What is a family constitution and why do we need one?

Posted on By Joanna Pegum
family show hands

If you have a family business, it may be useful to have a family constitution in place. These documents, also known as family charters or family protocols, provide a framework for engaging with family members involved in the business. They also take in related investment companies, the family office, and the trustees of family trusts.

A family constitution is a written statement that records the family’s heritage, culture, hopes and aspirations for future success, and plans how to achieve that success. The document enables the smooth running of family affairs and interests by containing a number of provisions for different events. 

What should be included?

To arrive at these provisions, a family will need to consider the following questions:

  • Where do we come from?
  • Where are we now?
  • Where do we want to go?
  • What are our guiding principles?
  • Should the business always be owned by the family?
  • Can the family release their interest in the business, and if so, on what terms?
  • What criteria should there be for employment of family members in the business?
  • How do we make decisions?
  • Who should lead?
  • Should that leadership rotate?
  • How often should we discuss succession?
  • Should there be a family council?
  • Should there be any associated provisions, and if so, what?

Planning ahead

Though a family constitution is not binding, it helps to avoid potentially catastrophic fall-outs by anticipating what should happen should a major family event occur. Having such a document means the family is not forced to take decisions in the heat of the moment, perhaps in very difficult circumstances, but has actively planned for different eventualities.

Involve everyone

When preparing this document, each family member has the opportunity to express their views on the questions above. Although not everyone may like the outcome of any particular decision, they will respect that they have been consulted, and have taken part in framing the constitution, and are less likely to protest if decisions are not in their favour.

Amanda Simmonds TEP, Senior Associate, Private Client, Lupton Fawcett, Leeds

Divorce and the effect on wills in Scotland

Posted on By admin
divorce, will

Finalising a divorce is a vital time to bring your personal affairs up to date – particularly your will, power of attorney and potentially your title deeds.

Many people assume that divorce will automatically invalidate a will, power of attorney or Survivorship Destination, but that is only part of the story.

Although the law has tried to accommodate the likelihood that people will not wish their ex-spouse or civil partner to benefit from their estate, the legal treatment of existing arrangements can potentially give rise to a further set of complications, which can easily be avoided by carrying out a review with a qualified advisor.

Changes to Scots Law

Under Scots Law prior to November 2016, a divorce had no impact on a will, but recognition of the change in families and relationships has resulted in recent changes to modernise Scots Law and bring it more in line with other parts of the UK. Now, like the rest of the UK, an ex-spouse or civil partner is treated as though they have died before the granter of the will. In other words, the will is not automatically revoked but instead it is read as it stands, but ‘missing out’ the former spouse or civil partner.

Why do you need to review your will?

Although a step in the right direction, this can leave your will in a bit of a mess, for example:

  • an appointment of your former spouse or civil partner as executor, trustee or guardian of children will fail, unless the will specifically states otherwise;
  • if the will does not provide for an alternative executor, an appropriate person (usually another beneficiary) will have to apply to the Court so that the estate can be administered;
  • if you have made legacies solely to your ex-spouse or civil partner, these will fail and they will fall into the residue of estate; where there is no substitute beneficiary, the estate may be intestate and will have to be claimed by eligible family members.

As a result, you will need to undertake a review of your personal affairs on divorce or you run the risk of a complex estate, which is not administered as you would have wished.

Dara Richards is a Private Client Associate, Notary Public and Solicitor for the Elderly at Ledingham Chalmer