The Financial Times recently reported on the use of family charters as a way of protecting family-owned businesses. A family charter (also called a family constitution) can serve as an effective tool to help manage the transfer of wealth across generations.
As explained in the article, statistics support the fact that it is rare for a family business to survive beyond the third generation. This can be for a number of reasons, of course, and it is not always due to factors such as family disharmony or mismanagement. However, all family business owners should be alive to these risks. A family charter can set out the ground rules for how a family should operate and the expectations regarding the future ownership and management of a business.
Family charters are generally not legally binding but, if approached correctly, they can have a high level of moral force spanning across the generations. They are extremely flexible and can cover matters ranging from dispute resolution to the codification of a family's shared values. Family charters are usually one of the tools alongside other succession planning solutions, such as wills, trusts and corporate structures, to achieve a family's objectives and will often be a great place to start.
The so-called 'Great Wealth Transfer' is upon us, as more assets than ever before are expected to pass to the next generation over the next 25 years. Planning for this will be essential. The key in our experience is to engage in conversations with this next generation sooner rather than later, to agree a framework to safeguard family legacies. A family charter can be an excellent way to enable this. Our team has extensive experience in helping families navigate these tricky issues and finding solutions to facilitate the transfer of wealth.
If you would like to discuss how a family charter might work in your or your client's circumstances, please do not hesitate to get in touch with a member of our Private Wealth group.
