Insights
Resolving family differences: the role of advisers and trustees
In every family, there are differences of view which sometimes cause friction and may even damage relationships. Such differences are part of life and often pass, over time, but occasionally they become deeply entrenched, having a long-term impact on the family, its dynamics, its wealth and its legacy.
When such differences affect key decisions regarding the management of family wealth, in all its forms, trustees and advisers are often drawn in, because of their specific decision making or advisory role and because of their relationships with family members.
But what are the responsibilities of a trustee or adviser in such circumstances? What should be their objectives? What should be their approach and how should they get started?
DEFINING CIRCUMSTANCES AND RESPONSIBILITIES
NATURE OF THE DISAGREEMENT
The first step is to try to understand who is disagreeing with whom, about what and why? This may be more difficult than it appears at first sight. As so many families will be aware, the issue apparently under dispute may be only the latest manifestation of deep rooted differences, so a calm and rational debate of the particular issue may not be easy.
The situation can be further complicated because some parties have a much better understanding than others of the matters under dispute, as a result of their respective career backgrounds, education or business acumen. Advisers may have to play an important part in bridging such a gap in understanding.
If the dispute is over wealth, the adviser will try to identify the disputed capital and crystallise the points of difference. If the dispute is over position or leadership roles in the family business, for example, then he or she will try to establish how the decisions have been made and communicated.
POTENTIAL CONSEQUENCES
If advisers can build a really clear picture of what is being disputed, they can achieve a better understanding of what is at stake and the potential consequences of not resolving the problem. The consequences of some disputes can be limited, at least in terms of financial loss, perhaps enabling a line to be drawn so that everyone can move on.
On the other hand the dispute may be deep rooted and pervasive, so much so that the consequences are potentially unending, in which case the only possible way of dealing with it is to tackle the causes of the problem, however difficult that may be. For example it is not unusual for an individual’s view of a particular matter to be clouded by unspoken resentment of another decision, perhaps quite unrelated and perhaps in the distant past.
DEFINING A SUCCESSFUL OUTCOME
There might be alternative definitions of a successful outcome, particularly if there is a trade-off between family relationships, a financially equitable solution and the avoidance of financial loss. There is often a difference between the objectives of one or more individuals and a successful outcome for the family as a whole. For the family, the most successful outcome is a resolution which enables the main principles and values of the family to remain intact. Where all family members have a voice, where the legacy is not tarnished, and where there continues to be a framework for the family’s capital to be protected and grow, in line with agreed objectives. As the trustee would usually represent the family as a whole, this should ultimately be their goal, whereas advisers could represent individuals, so their goals might be different.
SHOULD A TRUSTEE / ADVISER GET INVOLVED?
When it comes to family disputes, there is a distinct difference between the duties of a trustee and an advisor. Trustees are linked to the dispute in a fiduciary capacity and may be required to make decisions which could either exacerbate or resolve the problem. In doing so they will have to consider their obligations under the terms of the trust deed, and their legal responsibilities to all beneficiaries, which will take precedence over any wish to reconcile the views of family members.
An adviser gives advice rather than making decisions, and will not therefore be bound by the same legal constraints. Nevertheless, the adviser could be contractually linked to the family, a family member or the trustee. There could be other advisers better placed to intervene or to represent one or more of the parties. This requires an adviser to make an honest self-assessment of his or her influence and relationship with certain family members.
They must also consider the danger that trying to help could backfire, especially if he or she lacks relevant skills and experience for intervening. Both a trustee and an adviser must ask themselves whether the risk of doing nothing is better than the risk of getting involved, if it results in veering outside their defined responsibilities. In some cases they may need to walk away, even if doing so disadvantages their own interests, but it is much more difficult for a trustee to walk away, as he or she has a continuing fiduciary obligation.
PLANNING THE APPROACH
After the initial assessment, there are, broadly speaking, five possible approaches:
- Without significant risk to the client or adviser, he or she can attempt a low profile exercise in building better understanding between the parties with a view to bridging their differences. We call this facilitation. Such an exercise is likely to involve meetings with each of the parties individually and if all goes well, possibly bringing them together to reach agreement, or at least an understanding.
- It may be helpful to involve in this process other advisers who are influential with one or more of the parties involved.
- The risk of such an informal intervention may be too high for the client and for the adviser, in which case it probably requires a formally structured mediation exercise, led by an independent, qualified mediator. Such an exercise will, of course, require the agreement of all parties, each of whom will have to approve both the process and the mediator.
- If there is little likelihood of reaching agreement even with the benefit of mediation, the alternative is to appoint an arbitrator, the difference being that, having brought the parties as close to agreement as possible, the arbitrator will decide the terms of the final resolution and all parties agree to accept the decision as final.
- On occasions, the likelihood of successful mediation or arbitration is so slim that matters have to be placed in the hands of lawyers, in which case trustees in particular will want to ensure their own interests are protected, as well as those of the different classes of beneficiaries.
In the vast majority cases, advisers will want to try option 1 before resorting to a more formal process, especially if they have been alert enough to identify the problem before it gets out of hand.
INFORMAL ‘FACILITATION’
It is a normal part of the role of an adviser or trustee to help build common understanding between different members of the same family.
Wherever more than one family member is involved in decision making, there will be differences which need to be resolved and advisers often help to frame and define the issues, giving all parties the benefit of their professional opinion and experience and using their personal influence where appropriate.
When a difference of view begins to rise to the level of dispute, it is usually because at least one person feels unfairly treated and there may be a number of possible reasons for this, of which the following are examples:
- • One or more individuals are indeed being unfairly treated • They simply have a different view on the decision in hand • Their perspective and views have not been properly considered and are ill informed • There is no process for airing differences • There is no common understanding in the family of the purpose of the wealth • There are personal differences in the family which impede proper decision making • Historic grievances cause individuals to approach discussions with a negative attitude.
One of the roles of family advisers is to reduce the prospects of such differences arising in the first place and they would normally encourage families to have in place an agreed statement of purpose for family wealth, proper forums for discussion and pre-agreed processes for decision making, where every voice is fairly represented. Some families define these in a family constitution, while others prefer a less formal approach. Constitutions and family understandings cannot eliminate the possibility of differences escalating into damaging disputes, but can at least reduce the likelihood of that happening.
If there are no such documents in place when a dispute arises, is it the right or the wrong time to initiate wider discussion of the family arrangements as a means of putting the particular problem in a broader, more balanced context? In general such family agreements are best negotiated when they are matters of principle, rather than in the heat of a dispute over a particular issue.
The process of resolution is too varied and complex to outline in detail, but any trustee or adviser must always be mindful of their neutrality, to preserve the trust and respect of all parties and avoid themselves being too far drawn into the dispute.
FORMAL MEDIATION OR ARBITRATION
Any serious attempt at formal mediation will usually involve the appointment of an independent, experienced, qualified mediator, agreed by all parties.
It may fall to the adviser firstly to get the parties to agree to mediation in principle, and secondly to help find a mediator who is acceptable to all. In most cases this will be a professional mediator, with experience of family disputes, but there may be circumstances where the family prefers someone already known to them, trusted by all parties, who is already familiar with the background circumstances. This may be one of their existing advisers, but such a request should usually be discouraged unless the individual has adequate experience and is confident they can do the job, without prejudice to their existing professional relationship.
As an alternative, the parties can agree to arbitration, as mentioned above.
LEGAL PROCESS
Where there is little prospect of resolving a dispute by mediation or arbitration, it usually means legal action with different lawyers acting for each of the parties. This can be quick and effective, but however strong the commitment by all parties to resolve the issue as swiftly and amicably as possible, there is a significant danger that it will become long drawn out, costly and acrimonious. In the extreme, such disputes can end up in lengthy and hugely expensive court battles which are not only very costly and time consuming, but often poison family relationships over a period of years or even decades.
The costs and potentially disastrous consequences of a long drawn out legal dispute and the likelihood of damaging publicity should be sufficient incentive to encourage family members to settle their differences by other means, but once they have ‘locked horns’ it is a well-known trait of human nature that no party wants to be one to concede.
CONCLUSION
For many trustees and family advisers, reconciling differences of view within client families is a normal part of their role. It is also part of their role to encourage families to put in place appropriate family communication and decision making processes, to reduce the prospect of differences escalating into disputes. They will try to ensure matters are discussed in principle, well in advance of potential conflicts emerging, so that disagreements can be resolved more calmly.
When a dispute arises it is for the adviser to assess what part he or she might play, whether it represents an extension of his / her existing role or whether the family requires a formal mediation or litigation exercise, for which other specialists may need to be brought in.
It goes without saying that the sooner a difference of view is ‘nipped in the bud’, the better the chance of successful and amicable resolution.