By Aynsley Vaughan, Global Head of Private Wealth and Family Offices, TMF Group.
Over the past 10 years, the Private Wealth sector registered significant changes. In particular, the evolution of the so-called traditional family into blended, multi-jurisdictional as well as multi ethnicity families illustrating how complex and challenging the new scenario is.
The findings from a recent survey [i], [1]revealed that although it has long been difficult to navigate family politics, it has become even more challenging to advise the modern family as new generational perspectives continuously emerge.
The challenges that modern families are facing can be even more complicated due to different factors such as divorce, same-sex marriages, non-biological children and transgender relationships.
These changes to families bring increased complexity and can often lead to conflicts: from generational ones within the family to others resulting from differences across jurisdictions. The direct consequence of a higher complexity of modern families are disagreements, breakdowns in family relationships and increase in litigation.
Cross-border or tax conflicts resulting from differences across jurisdictions can be contentious. However, there is an additional point to be highlighted: the passing of time has an impact on the language, meaning that conflicts are also generated by out-of-date language used in wills, trusts and deeds. Alongside a number of other disputes arising from unclear or old-fashioned language, it is clear that a number of laws and legal definitions are out of touch with the current reality and need to be brought up to date.
Moreover, conflicts can be particularly damaging for family businesses: there is a greater trend towards generational conflict within the family and disagreements in relation to family business succession. A cause of tension is also apparent where there are differences in philosophy between the younger generation of the family.
No surprise that the increase in complexity and the potential for conflict has given rise to the need to use professional advisors. Tax advice tops the list of the services seeing higher demand– a key issue for multi-jurisdictional families as a result of differing tax rules and the increased focus on tax transparency and compliance. This is also evidenced by an increase in demand for global/cross jurisdictional services. Additionally, due to their flexibility, trusts are also proving attractive as they provide the ability to respond to changing circumstances in light of a more complex family composition.
Multi-jurisdictional families may see their planning significantly impacted when exposed to different tax and legal landscapes. Practitioners increasingly need to be aware of and knowledgeable about the varying rules in relation to domicile and tax, and differing succession and matrimonial property regimes and how these interact with each other in order to effectively advise families.
The most important requirement from service providers considering this trend is the breadth and depth of service offering to meet both personal and business needs – showing the value placed on both the variety of services provided and the level of knowledge and expertise. The second priority is a service provider that manages third-party service relationships on the client’s behalf. Both of these indicate that clients place a premium on convenience and having everything in one place. The third most important requirement was multiple country/office location.
Another point to be taken into consideration are the cultural differences. In particular, cultural expectations, values and priorities can vary from country to country within the same Continent, highlighting the different expectations of descendants, hierarchies within families and resistance to giving up control. Different cultures play a crucial role in relation to inheritance laws, the role of women, approach to business and religious law. All point to the importance of advisors having a strong understanding of culture and language in relation to their client base.
Respondents to our survey overwhelmingly identified communication as the most important advice they could provide to families. With early and open conversations about planning and succession being key to avoiding conflict.
What is clear is that there is no longer a one-size-fits-all approach to meeting the needs of modern families. Advisors are having to recalibrate their approach as both the families’ they serve, and the world around them become more complex. This increase in complexity and wide-range of family compositions, requires a bespoke approach and often includes collaboration with other professionals across multiple jurisdictions.
Modern family dynamics, coupled with cross border issues and a changing regulatory landscape, presents complex challenges when managing wealth, developing succession plans, and protecting assets.
Communication, simplicity in structuring and adviser collaboration will help families address the issues they face in planning for their futures with certainty and clarity.
[1] Meeting the needs of modern families, STEP and TMF Group, November 2021
