To structure, or not to structure?
At least ask the question

Katie Bonfrer, Director, Growth & Business Strategy, Nedgroup Trust, examines the array of structuring options families can pursue to ensure their wealth benefits its members for longer.

Lots of families are realising the benefits of wealth planning to determine how their wealth can best help their family and themselves. However, still too few families are taking full advantage of their wealth structuring options – such as family investment companies, insurance bonds or trusts. Taking on the additional support to pursue these options will help ensure the maximum benefit and longevity of family wealth.

Still too few families are taking full advantage of their wealth structuring options – such as family investment companies, insurance bonds or trusts

There are plenty of statistics on the number of people that do not take up financial or wealth planning, as well as attempts to quantify the financial benefits of that planning. There are, however, very few details as to the number of families that should consider structuring their wealth, but have not. This is usually for a variety of reasons. Many may not realise the number of benefits of this type of advice or, in some cases, wish to cede their title of ownership for assets that they have worked hard to build. For others, it may be that the negative media coverage in the mainstream press has led to an aversion. For most, however, it is the perennial problem facing most financial decisions: they don’t know enough about the options available; and it’s easy to procrastinate about our finances given how busy daily life is.

A centuries-old strategy

Wealth structuring is an industry that is almost 200 years old. The first trust company was the South African Association for the Administration and Settlement of Estates, founded on 22 April 1834. It’s a date I know well as it was a company that is part of the heritage of Nedgroup Trust and its parent company Nedbank Private Wealth. The company was established on the back of legal changes that took place following the ceding of the Cape Colony (now part of South Africa) by the Dutch to the British in 1814.

At the time, Dutch marital law stated that any property control was in the hands of the husband – the wife’s power was limited to that of a minor. This created issues when there were children of deceased settlers – i.e. minors inheriting from parents who had died, where not all the heirs were known or perhaps living in the Cape – as their affairs needed to be administered. So, the Board of Orphan Masters (or the Orphan Chamber) had been set up in around 1673.

The “new” English law was however different – each spouse was entitled to their own (separate) property and had full control over it. With the role of the chamber deemed to be obsolete, King William IV proclaimed that the Orphan Chamber should be abolished on 4 March 1832.

However, the underlying problem hadn’t disappeared – children were still being orphaned. Two years later, the South African Association for the Administration and Settlement of Estates was established with an intent that almost perfectly mirrored that of the old Orphan Chamber: to draft wills, administer estates and look after any trusts for those unable to attend to their own affairs.

The proliferation of trust companies

Trust companies were soon proliferating around the world as the benefits of their activities were understood. Here in the UK, for example, the Peabody Trust was established in 1862 to manage the philanthropic efforts for George Peabody, an American banker who lived in and loved London. Peabody (as the organisation is now called) remains to this day and is one of London’s oldest and largest housing associations with around 55,000 properties across London and the South East. Its mission remains to “put the most vulnerable first”.

The reason for the history lesson is important: philanthropy and succession planning remain the two biggest reasons behind any wealth structuring. 

The reason for the history lesson is important: philanthropy and succession planning remain the two biggest reasons behind any wealth structuring

Since that date other options have become available. In 1979, for example, the first offshore insurance bond was made available. Family investment companies started earlier, but began to be used in estate planning more regularly following the implementation of the Finance Act 2006 in the UK, which brought radical change to the inheritance tax treatment of trusts. Each solution comes with a range of benefits, as well as disadvantages, and it’s important to understand both before you make a decision.

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Top Tip

People tend to get overly focused on the investment management side of managing wealth, but actually the structure in which that wealth is held can be just as important – not least in mitigating the tax exposure it generates. Looking at wealth across the family could deliver serious tax savings and a host of other benefits too. If you require wealth structuring or financial planning advice, simply let our matching tool know.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

So how do I start a discussion?

First off, it is worth considering more than one company with regard to your wealth structuring. As with your experience at findaWEALTHMANAGER.com, there are many aspects to the ultimate decision you might make and, even if you like what you hear from the first provider, giving yourself the opportunity to take time and make a considered opinion is important, especially given the nature of many structuring decisions that are there to support your family over decades and generations.

Giving yourself the opportunity to take time and make a considered opinion is important, especially given the nature of many structuring decisions that are there to support your family over decades and generations

Meanwhile, any provider should be structure agnostic – so it helps if you choose a company that can offer a  holistic service that is able to refer you to a trust expert should you need a trust, or general wealth planning services to find the most simple and effective solution.

It is also important that your wealth planning discussions are coordinated with your external professional advisers, such as your lawyer and tax adviser, to ensure you are making a decision on which structure makes most sense for you, taking into account wider considerations. This is something we often coordinate directly to simplify the process for our clients, as we do not provide legal or tax advice. Your circumstances are unique and your holistic position and requirements need to be considered fully and properly.

It is also important that your wealth planning discussions are coordinated with your external professional advisers, such as your lawyer and tax adviser, to ensure you are making a decision on which structure makes most sense for you, taking into account wider considerations

What should I look for in an adviser?

We believe there are three things to think through:

1. Global perspective

Even if you think your financial affairs are focused on one jurisdiction, we still believe that, given today’s interconnected world, it is important to look at organisations that have the expertise to support your financial goals and aspirations now and in the future – as you don’t know how life may change for you and your family over coming years.

For example, choosing a company that has limited experience as it administers assets in just one location could result in the set-up of a structure that doesn’t support your financial needs if you buy a holiday home abroad, given the UK is one of only a handful of countries that does not force rules on who is and is not entitled to some of your estate.

Even if you think your financial affairs are focused on one jurisdiction, we still believe that, given today’s interconnected world, it is important to look at organisations that have the expertise to support your financial goals and aspirations now and in the future

That global perspective will also mean that the company giving the advice is more likely to have a depth of experience covering a wider range of assets, and will have advisers with diverse professional backgrounds who can consider an approach from multiple angles.

2. Transparency

The legal intricacies and detailed rationale as to why each of the various structures may or may not be suitable needs to be clearly understood by you.

There is, as with any financial decision, a considerable level of jargon and specialist terminology. However, you should not select a company who has sought to bamboozle you into submission.

The legal intricacies and detailed rationale as to why each of the various structures may or may not be suitable needs to be clearly understood by you

Your adviser should be able to take you through the various options available, give examples as to how they have helped other clients in similar situations to you, and help you appreciate how the structure will fare in the real world – factoring in flexibility for the unknowns in the future. That person is also more likely to become a trusted adviser who will be there for you and your bloodline in years to come.

3. Value for money

There is certainly a place for off-the-shelf solutions if your affairs are relatively straightforward. However, as your adviser starts to understand your lifestyle, your family, values, preferences, fears and aspirations, the situation is usually more complex than originally understood. Here, the option for a bespoke solution should be immediately available. Of course, the value part of the cost of the set-up and any ongoing costs also implies a certainty as to any annual fees and that these are commensurate with the complexity.

There is certainly a place for off-the-shelf solutions if your affairs are relatively straightforward. However, as your adviser starts to understand your lifestyle, your family, values, preferences, fears and aspirations, the situation is usually more complex than originally understood

What should I do next?

We have built a business in Nedgroup Trust that has more than 25 qualified trust and estate practitioners, based in the Channel Islands of Jersey and Guernsey, who support clients in managing their wealth across the globe.

Meanwhile, we work closely with our colleagues at Nedbank Private Wealth in London for those clients that require UK specific wealth structures. As mentioned above, we work closely with our clients’ accounting, legal and tax advisers so that any solutions we provide complement and meet their needs. If a client doesn’t have any existing professional advisers, we are happy to introduce some. 

If you’d like to start a conversation with Nedgroup Trust or Nedbank Private Wealth, please contact the findaWEALTHMANAGER.com team HERE.

 

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