I met John when I was in Monaco recently. He was referred to me by his bank in the principality. His business partner Manuel had recently died and his heirs were taking legal opinions as to their rights.
Manuel, was survived by two children, Josh and Ben, who were 18 and 21. He was divorced from his second wife and had a new partner, who was not his wife. He had however also been survived by another child by his first wife, Mark, aged 32, from whom he was estranged.
Five years ago, both John and Manuel put their business shares which were held through a British Virgin Islands company into a trust in the Cayman Islands for their respective children, although in Manuel’s case he did not include Mark as a beneficiary.
On the death of his father, Mark sought legal advice. He was told that if he could prove that his father set up a trust to defeat his entitlement it could be set aside. If he was successful, the business assets, which were considerable, would be distributed according the forced heirship rules of Monaco where he was resident.
I explained to him that the main drawback of living in Monaco is that it is a civil law country. This means that on death, the children have rights with regard to the deceased’s estate and they are treated as inheriting immediately. These rights are considered to be public policy in Monaco and therefore any attempt to deny an heir their presumptive right is taken very seriously.
Mark had been advised that he should start a claim in Monaco to establish his entitlement to a share of the trust assets. He should then take it to the Cayman Islands to be enforced. Normally this would be almost impossible, given that the Cayman Islands does not acknowledge the judgements of another country against trust assets, provided they were settled more than six years ago. However, Manuel set up his trust only five years ago, and Mark is of the opinion that he could prove that one of his intentions was to cut him out.
As might be expected, his half-brothers Josh and Ben would fight his brother’s claim, because if Mark were to succeed Manuel’s share of the business would have to be paid out to Mark as well as to Josh and Ben, which would mean their father’s share of the business would have to be sold and the proceeds split between them. Josh and Ben do not want this. The business was very profitable and they wanted it to stay intact and in trust rather than be sold.
There was also the distinct possibility that their father’s partner, Sophie could also get a share, in which case the interests of Josh and Ben would be diminished still further.
John was concerned. He and Manuel had set up trusts in the Cayman Islands to protect their business interests from such claims, he had no idea that they remained exposed for six years. I pointed out to them, that if they had set up a Bahamian trusts, their assets would now have been protected from such a claim.
It is not just the claim which is so damaging, it is also the cost of lawyers to fight it.
The Thyssen family head tried to unravel a trust set up for the benefit of his past wife and her children. When a new wife and more children arrived he tried claims to unravel it. The litigation allegedly necessitated the building of a new court room and legal fees exceeded $100 million. I had been asked to represent one of the parties, but advised that the only way the dispute could be resolved, was through mediation. After long years of litigation, it was finally decided to resolve the dispute through mediation which is what they finally did!
Family disputes of this nature are extremely damaging, but are not new. In Dickens book Bleak House, the Jarndyce family were in dispute over their inheritance and went to court to get the matter resolved. In the end, the Judge tells them to go home – the entire estate of the late Jarndyce had been spent in legal fees and there was nothing further to fight over!
The good news as far as John is concerned, is that as the family slug out their differences in and out of court, the legal fees will build up and the value of the business will inevitably decline. Therefore, when it comes to be bought, John will be able to buy Manuel’s share at a knocked down price.
I also advised John to get his trust structure reviewed to see whether and how he could make it more robust, so that if at any time there is a family dispute or other form of litigation, it is resolved outside the courts and with the minimum of cost and disruption.
Caroline can be contacted on email@example.com or on 020 3740 7423
Her book ‘Who can you trust when you are Super Rich?’ can be bought from Amazon or direct from Svetlana and her White Paper ‘How to win business from Private Clients’ can also be bought from Svetlana.