From Sting to the Countess of Wessex, wealthy celebrities need not panic about turning their children into wastrels, says Rebecca Waterhouse.
In a recent interview, the Countess of Wessex spoke about her concerns that her children, Lady Louise Windsor and James, Viscount Severn, should have as normal a childhood as possible. The Countess is far from the first parent in the public eye to speak out about their desire for their children to experience relative normality and to forge a career and a life for themselves. Sting, Nigella Lawson, Simon Cowell and Peter Jones (to name but a few) have all been reported to have had reservations about leaving large sums of money readily available for generations to come, through fear that their children, and grandchildren, would not be motivated to develop the drive and work ethic that won their parents fame and fortune. They have spoken about the steps that they have taken to try and ensure that their children’s position of privilege is a motivation for them to succeed.
As an example, Peter Jones is reported to have established an arrangement for his children which he refers to as ‘match-funding’. When the children finish full-time education and start to work, whatever they earn, their income will be doubled. As an additional incentive, if one of his children decides to devote their life to charitable work, it is reported that they will receive more than double their income as compensation
Your children may not have a ‘dragon’ for a father (or a whole nation coming together to celebrate their grandmother’s birthday) but this does not mean that you cannot be creative with generational wealth planning. Trusts, in particular, can provide a useful vehicle for doing so.
A trust is typically established when a person (the Settlor) sets funds aside for a specified group of people (the Beneficiaries) and leaves these funds in the control of a nominated party (the Trustees) under the terms set out in a trust document. Under English law, trusts can continue for a period of 125 years and can be drafted so that they continue unaffected after the Settlor’s death.
Some parents may be concerned that putting money into a trust for their children means that they are providing an ever present pot of funds available for their children to dip into as and when they like. In fact, trusts are very flexible vehicles with many attractive features, particularly if the Settlor chooses savvy Trustees (there is a clue in the name). For example:
- Discretionary trusts leave the Trustees to make decisions as to how and when funds can be applied for the benefit of the Beneficiaries. Although the Settlor no longer has any legal claim over property settled on a trust, it is possible for a Settlor to provide an indication of when and how they would hope the Trustees would provide for the Beneficiaries. In all circumstances the Trustees are under a duty to act in the best interests of the Beneficiaries.
- Distributions from the trust assets need not be made to the Beneficiaries directly – it would be more usual for the Trustees to pay the Beneficiaries’ school fees than to give the Beneficiaries a lump sum of money for the purpose of paying these fees.
- Trusts can be created for a specific purpose, such as to provide money for education, the purchase of a first home or the establishment of a business venture.
- It is possible to delay the Beneficiaries’ entitlement to trust assets until a specified age.
In short, concerned parents need not leave their children at the mercy of their fortune. There are strategies that can be employed so that children can enjoy the privilege of their parent’s wealth, rather than it becoming the albatross around their necks.
Rebecca Waterhouse is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP.