Where there's a will

You could spend your life working hard to create a successful estate, but without putting a similar effort into your succession planning, all that hard work could come to nothing.

It is easy to equate succession planning with wills. But a will should merely be the final formality in an ongoing planning and management process – the culmination of pre-agreed plans, with no nasty surprises, no sources for dispute and no reason why the wealth passed on should not continue to flourish.

Of course, life (or death) is not always so simple: all too often, where there’s a will there’s a way to contest it and a potential conflict ready to explode. This is particularly true of rural estates, in which numerous family members might have an interest.

However, it doesn’t have to be like that. If there is a culture of communication and transparency, then a will is merely expressing what has already been agreed.

It is a straightforward idea, but it requires forethought, management and, above all, trust and openness.

“Families who think they are great at running a business are often shocking at managing their own relations,” says Clive Beer, head of Savills Rural Professional Services. “Then when the time comes for the family’s wealth to be passed on, the real legacy is one of conflict, misunderstanding and resentment.”

Roy Williams and Vic Preisser, authors of the book Preparing Heirs, studied more than 3,250 families who transferred wealth over 20 years.Their research showed that 70 per cent of inter-generational wealth transfers result in a loss of assets and family discord.

So why do they go so wrong? According to Williams and Preisser, just 3 per cent of failed successions were due to poor financial planning, tax and investments. The vast majority, at 60 per cent were due to a lack of communication and trust, while 25 per cent failed because the heirs were not prepared for the responsibilities and expectations that come with wealth.

Effective wealth succession therefore relies on good family governance: establishing shared values, aims and priorities; managing individuals’ expectations; defining their obligations; acknowledging their strengths and weaknesses; and preparing them for wealth. Underpinning this are agreed priorities governing the family’s wealth, whether that be conserving, consuming or contributing.

“In short, it’s about defining what you are about as a family,” says Mike Townsend of Savills Rural Professional Services. “The starting point is to form a vision of the future based on family history, personal experiences and shared values.The way to achieve this is by having honest discussions in a safe family setting. Open communication is essential, as is making sure that all family members are aware of possible problems and solutions.”

This responsibility extends to being clear-sighted about family members, acknowledging any limitations of character or ability. It sounds harsh, but if wealth is passed on to someone unable to cope with it, everyone loses. And while you’re being frank, consider pre-nuptial and post-nuptial agreements. “The real value of a pre-nuptial agreement is intellectual, rather than financial,” says Clive. “They are a spur to having a grown-up, unromantic discussion about wealth and setting out expectations and priorities. The process establishes trust and openness.”

Having done all this groundwork, what should you do with the trust gained, the information obtained and the channels of communication opened? That’s where a family constitution comes in.

A family constitution is a document that states, in laymen’s language, the family’s objectives and beliefs. It sets out on what terms wealth is to be inherited; any expectations on family members; how beneficiaries will be treated; and what they can expect to receive.

The constitution is not a legal contract, but it can pre-empt claims of broken promises later. Clive says that it exorcises the demons that lead to litigation by ensuring that trust has been established and expectations managed. And while helping to avoid argument, it can stipulate how to deal with disputes should they arise.

Family constitutions have existed for decades, but are relatively recent in the UK. Clive helps clients to write their constitution, although he stresses that initial values and priorities should be discussed and decided within the family, not with an adviser.

“I recommend revisiting the document annually and continuing to have open conversations as circumstances and family dynamics change, and getting all stakeholders to sign up to the constitution,” says Clive.

The final result is that a will, or a letter of wishes, merely summarises what’s in the constitution. And no matter what it states, a harmonious family – fulfilled and content with its lot – is the best legacy of all.

 

 
 

Key contacts

Clive Beer

Clive Beer

Head of Professional Services
Rural

Savills Margaret Street

+44 (0) 20 7877 4724

+44 (0) 20 7877 4724

 

Mike Townsend FRICS MCIArb TEP

Mike Townsend FRICS MCIArb TEP

Director
Savills Exeter

Savills Exeter

+44 (0) 1392 455 708

+44 (0) 1392 455 708

 
 

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