Why the wealthy in Asia should get on the front foot in legacy planning

IN recent weeks, the global business community was left shocked and saddened by the untimely death of a British businessman and his loved ones after his superyacht sank in bad weather in Europe.

Closer to home, in Asia, the passing of a mega tycoon led to an extended probate negotiation over his multi-billion-dollar worth of assets, which had to be divided among a large family with a complex and extensive next generation structure.

While much about legacy planning has been discussed, these tragic events serve as a timely reminder to always plan for the unexpected.

For ultra-high-net-worth individuals (UHNWIs) in particular, a well-structured succession plan is imperative to safeguard their personal assets and detail the governance of their business should the unexpected come to pass.

Without clear planning, assets can fall into probate for years, leaving family members and courts to decide how to allocate assets. This often adds significant stress to families during a period of mourning, increases the likelihood of disagreements and disputes, and can even lead to loved ones struggling to access sufficient liquidity for daily living.

Lack of business succession also creates operational risks and may derail the business significantly if not properly managed.

Legacy planning not only includes making preparations for who will run the business and pick up the baton, but with the intergenerational transfer of wealth set to top US$2.5 trillion by 2030, increasingly this planning extends to how this wealth will be distributed to future generations.

Historically, Asian UHNWIs have lagged behind their Western counterparts in legacy preparedness.

A 2019 study by life insurance provider TransAmerica Life Bermuda revealed that 57 per cent of Asian UHNWIs had done little to nothing regarding estate planning and wealth transfer. This was largely due to a lack of family engagement, cultural taboos and the perceived complexity of succession planning.

However, this trend is shifting. Following the fallout from the Covid-19 pandemic and news of untimely deaths among their peers, UHNWIs are becoming more aware of the need for formal succession plans.

A survey this year, also by TransAmerica Life Bermuda, found that more than half of wealth advisers reported an increase in interest and action around estate planning post-pandemic.

PwC has also found that 60 per cent of next-generation leaders in the region’s family-owned businesses are aware of the existence of succession plans. These developments are encouraging but more can be done to support family leadership transitions.

Formal legacy planning

There are a multitude of reasons why individuals may not plan for their deaths and map out their legacy.

An individual’s passing could be untimely, or an individual may not want to share their plans with family members, fearing that future generations may act irresponsibly with the inherited fortunes. Generally, it is also not easy for a family to discuss legacy planning, as the question of what is fair and just distribution may not be easily determined.

Many UHNWIs are increasingly turning to independent wealth advisers to help them navigate the challenges of legacy planning and succession.

The benefits of engaging independent planners to assist families with such discussions are multi-fold.

External professionals can give impartial third-party views to family members, who may sometimes find themselves relating any legacy discussions to familial emotions, making such conversations more challenging.

If an unforeseen event has occurred, having professional help can also give families space to grieve and not deal with administrative challenges, provide immediate liquidity for family, and help set clear parameters for the transfer of wealth and assets – unburdened from unstructured informal agreements that may have been made within a family unit in prior years. All these lessen the chance of lengthy family disputes.

There are a variety of vehicles available to individuals to either transfer their wealth or ensure it is managed effectively for future generations.

Across Asia, many UHNW families are opting to establish family offices, where investments are managed, often with long-term investment strategies deployed to preserve a family’s wealth.

Most global private banks support clients in the establishment and management of family offices, and network banks that span geographies are often best placed to support clients who hold assets across a number of jurisdictions.

Family offices can also offer custom governance models that clarify the decision-making processes, define clear roles and guiding principles for managing wealth, business interests and ownership stakes that clearly define the legacy process.

These vehicles also have the ability to invest wealth across a spectrum of assets that go beyond traditional investments, such as private markets and alternatives, sustainable investing and also specialise in philanthropy where individuals can choose to leave a lasting societal legacy.

In addition, family offices can act as an administrative centre for family members, taking that burden away from individual family members.

In a family trust, we trust

Another consideration is the establishment of a family trust. Family trusts can protect assets if members go through a crisis and often have discretionary powers to control the distribution of capital and income.

Family trusts provide a vehicle for transferring assets between generations and are separate from inheritances or wills, providing an added layer of security, protecting assets from estate contestation and other creditors.

As current generations begin a massive transfer of wealth, it makes sense for individuals to structure the transfer of their assets through secure channels, planning early with the help of industry professionals to achieve peace of mind. The time to act is now.

The writer is regional head, South-east Asia and Singapore location head, Standard Chartered Private Bank