'Becoming Obsolete', When Trusts Become Redundant

There may be, and this is very common, tension between family-members. This can be as a result of generations evolving – often, once the settlor is gone, everything can become unsettled and destabilize. This is exacerbated by many settlors' enthusiasm for perpetual trusts; it is difficult to successfully administer a trust designed to last for a very long time as families change, and they need their trust to change too. 

Trusts were often drafted a very long time ago, with differing jurisdictional imperatives affecting the family members. More and more, we are seeing the intervention of courts, because it's becoming increasingly complicated to adapt trust structures for modern transparency/ taxation standards once these family arguments do occur. 

Terms of a trust which can be too prescriptive. Many of our clients' forebears were so successful because they were very strong-willed. This can be a problem. An example brought up was the trust which came about from an enormous amount of wealth during the US Depression in the 30s. Only his male heirs were entitled to run or participate in the family company within that structure. Yes, there were women as beneficiaries, but the extent of the distribution was tied up in the participation in the family company, and contributions to it. Another example is when there are jurisdictional limitations, i.e. a beneficiary cannot be included for distribution if they're a US citizen. These rules can be seen as contrary to public policy. Often, as an added complication, the beneficiaries would want to stick to the limitations as it's what their family members would have wanted – making it all the more difficult to navigate. 

Restructuring with the blessing of the court, what to bear in mind?

Communication and an open dialogue. Often, most troubles arise because of poor communication between trustees and beneficiaries – when restructuring a trust, or even starting from scratch, it's absolutely key to have a clearly defined process from the outset. Arguably, it's not even about the quality of the decision that the trustee takes, but that the integrity of the process is right. Blessings secure the integrity of the decision-making and help get a robust decision at the end of the process – they needn't be viewed primarily as a tool to protect trustees.

Getting the right team. Make sure the right lawyers are instructed at the earliest possible opportunity, because they will help design the right process. 

Offshore jurisdictions are often more practiced in blessings and these types of restructuring – they are much more commonplace.

Be aware that there will likely be a change in trustees. Whether or not it's a hostile blessing proceeding, there will always be a change in perception. 

Restructuring without taking a sledgehammer to the whole structure:

Be aware that all advisors view their own jurisdiction with rose-tinted spectacles because they understand it best. Other advisers will have this same trait, and it's important to consider the impact on all beneficiaries. There is usually a more sophisticated option than moving a trust lock, stock and barrel to a different jurisdiction.

However, having a more sophisticated plan can mean pushback – splitting between jurisdictions necessitates more advice, and therefore will be more expensive.

Working together. With more and more litigation and court intervention, advisers will need to maintain their network more than ever in order to work together as a team on difficult cases. It can't be done in isolation.

Conclusion:

Process, process, process. Document, document, document.