Mechanisms for Effective Segregation

There are two primary approaches to segregate or “separate” interests in a trust:

• Sub-trusts: These are smaller, distinct pockets created under the main trust. Each sub-trust can be assigned to a specific beneficiary or family branch. They can have their own bank accounts and hold specific assets, helping to simplify withdrawals and reduce confusion between family members.

• Separate accounting ledgers: If creating sub-trusts isn’t suitable, clear accounting ledgers can still track what belongs to whom. This method keeps financial reporting clean and helps prevent overlap between different beneficiaries.

In both cases, the trust documents—especially the Trust Instrument (the legal document that sets the rules of the trust) and the Letter of Wishes (a non-binding guide from the person who sets up the trust)—should be carefully customized to match the family’s unique situation. Simple, off-the-shelf templates are unlikely to be suitable for more complex family dynamics.

Building Flexibility with Governance

Trusts can also include practical legal provisions to promote fairness and transparency across beneficiaries. For instance, withdrawals and additions may be restricted to fixed intervals (e.g., monthly or quarterly), ensuring accurate asset valuation and accounting prior to withdrawal. Some trusts incorporate early withdrawal penalties—designed not as a deterrent, but as a liquidity management tool and a way to account for unrealized asset appreciation.

Where appropriate, families may choose to formalize governance through a family constitution. While not mandatory, a constitution can outline the principles and processes governing distributions, conflict resolution, and decision-making. It can serve as a reference point to guide future generations, particularly when financial objectives diverge.

Foundations vs Trusts

While this article focuses on trusts, foundations—commonly used in civil law jurisdictions—can also provide mechanisms for interest segregation within a family. Whether a trust or foundation is more suitable depends on jurisdictional considerations, the size and structure of the family, and the types of assets involved.

Final Thoughts

Whether through trusts or foundations, segregation of interests within a family wealth structure is essential to avoid confusion and conflict. A well-designed structure helps ensure that every beneficiary knows where they stand and that the family’s wealth continues to serve its purpose for future generations.

For advice on designing bespoke trust structures to serve your family’s needs, please contact your relationship manager.