There are a remarkable number of pithy catchphrases and quotes about money. After all, it is a subject that fascinates many and we are led to believe variously that it is the root of all evil and can buy you neither happiness nor love.
Everyone from Pink Floyd to Abba to The Beatles has penned songs about it too and great interest is taken in how people spend, earn or accumulate their wealth. As Malcolm Forbes, the late publisher of the magazine that bears his family name, once joked, ‘I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died.’ While not the ideal financial planning strategy, his tongue-in-cheek quip does raise the sensitive topic of inherited wealth. For some who inherit a windfall, it goes hand-in-hand with an overwhelming sense of responsibility – and occasionally self-doubt or lack of self-worth – with wealth that has been handed down rather than earned.
Irrespective of how wealth is accumulated, often not enough attention is paid to the thorny issue of how to protect it. This is where a private client lawyer earns their crust. It is a role that can almost incorporate lifestyle training as much as complex legal and tax advice, with most clients needing help in the stewardship of their wealth and how to cushion its impact.
That might sound like a strange thing to say, but certainly, whenever it comes to family inheritances, I am often involved in a stewardship role when relatively young beneficiaries begin to see income or capital released to them. In those scenarios, there needs to be a plan for starting conversations about finance, sooner rather than later, to avoid a situation akin to opening a Pandora’s box. When those conversations don’t take place, it is little different from a lottery winner who has no chance to consider the implications of inheriting a fortune before the life-changing six numbers fall into place.
A serendipitous moment like that can, unfortunately, come at a price, perhaps lending credence to US essayist and philosopher Ralph Waldo Emerson’s assertion that ‘money costs too much’. The cost, in some cases, is a person’s inability to deal with it and there is plenty of research highlighting wealth’s link with addiction, whether that be substance abuse, alcohol or compulsive behaviours, or poor spending decisions.
The lawyer’s role is to help clients, often across generations of a family, understand how to deal effectively with wealth. The Society of Trust and Estate Practitioners (STEP) has an excellent guide Family Dialogues on the Responsible Stewardship of Wealth. It is well worth a read and highlights the importance of – and issues with – family governance, mindful succession and helping younger generations of a family to deal with their status.
As the guide states, ‘surprises are for Halloween’. Therefore, it is important to think early on about the route map for passing wealth down the generations. There are plenty of examples of successful business people who, having devoted their careers to accumulating wealth, are wary of passing this on to children or grandchildren. While the fear of curtailing an adult child’s drive and motivation to succeed in life might play a large part in this, and deter some from tackling succession planning, to avoid the issue altogether is risky.
In our experience, the use of asset protection trusts can provide an effective solution to control the flow and timing of the distribution of family wealth. Trusts are not just for the super wealthy and they have been used for generations as an important way of protecting against common risks such as divorce, family dispute, ill health, the vulnerability of beneficiaries and insolvency. Trusts have, for years, been a mainstay of the financial landscape in the UK – think pension trusts and life policy trusts – and they certainly have a part to play in insulating beneficiaries who might otherwise find themselves vulnerable to the full weight of financial responsibility and the neuroses that go with it.
For some, the next step beyond asset protection trusts could be setting up a family charitable foundation and this is an excellent way of educating the next generation to understand the value of money and the difference between capital and income, not to mention fiduciary responsibilities. Where there’s a family board of charity trustees, it can also provide an introduction to life on a board and a quick route to highlighting what money can do and the positive impact it can have. Our experience, on behalf of clients, is that this can make a real difference and charitable foundations can be genuine success stories.
Whatever the level of wealth, it comes with responsibility, and the psychology and education for clients around how to deal with that successfully often falls to a lawyer or a wealth manager. It is about guiding clients to their desired goal so that they ultimately do the right thing with, and for, their money. If only we could find a singing solicitor to write a tune about that…
Important information
These views are solely the opinions of Murray Beith Murray, a leading Scottish private client law firm, and do not necessarily reflect the views of Weatherbys Private Bank. Investments can go up and down in value and you may not get back the full amount originally invested. Trusts are not suitable for everyone and you should seek professional financial advice before proceeding.