Succession: a question of trust?

US TV drama Succession was voted best drama series at this year's Emmy Awards and picked up another award at the recent Screen Actors Guild Awards.

Fans of the show will know it follows the fortunes of Logan Roy, a self-made media mogul, owner of Waystar Royco and patriarch of the Roy Clan. After Logan's health suddenly deteriorates, the family and their media empire are thrown into turmoil.

Logan is determined to stay in control despite ailing health. However, he will soon have to face his own mortality and ask himself what will happen when he is gone?

It is a dilemma faced by many. How to secure the smooth transaction of wealth to future generations?

The heirs apparent

So, what factors might Logan have to consider?

He is married to third wife Marcia. However, her relationship with his children is strained and she seeks to promote the interests of her own offspring. If assets were left direct to Marcia, she may not honour Logan's wishes on her own death and leave the assets to her children, not his.

Son Kendall has been led to believe he is the heir apparent but after making some dubious decisions, Logan clearly doubts his abilities. If Kendall's lack of financial acumen were to lead to personal financial difficulties, his assets - including any inherited from his father are exposed his creditors.

Kendall also has a history of substance abuse and a significant inheritance may only fuel his addiction.

Younger son Roman on the other hand is selfish, immature, and profligate. He lacks the maturity required to handle significant wealth.

Finally, there is daughter Shiv. While more astute than her brothers, she is unfaithful to husband Tom. If Logan leaves assets to Shiv these could be included in a future divorce settlement and pass out with the family.

Asset protection

So how could Logan seek to benefit these individuals but also ensure that his wealth is protected from their indiscretions and the interests of third parties?

Trusts often provide an answer and one of the key motivations behind their use is asset protection.

Put simply rather than leave assets direct to individuals, ownership of the assets passes to a body of trustees. The trustees then manage the assets for the benefit of the nominated beneficiaries according to the terms set down by the individual (the trustor) in the trust deed.

Often seen as the preserve of the rich and wealthy, trusts can be found in even the most straightforward of wills. If there are minor children a trust provision allows any assets to be managed on their behalf until they are mature enough. At that point ownership can be passed to them.

Of course, some adults are not able to manage their own affairs. They may be due to a disability, or they may not be suited to the responsibility. In those cases, it may be beneficial to hold the assets in trust for the longer term.

Trusts can also ring fence assets to protect them from third parties including creditors and on divorce. They can also be employed to make future provision for disabled beneficiaries while protecting their entitlement to state benefits.

Flexibility

Another key attribute is flexibility.

Circumstances change and a well drafted trust will seek to navigate these changes.

It is therefore possible to create a wide variety of different interests in the trust on different terms.

These interests can be fixed interests where an individual has a fixed right to a certain benefit for a certain amount of time or discretionary where the trustees are given a broad discretion to choose who will benefit from a class of beneficiaries such as children - as well as how much and when.

Fixed interests are often used in second marriages to make provision for the surviving spouse while retaining ownership of the assets. Logan could specify that his wife Marcia be entitled to the use of the house and/or to the income generated from certain assets during her lifetime or until she remarries. Thereafter, the assets would benefit Logan's children.

Modern trusts also tend to include a power allowing the trustees to terminate a fixed interest. This gives trustees added flexibility if something unforeseen were to occur. If a spouse were to require care, the interest could be terminated at that point to avoid the income going towards care fees.

Discretionary interests as the name suggests are the most flexible of all. The trustees have a wide discretion to decide who to benefit. There is no requirement to treat everyone in a certain class equally. Some individuals may not receive any benefit at all.

The trustees can use their discretion to allocate income or capital to certain individuals or even create new trusts for their benefit and transfer the income and/or capital to those.

However, the trustees must act within the powers conferred on them by the trust deed.

Discretionary interests could be employed to control how much Logan's children receive and when – if anything at all!

Letters of wishes

Wide powers of discretion also create responsibility.

Therefore, trusts are usually supplemented by a letter of wishes in which the trustor will set out their objectives. This acts as a guide for the trustees but it is only a guide. It is not binding.

In this way the trustees retain their discretion and hence the ability to react to changing circumstances e.g. changes in the tax regime.

If circumstances change, prior to death a trustor can simply amend their letter of wishes and not their will.

In Logan's case a suitable letter of wishes may provide that Logan's children are not to benefit beyond a certain amount if they continue to make unwise lifestyle choices. It may even express a wish that the capital of the trust be earmarked for his grandchildren - missing a generation altogether!