complexities can be compounded when working with people with less financial experience, who are “disproportionately women.” .
She points out that some women who have hastily dissolved their marriages and no longer have anything to do with their husbands are ready to accept much less than the sentence that the court deems them worthy. I noticed that there are also. Spencer said her work often encourages clients to take time to think about their own needs and their wealthy spouse’s finances.
But above all, advisors need to ensure that their clients regularly review all agreements, including family charters, prenuptial agreements and even trusts, to ensure they reflect current circumstances and are fit for purpose. We agree on one thing.
