Wealth Management Structures - The Devil In The Detail
When it comes to securing your family’s financial future, the right structure can make all the difference. Family Investment Companies (FICs), Discretionary Trusts, and Bare Trusts each offer unique advantages depending on your family’s circumstances and goals. Below, we break down the key differences between these structures used in our comparison diagram to help you decide which might be the best fit for your family.
Visualizing Your Options: A Quick Comparison of Wealth Management Structures
Navigating the complexities of family wealth management can be challenging, especially when faced with multiple options like Family Investment Companies (FICs), Discretionary Trusts, and Bare Trusts. To help you make an informed decision, we’ve created a simple chart that highlights the key differences between these three structures across crucial factors such as control, tax efficiency, asset protection, and succession planning.
This visual guide is designed to give you a quick, at-a-glance comparison, making it easier to see which structure might best meet your family’s unique needs. Whether you’re focused on maintaining control, protecting assets, or ensuring a smooth transition of wealth to the next generation, this chart will help you understand how each option stacks up.
Take a look at the chart below to get a clearer picture of how these different structures compare and consider which one aligns best with your family’s goals.
Control & Flexibility
- Family Investment Companies (FICs): If maintaining control over your family’s wealth is a priority, an FIC offers unparalleled flexibility. You can tailor the company’s share classes to provide different voting and dividend rights, allowing you to stay in control while gradually involving the next generation in wealth management.
- Discretionary Trusts: These trusts provide trustees with significant control over how and when assets are distributed, making them ideal for families needing to adapt to changing circumstances. However, this control comes with certain tax implications that should be carefully considered.
- Bare Trusts: Simplicity is the hallmark of Bare Trusts. While they are straightforward and easy to manage, they offer little flexibility once the beneficiary reaches adulthood, as the beneficiary gains full control at age 18.
Tax Efficiency
- Family Investment Companies (FICs): FICs often enjoy lower corporation tax rates compared to trusts, making them a tax-efficient choice for families looking to maximize wealth preservation. Additionally, FICs avoid immediate inheritance tax charges on creation, which can be a significant advantage.
- Discretionary Trusts: While Discretionary Trusts offer control, they are subject to higher income tax rates on trust income and potential periodic charges to inheritance tax, making them less tax-efficient than FICs.
- Bare Trusts: Bare Trusts are generally tax-efficient, with income and gains typically taxed on the beneficiary, who may have a lower tax rate. However, the simplicity of Bare Trusts can be a double-edged sword, as they do not offer the same level of protection or control as other structures.
Asset Protection
- Family Investment Companies (FICs): FICs provide robust asset protection through their corporate structure. For example, shares can be structured to protect against divorce settlements, and the company’s assets are shielded from personal creditors.
- Discretionary Trusts: These trusts are particularly useful for protecting assets from potential threats like divorce or bankruptcy. Trustees have the flexibility to distribute assets in a way that protects the beneficiaries’ interests.
- Bare Trusts: While simple to set up, Bare Trusts offer little in the way of asset protection. Once the beneficiary reaches 18, they gain full control, which can be risky if the beneficiary is not financially responsible.
Succession Planning
- Family Investment Companies (FICs): FICs excel in succession planning. They provide a platform for educating the next generation about wealth management, allowing for a gradual and controlled transfer of knowledge and responsibility. Family members can be introduced to the business through non-voting shares and directorship roles, making it easier to ensure a smooth transition.
- Discretionary Trusts: While Discretionary Trusts can be tailored to meet specific family needs, they do not offer the same level of hands-on involvement in wealth management as FICs. However, they remain a valuable tool for protecting assets for vulnerable beneficiaries or minor children.
- Bare Trusts: Succession planning with Bare Trusts is straightforward but limited. Once the beneficiary reaches adulthood, they gain full control over the assets, leaving little room for gradual education or involvement in financial management.
Final Thoughts: Which Structure is Right for Your Family?
The best structure for your family depends on your specific needs and goals.
- If you prioritize control and education of the next generation, a Family Investment Company (FIC) may be the ideal choice.
- If you need flexibility and protection for a diverse group of beneficiaries, a Discretionary Trust could be the way to go.
- If you’re looking for a simple, tax-efficient way to pass on wealth to minors, a Bare Trust might fit the bill.
Choosing the right structure is about more than just taxes or control; it’s about ensuring that your family’s wealth continues to benefit future generations in the way that aligns with your values and goals.