Wealthy individuals and family groups face inherent complexity as their wealth increases and their family continually grows and changes. Family office legal considerations can be far ranging and need to be addressed proactively, if not urgently, as closing the gate once the horse has bolted can result in adverse impacts for years, and often generations to come.
Carefully curated Family Office services can do the heavy lifting of the financial, business, tax and in particular, legal matters and for meeting obligations that affect wealthy individuals and their family groups.
Family Office services are increasingly in demand for wealthy individuals. As described in my colleague James Marshalls’ recent overview, a coordinated family office isn’t solely the domain of the ultra-wealthy. It makes good and practical sense for those with considerable and emerging wealth to establish personal administration earlier rather than later.
When it comes to wealth, complexity seems to dominate most things and this is made all the more difficult when decisions about hard assets involve the softer and often irrational and unpredictable nature of human emotions.
There is a raft of legal matters that need to be discussed and actions decided upon, and it can be overwhelming. Managing your considerable personal wealth now, as it evolves and in context of intergenerational wealth transfer cannot, and must not, be left to chance.
For the purpose of this article and for simplicity’s sake, I’ve assigned key legal matters to those that should be attended to ‘during life’ and those that matter ‘afterwards’.
However, it must be noted each individual and their family group circumstances will differ and will require a bespoke approach to advice and the blend of professional services.
During Life
There have been numerous studies by reputable organisations over the years that come to a similar wealth conclusion. Three generations appears to be a curse.
Among them Nasdaq, which reported 70% of families lost their wealth in their second generation and 90% of families lost it in the third. Indeed, we’ve written about shirtsleeves to shirtsleeves in three generations here in our Resources Unearthed blog as well.
If you are a family patriarch or matriarch who has created your family wealth, the prospect of losing all you’ve accomplished in your lifetime can weigh heavily on your shoulders.
Protecting your future offspring from themselves and preserving family wealth for the benefit of generations to come, well beyond the curse of three, should be among your legacy planning priorities.
You will need qualified legal advice and support, and this will be more effective when in collaboration with other qualified, expert professionals including your financial adviser and accountant.
Together an ‘advice team’ can cover all the bases while providing differing perspectives, expertise and initiative that not only contributes to seamless integration of a broad collection of family office matters but often produces better outcomes.
Legal matters that commonly need addressing include asset protection, establishing frameworks and structures for governance, legal administration for compliance to regulatory matters including securities and tax law, and dispute resolution that may range from mediation to litigation for resolving matters both outside and within the family group.
Legal advice and guidance requiring a deep understanding of the family’s wealth and purpose, includes deciding upon and implementing legal structures, processes and guidance for wealth transfer.
This advice and guidance can span immediate inheritances to children and longer-term intergenerational wealth transfer planning and implementation for grandchildren, great grandchildren and those beyond. Charitable giving and philanthropic activities will also need careful consideration.
As a family’s wealth is very often underpinned by successful business endeavours, advance planning and consideration to legal matters for business succession and transitioning family-owned businesses from one generation to the next will also require advice and support for future successful continuity.
Aside from business matters, there are often very personal decisions that need to be made relating to the family group as a whole and for the individuals within it.
For example, how do you want your children and other family members to benefit (or perhaps not) from your wealth during your life? Will you give with a warm hand, rather than making them wait until its cold?
How will you deal with fairness, and what could be the legal ramifications of gifting money verses formalising lending arrangements (even if you don’t intend the loan to be repaid) for significant purchases such as homes or businesses?
There can be disastrous consequences of lending money to family members with nothing more than the best of intentions. Unfortunately, marriages break down and in the absence of documentation you will likely have no recourse on your money, now a valuable home that’s included in marital assets to be split with a non-family member.
Just as damaging, business partnerships can turn sour resulting in bankruptcy and the substantial start-up funding given in good faith dissolves with the now defunct business.
Careful consideration must also be given to how wealth will be distributed though the generations, remembering you don’t yet know future family members or what their circumstances might be.
Family members can have serious problems – gambling, substance abuse or they become critically ill or have an accident and die suddenly without a Will.
Planning and documentation during your life can avoid a lot of potential problems and save a lot of money and angst later.
Afterwards
Quite apart from the emotional angst caused for loved ones, dying without a Will can leave immense legal, financial, wealth and business problems.
You may recall when Robert Holmes a Court, a successful businessman and one of Australia’s richest men, died suddenly aged 53. It was 1990, and reportedly at the time of his death he had assets were worth $800 million.
Unfortunately for all those he loved or depended on him he died intestate – without a Will.
The legal wrangling took 20 years and the jury is still out as to whether the seriously damaged family relationships ever healed or if they ever will.
You’d be surprised how many wealthy people don’t have a Will or Estate Plan. For those who do, it’s often so old that the instructions and provisions for beneficiaries bare little relevance to current circumstances.
Not surprisingly, from a legal perspective outdated Wills and Estate Plans that fail to keep pace with changing family relationships, business and legislative changes, can be so riddled with holes and they won’t hold water when contested in what can be long, drawn out and expensive legal battles.
Wealthy individuals need well planned and well executed Wills that provide clear instruction and provisions for their wealth in context of individuals and the family group as a whole.
This is to ensure, once they’ve passed on, their wealth is protected and distributed effectively, legally and in accordance with their agreed wishes and the overriding needs, goals and philosophies of the family group.
You (and everyone else in the family group particularly the family leaders) need a current Will, with appropriate Executors and Enduring Power of Attorney.
On the latter point, your representatives must be available to and capable of, making complex and difficult decisions on your behalf that will likely impact your family group, when you can’t.
Reviewing and updating your Executor and Power of Attorney should be done regularly as circumstances can change in your relationship with them. Not least they pre-decease you or you have a falling out that makes them morally or legally unsuitable to represent you.
If executing a Will is step one, then implementing an Estate Plan that includes among other things Testamentary and Superannuation Proceeds trusts, asset protection and tax minimisation structures for dealing with unneeded tax consequences if an important next step.
You may also consider a Statement of Wishes that articulates your intentions or desire for distribution of your personal wealth to your children and grandchildren. For family groups, this can also serve to reinforce the overarching goals, family values and responsibilities and the enduring charter of your family wealth.
Wealthy individuals who are serious about shoring up their legacy require a flexible Family Office service that integrates wide ranging legal, business, tax, and financial matters that affect both individuals, the family group as a whole and its generations to come.
To arrange a time to meet with Robert Lamb please call 61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au
To learn more about Robert, visit this link.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property, accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.
The information in this article is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate, we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.
