The Importance of Governance in Succession Planning

Effective succession planning for wealthy individuals who are serious about ensuring the successful transition of wealth to future generations.

January 14, 2019

For most entrepreneurs, it has become vitally important that the successive generations do not dissipate the wealth accumulated over a number of years. For this reason, effective succession planning is now the single biggest issue for many wealthy individuals who are serious about ensuring the successful transition of wealth from one generation to the next. However, these same wealthy families face a growing number of choices and challenges not only in relation to the ongoing management of the assets but also in ensuring that their shared values and vision can be safeguarded and that the agreed objectives of the family members are met.

In this respect, the Private Trust Company (PTC) or Family Office has now been widely developed to become a platform that can provide the ideal mechanism to preserve and enhance the value of the family wealth. However, a PTC will only be effective if there is proper governance in place.

So what is Governance?

A key element is to have a structure that will allow the family members to participate in the ongoing management of the family wealth but within an environment that is wholly supportive and providing an educational framework for, in particular, the younger family members.

A growing feature of these structures is the creation of a family council that is an organised forum allowing family members to interact directly with their professional advisers including the fiduciaries, legal counsel, tax advisers and investment managers.

The family council would be responsible for:

It is the development of an effective working relationship between the family members and the advisers that make this structure really effective.  In addition, any one of the advisors may be selected to play a key role in facilitating discussions between family members and helping the family to create good governance. A good facilitator will ensure that the process continues to develop whilst allowing family members the time and space in which they can articulate their own vision for the family’s future.

By having a good governance structure, the family members are more likely to see themselves as stewards of the family’s wealth and work together to preserve and grow this for the collective good of the family.

The risk of not developing this structure is that important decisions are made without due and proper consideration which in turn can undermine the unity of the family.

A lack of governance leads not only to family’s wealth not being optimised but in many cases being eroded and wasted.

When the family wishes to organise the management of assets for the future generation, but individuals within the family have differing objectives and views, family governance becomes particularly necessary. Governance is more than just a structure as it requires the establishment of a process for decision making that helps to avoid any potential conflict.

So how can Fiduchi help?

Asset Protection - we can provide the secure custody platform for safe keeping and monitoring of the family wealth. This is essential to provide peace of mind to all the family members. As a corporate entity, we can maintain continuity of service.

Asset Management - we can monitor the performance of the underlying assets and provide independent and consolidated reporting as necessary. We can also assist in developing solutions to ensure that the needs of the family are met.

Real Estate - we can provide the necessary control for the purchase, management or sale of any real estate on a global basis.

Education and Mentoring - we can provide the experience and knowledge to act as Mentor to the family members and to assist them to develop the skill set and the sense of responsibility for them to act as Stewards of the family wealth.

Governance - help establish the family council and as members of the family council or as advisers to the PTC Board, provide independent and impartial advice based on solid fiduciary practice and experience. We can help establish policies and processes that should include:

Trusts are intended to enhance the lives of the family members whether young or old. However, this aim can only be achieved when combined effectively with sound governance policies and practices. This leads to the enhancement of the family wealth and the successful transition of that wealth to the next generation.

Keith Graham
Non Executive Director
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