Clients are often more global than their U.S. advisors. But we can change that.
Here are some key trends in trusts and estates internationally: Trusts are gaining ground; family business succession advice is in high demand; family offices are increasing; next-generation issues continue; family governance is key; and family mediation and collaborative representation trends are positive signs.
And here's a quick overview of those issues:
Trusts are gaining ground — Very few countries include the common law concept of a “trust” in their traditional jurisprudence. Created in the courts of equity in England, common law trusts present a difficult idea in the more prevalent civil law countries (which include western Europe and other Civil Code jurisdictions), where “unity of ownership” is a basic tenet.
But the need to protect private wealth for the family's benefit is as old as the Code of Hammurabi (created circa 1760 B.C. in ancient Babylon), which includes several rules for preserving family assets for the care of daughters and wives, in particular. More recently, the international effort led by The Hague Conference on Private International Law and its 1985 Convention on the Law Applicable to Trusts and on Their Recognition is making some progress. For several years, the only non-trust countries that ratified the convention were Italy (1992) and the Netherlands (1996). Then, Luxembourg joined in 2003, Liechtenstein (a non-member state) in 2004, and, in 2007, both Monaco and Switzerland ratified the convention.1
In 2007, in Switzerland (which does not have internal trust law, but does have a large number of trust companies), a new Swiss Association of Trust Companies2 was created to strengthen the Swiss trust industry.
Indeed, even as The Hague convention gathers steam, a number of countries also have been adding their own new internal trust law, including: Bahrain, China, Dubai and Italy. Competitive marketing among jurisdictions continues (as is true within the United States) with offshore jurisdictions changing their perpetuities period and in some cases adding non-charitable “foundations” as an alternative structure that seems more familiar to those in civil law countries.
For Muslim countries with Shariah law, the classic “waqf” is being marketed as a Shariah-compliant trust. A helpful resource is a book with chapters on countries' laws by local lawyers: the 2006 edition of Trusts in Prime Jurisdictions, published in London.3
Interestingly, one effect of the recent market downturn is an increased interest in safely setting aside a nest egg of wealth — for which the trust is ideal.
But here's an important practice pointer: with assets in other jurisdictions, exercise a great deal of caution (and consult local advisors) before changing ownership to a trustee.
Family business succession advice is in high demand — The demographics (of very large wealth in relatively short time periods) in several rapidly expanding economies have raised all of the classic issues in family business succession.
The Family Business Network4 — based in Lausanne, Switzerland, and limited to family members who are active in second-or-more-generation family businesses — has been adding chapters around the world. In 2008 alone, new chapters sprang up in Dubai, Denmark and Singapore.
The Geneva-based Loedstar group,5 which offers closed conferences for family business owners, has added family business forums in Hong Kong and Dubai, in addition to its annual family business forum in London. The family business members come from more than 30 countries.
The Family Firm Institute,6 a U.S.-based organization of advisors to family businesses, held its 2008 annual meeting in London and in 2009 will include conferences in Belgium, Cyprus and Panama.
The London-based Campden Conferences7 (a subsidiary of Campden Media group that holds seminars and gatherings for business and financial families, substantial private investors, executives from private investment and family offices, family businesses and foundations, and their advisors) has a family business conference in India in 2009.
A number of business schools have added or expanded their programs for family businesses, including the Lausanne-based International Institute for Management Development,8 Institute Européen d'Administration des Affaires, which is based just outside of Paris and now has three family business chairs, plus several U.S.-based graduate schools such as Kellogg and the Wharton Global Family Alliance, which was formed in 2004 and is engaged in a number of research projects for global family businesses.9
Family offices are increasing — The number of family offices continues to explode on the international scene.10 The recent market deterioration and weakened status of large financial institutions have created even more of a need. (For what's happening to family offices in the United States, see Kathryn McCarthy's “Shake Up!” p. 34.)
Next-generation issues continue — How to keep a family business or accumulated family wealth intact for many generations remains a key challenge across the globe. The usual focus is on the ability of the next generation. These are issues that have always been part of the human condition, and they continue to puzzle the current generation. Hence, all kinds of programs are offered, globally, by many types of organizations, institutions and consultants.
Family governance is key — One of the keys to success in maintaining family wealth is to focus on family harmony, which means emphasizing the decision-making process within a family. Many large families, especially the ones I've been seeing in the Gulf Region, are undertaking extensive projects in family governance. When the next generation is actively involved, many of those next generation issues are addressed as part of the process. Families from Hong Kong to Saudi Arabia are working together to create family constitutions and bylaws.
Family mediation and collaborative representation trends are positive signs — An even deeper focus on family harmony is creating increased interest in family mediation. One London lawyer became so convinced that this underlying issue is the most critical one that he quit practicing law and now acts as a family mediator. Another London firm, Farrer's, is promoting the use of collaborative representation, in which (in addition to trust disputes) even divorce lawyers work together with their clients and each other to find peaceful resolutions. The London-based Society of Trust and Estate Practitioners has formed an official mediation group in the United Kingdom that includes trust dispute lawyers, to develop best practices in mediation as an alternative.11
On the Bright Side
Indeed, I am seeing some very positive trends. With an increased focus on family harmony, I predict a decrease in the angst and (of course) the litigation that destroys both families and their wealth. Working together in the development of a family governance system can provide the training and inspiration for each next generation. The creation of flexible and participatory trusts can provide safety from outside threats. Collaborative planning by families for the future will reap rich and lasting rewards.
- The current status and the full text of The Hague Conference on Private International Law's 1985 Convention on the Law Applicable to Trusts and on Their Recognition are available at www.hcch.net.
- The new Swiss Association of Trust Companies, www.satc.ch.
- Alon Kaplan and Barbara R. Hauser, eds., Trusts in Prime Jurisdictions, 2d. edition, Globe Business Publishing, London, 2006.
- The Family Business Network, www.fbn-i.org.
- The Loedstar group, www.loedstar.com.
- The Family Firm Institute, www.ffi.org.
- Campden Conferences, www.campdenconferences.com.
- International Institute for Management Development, www.imd.ch.
- Wharton Global Family Alliance, www.wgfa.wharton.upenn.edu.
- See Barbara Hauser, “Wither the Family Office?” Trusts & Estates, August 2007 at p. 54; available at www.trustsandestates.com.
- Society of Trust and Estate Practitioners, www.step.org.
Barbara R. Hauser is the director of Private Wealth Advisory for the Stanford Group (Suisse) AG in Zurich, Switzerland