By Julie Kleis, Director of RBC Wealth Management’s Fiduciary Specialist Team in the British Isles
Being a beneficiary of a trust is often a fortunate position to be in. But inheriting wealth can come at a cost. While a beneficiary may suddenly find themselves free of financial concerns and empowered to support passion projects or charitable causes, they may be inheriting more than just money.
Having worked hard to build a future for their family, wealth creators tend to hold strong views on how their assets should be managed, both during their lifetime and after they have passed away. Yet beneficiaries from younger generations may see things differently.
For example, beneficiaries may seek to distance themselves from wealth derived from certain industries or even wish to remove association to the wealth altogether. These reactions to wealth can lead to conflict and emotion.
Disharmony among the beneficiaries themselves can also occur. We recently worked with a family where a wealth creator had established a trust to support their grandchildren’s education. There were three children, however only two of the three had children of their own. Following the death of the wealth creator, the third child, who had not received support from the trust in the same way as their siblings approached the family and trustees to seek compensation for their ‘fair share’.
If such fractures are magnified, families should brace for potentially disastrous consequences, including strained relationships and assets being split and losing value in the process. If the conflict leads to litigation, it’s likely to be damaging and counter-productive, whatever the result.
The key to limiting conflict as a beneficiary is to be open and honest in all communication with the settlor, trustees and other beneficiaries. They should be clear about their goals, values and priorities, and actively listen to others’ points of view.
Trustees play a vital role in managing the conflicting opinions and wishes of beneficiaries. As stewards of the trust’s assets, their goal is to ensure the trust’s wealth is preserved and used for the greater good.
This can mean having difficult conversations. For example, it’s not unusual for the trustees to be asked to take on the sensitive task of telling the wealth creator’s children to sign a prenuptial/postnuptial agreement to prevent the money made during their lifetime becoming embroiled in divorce settlements.
All too often, beneficiaries lack an adequate understanding of what a trust is for and how it works, leading to unrealistic expectations and challenging conversations.
While trustees own the assets and have the ultimate control over what happens to them, they are in fact there to offer beneficiaries advice and support, to encourage their ideas for how to use the wealth, and to help them get what they want from the settlement, as long as it aligns with the principles and direction dictated by the settlor, and the long-term sustainability of the wealth.
A trust is not a legal entity; it’s a relationship. And like any relationship, it requires open and honest communication. By working with trustees openly and honestly, we can find the best way of passing it from generation to generation to benefit the whole family.