ARTICLE
29 August 2024

The Essentials Of A Family Plan: Ensuring Generational Wealth And Stability

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Ganado Advocates

Contributor

Ganado Advocates is a leading commercial law firm with a particular focus on the corporate, financial services and maritime/aviation sectors, predominantly servicing international clients doing business through Malta. The firm also promotes other areas such as tax, pensions, intellectual property, employment and litigation.
A family plan is a structured arrangement put down in writing designed to manage and allocate assets and benefits within a family, often spanning multiple generations...
Malta Wealth Management
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A family plan is a structured arrangement put down in writing designed to manage and allocate assets and benefits within a family, often spanning multiple generations, and to define the principal purposes and objectives of the business, its ethical approach and options in certain contexts which may arise in the future. The purpose of such a written document is to ensure that the founding members, known as the Founders, and their descendants benefit from the assets and income generated by the family's investment. This article explores the typical contents and operational mechanisms included in a family plan, highlighting its core principles and benefits.

The primary intent behind establishing a family plan is to benefit the Founders during their lifetime and subsequently their descendants. Different family strands and generational classes may be recognized, with the Founders forming the First Class, their children the Second Class, and their grandchildren the Third Class, and so forth. A class is considered "open" as long as any member of that class is alive. Upon the passing of all members of a class, that class is deemed "closed," and the next generational class opens. While a class is open, members of the next class do not have entitlements, ensuring that benefits are not prematurely distributed and persons with different or updated visions come to the fore too early in the process, upsetting harmony. However, specific provisions may be included in the family plan to outline any exceptions or additional entitlements for the next class while the current class is still open as when a parent passes away the next generation will have natural expectations based on patrimonial interests they will want to protect and promote.

A family plan generally includes provisions regarding spouses who are relevant in the family but who ultimately are outsiders from the family business perspective. This involves careful consideration to ensure that they are provided for, while preserving the integrity and intent of the original family assets and fundamental vision and mission as set out by the founding members. Spouses may be provided with lifetime income or support without granting them control over the principal assets, voting rights, powers of sale or participation in capital.

Effective governance and maintaining the integrity of the family's interests are crucial components of a family plan. Decisions within the family plan framework are made through discussions and formal board meetings, supported by advisors specializing in legal, administrative, operational, IT, marketing, HR, and financial aspects. The decision-making style should prioritise reaching a consensus through discussions to minimize the need for voting. Achieving this requires a robust flow of information. Regular meetings should be planned to exchange information, and discussions with third-party advisors and key management personnel are encouraged to enhance information exchange and support consensus-building mechanisms.

The inclusion of a code of conduct is essential. Adherence to this code, which should be periodically updated, is mandatory for all involved. This code ensures that family members act in the best interest of the business and maintain confidentiality, thereby preserving trust and ensuring that decisions are made transparently and ethically. The code should include provisions regarding conflicts of interest, which all family members must avoid to uphold the integrity of the family plan.

In essence, a family plan is a sophisticated framework that ensures the distribution of a family's assets across generations. It respects the foundational principles set by the Founders, ensuring that their descendants benefit in a structured and fair manner and when constraints are applied based on the plan, they will not be attributable to agendas or malintent by some members of the family against others. This is often the result of suspicions which tend to arise within families due to past tensions or perceptions, which do not arise in ordinary non-family businesses.

By recognizing generational classes, family plans provide a stable and enduring mechanism for managing family wealth and ensuring the welfare of future generations in line with pre-stated visions. Of course, there is always the risk that future participants will want to change the course and that should be possible in a manner which should be predicted by the family plan in an intelligent and realistic manner, catering for exit possibilities in way that will not destroy the common wealth and opportunities gained over the years.

On November 7, Ganado Advocates and Zampa Debattista will be hosting their annual Family Business Forum at Corinthia Attard.

This article was first published on the 'Times of Malta' on 25/08/2024.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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