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Succession planning considerations for the 21st century

Contrary to popular belief, litigation is not all about money. When negotiating over figures in a long-running mediation, it can certainly feel like that is the case but deep-rooted and complex emotional issues between individuals can also play a significant role in family disputes.

Whether it is the son who feels ousted from the family business or the wife who demands access to trust assets, within families, there can be real frustrations caused by a perceived lack of power or control as well as insufficient communication. These feelings can simmer and, ultimately, if left unchecked, boil over into litigation.

This is exemplified with particular regularity in family disputes concerning the issue of succession. The following two cases provide examples.

England and Wales:

Colicci and ors v Grinberg and anor1

Judgment has been recently handed down in this 2023 case, which centred on a promise to make a will. Ernesto Colicci and his first wife, Josephine Colicci, entered into an agreement by deed in 2016. By this deed, Ernesto and Josephine each promised to make wills to leave their respective shares in the family company in which they had an equal interest to the two children of their marriage, Robert and Rosanna, also in equal shares. By the date this deed was entered into, Ernesto and Josephine had been divorced for five years but continued to run the business together amicably. Ernesto had remarried and had a child with his second wife. In 2017, Ernesto and Josephine made a gift of 10 per cent of their shares in the company to each of Robert and Rosanna and all four entered into a shareholders’ agreement.

Ernesto died in January 2021, his last will, dated 12 April 2017, left his entire residuary estate to his second wife, Nora Grinberg (making no mention as to how his shares in the company should pass), whom he appointed as his executor. 

Robert, Rosanna and Josephine Colicci (the Claimants) brought a claim against Grinberg as the executor of Ernesto’s estate, seeking for a declaration that the 2016 deed be upheld and therefore that the shares owned by Ernesto be held on bare trust by Grinberg for Robert and Rosanna in equal shares.

The judge found that the 2016 deed created testamentary obligations on Ernesto and Josephine and that ‘It removed Ernesto’s and Josephine’s freedom to dispose of their Shares on death.’ He also determined that the 2017 shareholders’ agreement did not supersede the 2016 deed as a matter of construction – due to the 2016 deed being of a different subject matter to the 2017 shareholders’ agreement. 

The case highlights the complexities in family dynamics that can be involved in estate planning – particularly in the context of the succession of a family business post-divorce. It also serves as a helpful reminder to private client practitioners of the importance of thorough attendance notes when taking instructions in relation to clients’ testamentary wishes (which were reviewed in detail by the judge in the course of the trial). Further, the case underlines the importance of having a broad understanding of clients’ assets and how they would like them to pass on their death – including any steps already taken to bind such an asset – to ensure that the testator’s wishes are realised.

The Cayman Islands:

Perry & Anor v Lopag Trust Reg & Anor No 22

On an international scale, the Perry litigation demonstrates how court battles may ensue when the settlor of a trust dies and the family disagree over the division and use of the family wealth. The dispute followed the death of Israel Igo Perry, a wealthy businessman and qualified Israeli lawyer. Litigation was conducted in multiple jurisdictions. Proceedings from the Cayman Islands came before the UK Privy Council in 2023. The case concerned the ownership of the single issued share in a Cayman Islands company (the Share). The company was, for many years, the main source of liquidity for the Perry family. 

Before his death, the deceased transferred the Share to a discretionary trust established under Liechtenstein law (the Trust). In the proceedings the deceased’s widow and their eldest daughter (the Claimants) challenged the validity of the Share transfer. Under the terms of the Trust, the widow and daughter did not hold a proprietary interest in the Share and provision for them was subject to the trustees’ discretion and the laws governing trusts in Liechtenstein. However, if the deceased had not transferred the Share validly it would have remained in his estate.

The widow claimed that under Israeli matrimonial law she had an interest in the Share based on community of property rules, and that the transfer was void and should be set aside on the ground that it violated her joint ownership rights. She claimed the transfer was made without her knowledge or consent and without complying with the formalities required by Israeli law. The widow and the daughter also claimed, on behalf of the deceased’s Cayman Islands estate, that the transfer of the Share should be set aside for equitable mistake. They asserted that the deceased mistakenly believed or tacitly assumed that his family would have effective rights to ensure the Trust was administered properly by applying to the court to enforce the trustees’ obligations. They claimed that the deceased believed or assumed that a Liechtenstein ‘trust’ was a trust in the common law sense, which it arguably turned out not to be.

The widow and daughter were unsuccessful at trial and on appeal, with the trial judge concluding that they failed to establish key facts on the evidence. When they sought a further review by the Privy Council, its board decided that there were no exceptional circumstances which would justify considering the appeal. 

At trial, the judge commented on the serious split within the family and tensions between the deceased’s widow and her daughters. There was also mistrust between the Claimants and the first defendant in the proceedings, who was a trustee of a number of settlements established by the deceased. This had led members of the family to unsuccessfully seek an order in Liechtenstein to remove that trustee from certain trusts. The dynamic and complex relationships, and the cross-border nature of the dispute, made resolution very difficult. The court concluded that no satisfactory result could be achieved through one decision alone as to whether the trustee would be removed.

Reducing risks of dispute

Though family disputes such as these cannot always be avoided, particularly where complicated emotions or vast sums of money are involved, practitioners can take steps to minimise the prospect of litigation arising or to reduce its scale. Regular, open discussions regarding a family’s financial affairs and succession planning can assist in preventing disputes manifesting or, at the very least, enable them to be resolved at an early stage.This is best done before a contentious claim is made and, in the case of estate planning, during an individual’s lifetime, when they are still around to clarify and defend their views. 

Regular family meetings can provide a cohesive tool for conveying information about succession planning, affording opportunities for questions to be asked and grievances aired. The use of solicitors or a family office as a medium through which to conduct these meetings can help provide transparency, prevent reckless decisions being made and reduce the likelihood of future ambiguity.

Families should also consider governance in more detail. The use of family constitutions or charters – setting out agreed guidelines as to how the family, its wealth and its businesses will be dealt with down the line – could be beneficial. A family charter can be vital in setting out the family’s aspirations for the future. A suitably tailored charter can encourage a sense of cohesion within the family, allocating each individual an identified and important role in ensuring the smooth governance of the family’s affairs.

1 [2023] EWHC 1177 (Ch). Charles Russell Speechlys acted for the Claimants
2 [2023] UKPC 16

This article was featured in the STEP supplement Modern Families: a Private Client Perspective. To read the full publication click here.

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