How to Successfully Plan Your Legacy

Planning Your Legacy: Common Issues and How to Navigate Through Them

Asia Pacific’s wealthy business founders and inheritors will soon face a wave of succession between generations, many of them for the first time. Ultra High Net Worth Individuals (UHNWI) in Asia, with investable assets of at least US$30 million, are transferring nearly one-third of their wealth to the next generation within the coming 4 years, compared to a global average of 15%.

This is due to the aging of wealthy entrepreneurs in the region who established their businesses after World War II. By 2040, the first generations of Asia’s High Net Worth Individuals (HNWI) and UHNWI will have carried on more than US$300 billion to the next generation. This poses considerable challenges for Asia’s wealthy, as more than half of UHNWIs in the region identify wealth transfer and succession planning as major concerns.

Asia and the Reluctance to Discuss Wealth Transfer

Their concern is not without reason, as global trends show about 70% of HNW families have lost their wealth by the second generation, and this number increases to 90% by the third generation.

At the same time, high net worth individuals in Asia are less prepared for wealth transfer than those in other regions, with 57% admitting they have done nothing with regards to estate planning and wealth transfer, compared to 32% in the West.

While most HNW and UHNW individuals in Asia have earned their riches through a family business, almost two thirds of owners admitted they have not yet named a successor, who is most often chosen from the family. Although Asia’s wealthy recognize the importance of family financial planning, most avoid discussing legacy planning with their offspring.

The majority of wealth transfers fail because of a lack of communication and trust between family members. However, Asia Pacific’s HNWIs are hesitant to discuss financial matters with their family. They fear that transferring their wealth will negatively affect the motivations of their beneficiaries, leading them to be unwilling to cultivate their own wealth and success. Moreover, they are also worried their beneficiaries will not manage their new-found wealth wisely.

Most UHNWIs are self-made and became wealthy through working hard during their life. Thanks to this they established a work ethic and appreciation for the value of their wealth that is challenging to pass on to the next generation. Their third biggest concern is that inheritance will cause a divide within the family. These worries lead them to remain silent about estate planning, to avoid conflict that may arise from such controversial issues.

Nevertheless, lack of communication is at the root of wealth transfer failures, making it clear that Asia’s wealthy should overcome these challenges before it is too late to do so.

How to Successfully Plan for Your Legacy: Communication is Key

Although it may be hard to start the conversation about wealth transfer and succession plans, it is important to be open and transparent with your family members. 

MANAGE EXPECTATIONS & CONCERNS

You may find that your children or spouse may have certain expectations or concerns. For example, some children do not wish to be involved in the management of a family business, while others expect it.

Disputes among siblings over their inheritance are common, and in some cases, inevitable. This, however, does not justify avoiding the process entirely, as this communication is critical for seamless legacy planning. It is therefore best to converse openly about your decisions and the reasons behind them, so that you can address any concerns or issues in the process.

MAKE AWARE OF RESPONSIBILITIES 

Make sure that your beneficiaries are aware of the responsibilities attached with their inheritance. For example, prior to leaving a beneficiary with real estate, you should clearly state what he or she is expected or allowed to do with the property.

Family members often feel too guilty to sell a property, despite high renovation and maintenance costs.

SET GUIDELINES 

To address the risks of lowering your family members’ motivations to work hard or be self-starting, you can set certain guidelines or criteria for them to satisfy before they can access their inheritance.

For example, commonly used conditions to access one’s inheritance include the attainment of a certain level of education or having worked at a company outside the family business for a minimum duration of several years.

DEVELOP SHARED PURPOSE

Philanthropy is often one of the largest aspects of leaving a legacy. Ensure that your family is aware of the kind of values and philanthropic activities you wish to uphold, so that they can continue to use your wealth to leave a positive impact on the areas that are important to you, leading your legacy to live on.

Developing a shared purpose can strengthen family bonds and spark your family’s interest in charitable activities.

PREPARE EARLY FOR THE RESPONSIBILITIES

After involving your family members in your wealth transfer strategy, it is important to prepare them on how to responsibly deal with financial matters. For example, a program or experienced professional can help educate your family on financial planning and wealth management.

Having a wealth manager that will work with your family members can also help in laying a strong foundation in effectively managing finances.

If your offspring will take over important roles within the family business, it is important to educate them on the company’s operations and values, for instance through having them rotate through different departments prior to taking on a leadership role.

REVISIT PERIODICALLY

Finally, bear in mind that wealth planning is a dynamic process that will have to be revisited once every few years as changes happen in your life. For example, the birth of a new child, the death of a family member or a divorce in the family may have an influence on the distribution of your inheritance or the structure of your family business.

Your estate will have to be revised periodically to accommodate to the events happening throughout your life. 

A team of professionals, such as lawyers, notaries, accountants and wealth managers can often help you guide through the different aspects in the complex process of planning and implementing your legacy. Find out more about Wealth Planning Services at BNP Paribas Wealth Management here or contact us to discuss the future of your wealth