briefings
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Trusts in the Middle East – Avoiding Conflict within families
Trusts are a wonderfully flexible and durable means of preserving and enhancing family businesses and wealth over generations, as is evidenced by the fact that they remain as relevant in the modern world as they have done over centuries. Similarly, it is perfectly normal and healthy for family members to have different perspectives from one another and occasional differences of opinion. However, when the two come together, trusts can become a lightning rod for tensions within the family.
Jared Dann
For those familiar with family trusts, stories of tensions within families which escalate into conflict are a persistent theme. Trusts are a wonderfully flexible and durable means of preserving and enhancing family businesses and wealth over generations, as is evidenced by the fact that they remain as relevant in the modern world as they have done over centuries. Similarly, it is perfectly normal and healthy for family members to have different perspectives from one another and occasional differences of opinion. However, when the two come together, trusts can often become focus for conflict; a lightning rod for tensions within the family.
We have considerable experience of dealing with offshore family trusts whose beneficiaries are based in key jurisdictions in the Middle East, including the Kingdom of Saudi Arabia, the United Arab Emirates and the Kingdom of Bahrain. From those interactions we are aware of the depth of sophisticated knowledge and expertise in the region in areas such as these, to which we seek to add our own knowhow and experience where appropriate. We regularly work with beneficiaries, trust advisers, family offices and local law firms both to seek to prevent differences of opinion within families from developing into litigation, and to seek to mitigate such situations where they do arise. What follows are some practical thoughts which may be of assistance for those potentially faced with dealing with such situations, whether family members or advisers.
Stress-testing: foresight forged in experience
The key message in all of this is that it is never too early to start putting in place steps which will lessen the risk of future conflict. So-called stress-testing of structures is a good example of something that can be done long before the seeds of potential intra-family conflict become visible. This may include reviewing the structure holistically to identify whether it is still fit for purposes, or seeking to identify whether there are specific provisions which might prove contentious for the future. As a firm who are very experienced in dealing with litigation involving family trusts, by extension we are often able to assist in identifying and mitigating tensions before they become damaging or disruptive to the structure.
For example, a typical family trust may serve the needs of the first and second generations effectively. By the time of the third generation, it may be that there are a number of different branches of the family, each with children and grandchildren of its own. These branches may have different needs and different priorities. Rather than seeking to constrain these different needs and priorities within one trust structure which struggles to balance the needs of a wide range of beneficiaries at different stages of their lives and with different levels of need, it may be appropriate to consider creating sub-trusts for each branch. This can work effectively to preserve the overall structure and the inter-generational nature of the family’s wealth, whilst affording a degree of flexibility so that the needs of the members of individual branches can be met. In the same way, there may be specific provisions in the trust deed (for example in relation to the retention of specific assets) which were appropriate when the trust was settled but which may need to be reviewed to ensure that they are still fit for purpose.
Equipping all generations with the right knowledge
Closely allied to the stress-testing of structures is an increasing focus on developing the knowledge and understanding of beneficiaries. There may often be good reasons in family trusts structures for some information not to be shared, particularly where it might be used inappropriately. However in our experience there are often significant benefits to be gained in ensuring that beneficiaries (and particular the younger generations) have an understanding of the purpose of the trust and the roles of the key professionals and advisers, and also that they are given opportunities to develop a relationship with those key professionals and advisers at an early stage. Effective and sensitive communication, between people who already know each other is by far the most powerful means for avoiding future difficulties. This takes time, and effort, and face to face meetings if it is to succeed. There are also advantages in familiarising younger generations, where appropriate, with the day-to-day business of choosing and working with professional advisers, again so that the process is not alien or something for which they feel that they are not equipped.
Resolving disputes with cultural insight
In circumstances where tensions are becoming apparent, there are still ways of avoiding full-blown conflict. Identifying the issues and seeking appropriate advice is unsurprisingly key, but often this is not done at an early enough stage. Family Offices can play a key role in ensuring access to multi-disciplinary advice which can help navigate a range of scenarios.
- What happens if the settlor were to lose capacity?
- Are there advisers on hand to deal with an external threat to the structure, such as a liquidity or regulatory issue?
- Can decisions be made quickly in the face of the unexpected?
Even in situations where a dispute escalates into litigation, there are ways of avoiding or mitigating lasting damage. It may be possible to identify an individual who has sufficient cultural understanding of the family and its needs, and sufficient credibility and stature with the family as a whole, who can broker an effective resolution. Alternatively, a formal mediation with a professional mediator can be an exceptionally powerful tool in unpicking trust disputes, often by identifying a source of tension or disagreement which is not obvious from the arguments advanced in the litigation, and which require a more holistic solution than the binary win/lose result of the litigation process.
It may not always be possible to avoid differences of opinion and disputes within a family, but with appropriate advice and support it may well be possible to avoid them becoming damaging or destructive, such that the trust structure can continue to preserve and enhance family wealth for generations to come.