The Great Wealth Transfer: managing intergenerational tensions in Guernsey family trusts

• The Great Wealth Transfer is bringing new beneficiary expectations around wealth, governance and family priorities. 
  
  
• Early engagement and effective family governance can reduce the risk of intergenerational disputes. 
  
  
• Clear decision-making and thorough record-keeping remain the best protection for trustees facing increased scrutiny.

Significant wealth is expected to pass from the 'baby boomer' generation to their successors over the next 30 years. A recent decision of the Royal Court of Guernsey highlights the challenges this "Great Wealth Transfer" presents for fiduciaries where wealth is held in trust and the inheriting generation has different priorities from those before them.

Differing generational priorities, greater reliance on inherited wealth and changing tax rules that sharpen the focus on protecting family assets are all likely to give rise to disputes.

In X Protector Limited v The Minor and Unborn Beneficiaries, the Protector of a Guernsey law trust sought the Court’s blessing for a decision to "onshore" the trust by appointing UK-based trustees. Despite significant tax implications, the move was prompted by beneficiaries motivated by ethical, social and moral considerations, whose priorities differed from those of the generation that settled the trust.

Although the case is unusual, it illustrates how changing beneficiary expectations are reshaping the administration of family trusts. As significant wealth passes between generations over the coming decades, trustees and advisers are increasingly likely to encounter beneficiaries whose values, priorities and expectations differ markedly from those of the settlors who established those structures. We consider below emerging themes in this area and practical steps trustees and advisers can take to manage them.

Beneficiary expectations

Family trusts designed to preserve wealth usually reflect one generation’s wishes to provide for the next, but the next generation’s outlook may be quite different by the time it comes to benefit.

Conflicts can arise over the interpretation of the settlor's wishes, control of the assets, entitlement to benefit and communication with the trustee. They can be more pronounced where the assets include operating businesses in which the next generation has little interest, preferring to use inherited wealth to pursue new opportunities. Differences may also arise where beneficiaries take a different view of investment strategy, sustainability objectives, philanthropy, tax planning or the role of offshore structures than the generation that created the trust.

Common triggers for disputes in this area include:

• Existing intergenerational conflicts, which cannot always be avoided where families are already fractured;
  
  
• Limited communication or transparency from the settlor, leading to beneficiary expectations that conflict with the trustee’s understanding or with those of other beneficiaries; and
  
  
• Differing approaches to benefit, such as lifetime gifts to some beneficiaries but not others, which may be well justified by their circumstances but can still cause disputes.
  

Practical tips for trustees and advisers:

• Record the reasoning behind decisions, as a clear rationale reduces the risk of criticism even though not all trust documents are disclosable;
  
  
• Communicate proactively and consistently with beneficiaries, and get to know them early, so they understand key decisions and are less likely to challenge them; and
  
  
• Consider mediation and alternative dispute resolution at an early stage, where it may lead to a swifter and more effective resolution of problems before positions become entrenched. In Guernsey, a mediated settlement can bind beneficiaries in specific circumstances.
  

Family governance

Effective governance and succession planning are central to managing intergenerational issues. Expectations of decision making and wealth management often differ between generations, particularly in families with a strong sense of lineage and duty. Younger beneficiaries may also expect greater transparency and involvement in decisions affecting family wealth, creating tension where existing governance arrangements reflect a more traditional approach.

Trustees should ensure an effective governance structure is in place and reviewed regularly. Family members should understand their roles and those of the trustee and any protector, and structures should adapt to changing involvement and priorities over time while maintaining continuity.

Common triggers for disputes include:

• Complex structures involving family offices and investment advisers, in which inexperienced beneficiaries may find it difficult to understand each party’s role;
  
  
• Generational differences where a fiduciary, such as a protector, is of the settlor’s generation. In the Matter of the Billevese Trust concerned an application to the Royal Court of Guernsey to remove a protector appointed by the settlor grandmother following a serious breakdown in relations; and
  
  
• Ineffective communication between fiduciaries and different generations, which can allow tensions to build.

Practical tips for trustees and advisers:

• Treat governance as an integral part of succession planning, using documents such as a family charter that set guidelines for decision making and work alongside the trust instrument;
  
  
• Communicate openly with beneficiaries and others involved with the trust to promote transparency and understanding; and
  
  
• Monitor for early signs of tension in governance and address them before they escalate.
  

Trustee decision making

Intergenerational tensions frequently lead to challenges to trustee decision making, as differing priorities create disagreements between beneficiaries, trustees and protectors. As beneficiaries become more engaged in the management and purpose of family wealth, trustees may face increasing scrutiny of decisions relating not only to financial outcomes but also to broader family objectives and values. We expect such disputes to increase following the Privy Council’s decision in A & Others v C & Others, which affirmed the wider role of the protector.

Difficult family dynamics do not, however, relieve trustees of the duty to make decisions, and the courts are increasingly reluctant to grant a Public Trustee v Cooper blessing merely because a decision is difficult.

Common triggers for disputes in this area include:

• Limited communication with beneficiaries, who may not understand how discretionary decision making works or how it affects their position under the trust;
  
  
• Poor record keeping, given that clear records of the factors considered provide valuable protection even where deliberations are not disclosable to beneficiaries; and
  
  
• Conflicts of interest, where a trustee holds several roles within a structure or the views of a dominant party become too closely identified with its purpose.

Practical tips for trustees and advisers:

• Stay informed about beneficiaries and family dynamics, rather than relying on one person’s view of the family;
  
  
• Keep proper records of deliberations and advice received when making important decisions, including how that advice was taken into account; and
  
  
• Educate beneficiaries on what they can expect from the structure and maintain open communication so that tensions are identified early.
  

Conclusion

The Great Wealth Transfer presents real challenges for fiduciaries, but a proactive approach to engaging with each generation can significantly reduce the risk of disputes.

As wealth passes to a generation that may have different expectations around transparency, governance and the purpose of family wealth, trustees will increasingly need to navigate differing priorities and approaches to decision making.

It is never too early to build relationships with successor beneficiaries and to form an independent view of their priorities, rather than relying on the views of the previous generation. Doing so helps identify tensions early and ensures beneficiaries feel engaged and that their views are acknowledged.

Good fiduciaries are skilled at building relationships and balancing competing priorities, strengths that will prove invaluable in meeting the challenges of multi-generational wealth.