Fred Milner, Mourant

Understandably, UHNWs want to ensure their wealth is protected for future generations. This is where lifetime planning comes in, typically involving trusts, companies and foundations, or similar structures. The structures can have a variety of aims including philanthropy, tax planning and operational efficiency.

When arranging lifetime planning, rights and obligations are created which are legally enforceable. The rights are typically owned by beneficiaries, and the obligations owed by those in a position of fiduciary responsibility. There will also be interested third parties, for example regulators and tax authorities. These stakeholders are interested, in different ways, in the legal enforceability of the arrangements. 

This is why structures need to be robust and work in a way that is optimal for the UHNW and their family. Good governance will help accomplish this.

Achieving good governance

The first step is to invest in the design stage, and it is critical that there is a common understanding of the real aims of the structuring. Only when that is understood can the appropriate advice be given. It pays to get the design right.

Good governance includes appropriate checks and balances. The process of creating structures and transferring control to a fiduciary requires understanding and trust. Often UHNWs are concerned about giving up control, but it may be a necessary price to pay for the benefit of successful and robust succession planning.

The structure documents must incorporate, or at least anticipate, the governance arrangements which will be most helpful. Just doing the normal things well is a good starting point. This includes good communication protocols, timely financial reporting, straightforward decision-making mechanics, and the employment of qualified and unconflicted advisors. Sometimes an operating manual or user guide is appropriate.

Why good governance matters

Whatever arrangements are implemented, they must be followed. Good governance maximises the probability of the arrangements being respected by stakeholders.

However, it is always useful to have some flexibility, enabling you to revisit the design and amend the structure and the documents as circumstances change. While UHNWs are often sure that they want things set in stone, none of us can predict every eventuality. Good governance anticipates change.

Good governance also reduces the risk of disputes arising; if disputes do arise, good governance will help resolve them.

Finally, wealth planning is one of the most important things UHNWs can do for their family, and good governance provides peace of mind.