Trust Case Study
How much to tell the children?
Mr A, a UK resident but non-domiciled individual, came to NWH (Guernsey) Limited some years ago with a number of concerns that are often held by HNWIs.
Mr A’s primary concern was just how much information as to the extent of his wealth he should be sharing with his children as they grow up. Mr A wanted his children to become financially independent, establishing their own careers before they became aware of any possible future inheritance.
The children were all under eighteen and in private education in the UK at the time.
Creating the Structure…
On receiving professional advice, Mr A decided that the best course of action open to him would be to settle a large proportion of his assets onto a discretionary trust for the benefit of his children and their descendants. This would remove the assets from his estate and, more importantly, from his control, placing them in the hands of professional trustees who would not be emotionally involved in the demands of the family. Settling these assets onto the trust had the additional benefit of reducing the value of Mr A’s estate for Inheritance Tax purposes.
Mr A chose Guernsey due to its proximity to the UK, its established legal precedents and robust court system in dealing with trust matters. NWH Global was selected as being a privately-owned and therefore wholly independent trust company. We have access to a wide range of service providers, such as banks and investment managers, and are not limited in selecting such services. Furthermore, as a small, boutique fiduciary company, Mr A appreciated that we were able to assist with the creation of a bespoke structure, utilising the advice received from his UK and international advisors and working with them in a collaborative way.
The trust was settled and while the children were still in education funds were utilised to settle school fees, but there were no other requirements for distributions from the trust; and having been able to appoint appropriate investment managers and advisors, after full consideration of the likely future needs of the beneficiaries, the capital value of the trust fund had increased significantly. Regular meetings with Mr A, both in Guernsey and at his homes in the UK and elsewhere, ensured that the trustees remained fully informed of his wishes and of the ever-changing dynamics of his family.
Life moves on…
Some years after the creation of the trust Mr A contacted the trustees advising that as the children had all now established their own careers and were financially independent, and the eldest was considering marriage and hoped to start a family, he thought the time was right to tell the children about the trust. He wished to seek our input as to how best to explain to the children the trust, its assets and, more importantly, its purpose.
Mr A was delighted when the trustees, as part of their role, took responsibility for this communication. A trustee and family meeting to discuss the structure was arranged where we were able to advise the children of the nature and quantum of the assets and the means by which the trust could assist them with their future plans. The family meeting was extremely productive and the children, while surprised at the extent of the assets held in the trust, wholly understood and accepted the reasoning behind the establishment of the trust and the way in which the assets were managed by the trustees. They also wholly understood that the key decisions in the future would be taken by the trustees (albeit in consultation with their father) and that there would be no advantage in lobbying their father for funds.
Benefiting as intended…
Moving forward, various family members have approached the trustees, primarily to seek investment in business ideas or to borrow money from the trust to purchase homes for their families, all of which are being serviced by the borrowers.
Also, Mr A's children have had children themselves. The decision has been made to continue the course chosen by Mr A and, as a result, his grandchildren are unlikely to learn of the extent of the family wealth before they are considered to have the maturity to understand the responsibility associated with it. However, the plan is to fund the best available education for these children from the trust fund.
As Mr A becomes more elderly, he has expressed to us just what comfort he takes from engaging professional trustees who genuinely care about his family and what is best for them.