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The cards spread out across the table at a private bank in Switzerland — defining various family values, principles and activities — would not be out of place in a therapist’s room. But they are actually helping to facilitate a difficult conversation about wealth and inheritance.
It is not hard to find evidence of the need for such discussions. In the UK, for example, there has been a surge in inheritance disputes in recent years, with many of the cases involving wealthy families.
In one instance, reports suggest a family lost out on a multimillion pound fortune after a relative changed his will by text message from his deathbed. In the US, too, disputes are proving costly. Earlier this year, one beneficiary of a will lost his share in multimillion dollar trust by contesting the entitlement of others — because the will contained a “no-contest” clause.
Advisers to wealthy families say that, with the increase in so-called “blended families”, the need for clarity on financial intentions and strong legal structures to facilitate those wishes has never been greater.
“Complexity is a key thing our clients need help with,” said Marco Sella-Rolando head of wealth planning international at private bank Julius Baer, which uses the ‘values’ cards, mentioned above, to help in client discussions.
Wealthy family members, he points out, are often spread across multiple countries on multiple continents — and so are their assets. That leaves them having to navigate growing concerns about geopolitical risk, as well as changes to regulations and taxes.
And the fact that many wealthy families include stepchildren and children from multiple marriages only adds to the difficulties.
Sella-Rolando said Julius Baer tries to be the “issue identifier”. The card exercise, he says, can help. As family members choose cards and describe why the values they represent are important to them, the banks’ trained advisers can make these “wealth holders” realise — often, for the first time — that the younger generation may feel differently.
The more honest discussions that typically ensue can then lay the groundwork for drawing up a family charter, setting out the family’s intentions — relating, for example, to succession, or the dividing of assets, or philanthropy. It can also specify what financial provision should be made for those members who want no part of the family business. While such agreements are not always legally binding, they can help in that they ‘memorialise’ a family’s intentions.
Discussions like these can also lead to an understanding of the need for prenuptial agreements.
Brett Frankle — partner at law firm Withers, specialising in divorce, pre- and postnuptial agreements and the stress-testing of structures such as trusts — reels off cautionary tales.
The most common errors that clients make in drawing up pre-nuptials, he warns, are: failing to ensure that the agreements are transparent, in that both husband and wife understood what they were signing; failing to ensure they are fair; and failing to have them address the needs of both parties and any children. Pre- or even postnuptials that fail to pass these tests could still be challenged in court, he notes.
Frankle says this can lead to problems if it results in legal action being brought in England, which has a reputation as the ‘divorce capital’ of the world because its laws try to treat parties equally with regard to assets built up since the marriage.
This can encourage ‘forum shopping’, whereby the financially weaker partner might try, for example, to strengthen an association with the country by sending their children to school there and buying a house in England to occupy for part of the year. These arrangements could be enough to persuade an English judge to over-rule financial agreements such as prenuptials.
However, a landmark case in 2010, in which an English judge ruled to uphold the prenuptial agreement preserving a German heiress’s fortune, has helped shore up these agreements.
Another mistake Frankle highlights is failing to understand that children cannot be dealt with in a prenuptial agreement because they are not legally capable of signing away their rights.
Outside of the UK, families wishing to think about inheritance in a complex blended family must also be conscious of their exposure to jurisdictions with forced heirship, which is common across continental Europe. “Forced heirship does mean that, in some countries, children, including adult children, have an automatic right to inherit whereas in England there is no such right in law,” Frankle explains.
For Lucie Spencer, financial planning director at Evelyn Partners, a wealth manager, complexity can be deepened when working with less financially experienced people “who are disproportionately women”.
She finds that some women, in a rush to exit their marriages and have nothing more to do with their husbands, can be prepared to accept far less than a court would rule that they deserve. Spencer says her job is often to encourage clients to take their time and think about their needs and their more wealthy spouse’s finances.
Most of all, though, advisers agree that clients should regularly revisit any agreements — including family charters, prenuptials and even trusts — to ensure they reflect current circumstances and remain fit for purpose.
