In October, Jersey Finance CEO, Geoff Cook, spoke with Legal Business on the importance of preparing for the Great Wealth Transfer.
Driven by globalisation, technological advances, demographic shifts and societal change, one of the next big challenges on the horizon for private client lawyers is the phenomenon dubbed the ‘Great Wealth Transfer’.
With trillions of dollars expected to pass from baby boomers to the present-day generation, via the transfer of direct and absolute wealth ownership, this intergenerational transfer of wealth is likely to have a clear impact on the way legal professionals support the future succession and wealth planning demands of private individuals and their families. This includes the transfer of individual influence in existing wealth-holding structures.
With £400bn of assets held in trusts established by private individuals (Capital Economics, 2016), and 50 years of experience in supporting private individuals and their families, Jersey is well placed and ready to support that evolution, and those firms who share a desire to accommodate the needs of the next generation.
Jersey Finance’s most recent publication, ‘Flourishing Futures: Making Succession a Success’, produced in partnership with law firm Bedell Cristin, explores the changing needs of the next generation and examines the intergenerational transfer of wealth. It provides a roadmap for wealth and legal advisers working within this evolving environment, offering helpful tips to ensure a smooth transition for families across the globe.
The report reflects that in North America alone, around $30trn of wealth will change hands in the next 30 to 40 years (Accenture, 2015), and explores,
against a backdrop of rapidly changing family dynamics, the impact on this family wealth.
Families today have undoubtedly more complex, and immediate, needs than 30 years ago when trustees originally set up structures for the current generation of beneficiaries and this is likely to
have repercussions for structuring lawyers. For the founder generation of trustees, for example, the go-to wealth holding structure was typically a ‘one-size-fits-all’ trust whereby trustees could exercise a wide range of discretionary powers over a mix of property held in the trust. Families tended to have common attributes, living and remaining in one home jurisdiction, with a moderate understanding of wealth-holding structures and sharing similar goals as to the purpose of the trust.
Nowadays, families are more likely to consist of stepchildren, relationships without marriage and same sex marriages, with some family members living, working and being educated in multiple
jurisdictions, and not all members sharing the same personal or commercial goals.
It is unlikely the one-size-fits-all approach would be suitable for the next generation’s requirements. Legal professionals need to be acutely aware of the need to adopt a tailored approach, carefully manage expectations, open up a dialogue and promote understanding among family members of how wealth structuring has changed over the past three decades.
With the next generation showing a greater propensity to engage in philanthropic activity, for example, there might be opportunities to explore different structures to support those ambitions,
such as a foundation rather than a trust.
Equally, advisers should be open to innovative solutions to the challenges posed by the Great Wealth Transfer, for example by establishing private trust companies with the next generation involved as directors, to ensure wealth planning strategy remains future focused.
Meanwhile, one area of the legal profession that is most likely to see an impact from the Great Wealth Transfer is that of dispute resolution. Inheritance and succession can often hit a nerve
among families. Case studies in ‘Flourishing Futures’, courtesy of private client specialist Edward Bennett, a partner at Bedell Cristin, provide real-life examples of conflicts suffered by families dealing with succession, revealing that conflicts are due, in part, to a lack of early education among beneficiaries.
The Knight Frank Wealth Report 2018, for instance, finds that only 26% of families have a full wealth transfer plan in place and suggests that the next generation is not being educated early enough about the management of wealth.
Using a forward-thinking approach to assess whether a trust is able to accommodate the lifestyle, characteristics and investment ambitions of the next generation will become increasingly important. It is vital that legal advisers act now to ensure the structures currently in place meet the future wishes of the next generation.
Embracing technology and adapting communication channels very much forms a part of that, with the next generation expecting fast, accurate access to information and for their social media activity to be fully integrated into their wealth management framework. Legal advisers are not immune to that and should be considering how they can support and engage with their clients, wherever they might be in the world.
It is clear that there will need to be a certain amount of change and evolution within the global private wealth industry as we look forward to the new era of wealth management. Those legal advisers, trustees and fiduciaries who are forward thinking, who can adapt, who are digitally enabled and who can demonstrate flexibility will be the ones that will win the day.