Key points to consider while waiting for Baby Sussex

Like the Queen, we should prioritise succession planning to ensure that family ‘philosophy’ is preserved, writes Elizabeth Squires

Royal succession: new arrivals and planning for the next generation with the imminent arrival of ‘Baby Sussex’, I thought it might be helpful to consider some of the popular options for managing the transition of wealth from one generation to the next.

A number of legal structures are available to ensure sensible planning including corporate vehicles, partnerships, foundations and trusts. Depending on the circumstances, any of these can be an efficient, reputable and effective way to secure and protect wealth for future generations.

When considering the future generations for a family such as the Windsors, another factor is vitally important: reputation. The tabloids often criticise wealthy individuals for using what they deem to be opaque and unintelligible schemes to circumvent taxation.

This is not an accurate representation. Take a trust for example. A UK trust can legitimately be utilised to set aside a sum equivalent to the ‘nil rate band’ (currently £325,000) every 7 years or on death to make provision for the next generation, or to protect vulnerable beneficiaries. The risk of unexpected tax charges necessitating the selling off of land or investments and of diminishing the value of an inheritance beyond recognition is reduced, should there be a ‘series of unfortunate events’ in the family.

Whilst this is a great advantage, it is important to remember that where a UK trust holds assets the value of which exceeds the nil rate band, tax is charged not only when money or property is put in to the trust and on distribution; there is also an inheritance tax charge every 10 years on the value of the trust fund at the time. However, income can be accumulated over the decade and tax charge can be planned for and paid in a predictable, controlled way without undue pressure on the estate. Trustees of UK trusts will also be required to pay income tax and capital gains tax where applicable, as will the trustees or beneficiaries of offshore trusts in certain circumstances.

Family governance is also vital so that family values and priorities or the agreed family ‘philosophy’ can be preserved by the next generation. Often a family constitution is a popular choice. This allows a family to collectively agree upon their values and their vision for the future. Mechanisms should be put in place to ensure that a family constitution is reviewed regularly, so that family members know they have a say in what they expect from others and what is expected of them. Such priorities can also be agreed upon, should a vehicle such as a company, a partnership or a foundation be preferable, in the constitution. We have seen that the Cambridges and the Sussexes are beginning to forge their own, individual, approaches to their roles.

There is little merit in having a beneficial and credible structure in place without properly educating and preparing the younger family members. This is one aspect which the Queen has clearly prioritised so that the younger Royals, including Baby Sussex in years to come, are able to take the family forward in to the future with confidence that important values and priorities are secure.