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Now and beyond

Our panellists share their views on key issues ultra-wealthy families should consider when planning for inter-generational wealth transfer


Lee Woon Shiu.

Michael Troth.

Eric Landolt.


Genevieve Cua, BT Wealth Editor poses questions to wealth experts for their views on inter-generational wealth transfer.

Lee Woon Shiu is Managing Director and Head of Wealth Planning, Bank of Singapore. He has over 18 years of experience in trust structuring and administration for high net worth families in the Asia-Pacific. He is an active member of the Singapore chapter of the Society of Trust & Estate Practitioners. He is an avid marathon runner and art lover who also volunteers as a docent at the Singapore Art Museum and the National Gallery.

Michael Troth is Managing Director and Head of Citi Trust & Family Office, Citi Private Bank Asia Pacific. He holds a dual role, leading a team of trust and estate planning and family office professionals in Singapore and Hong Kong, serving the needs of ultra high net worth clients in the region. His interests include cycling, travelling and reading.

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Eric Landolt is Head of Family Advisory Asia-Pacific, UBS AG. He is an expert in advising families on questions relating to family continuity and legacy. Together with his team, he advises ultra high net worth families on family governance and family office matters. He is a passionate art and antiques collector, and is engaged in multiple philanthropic causes.

ASIAN families are in the midst of what is expected to be the largest ever inter-generational wealth transfer, valued in the trillions of dollars. But are families equipped to navigate the process? Our panel of experts offers some insights.

Genevieve Cua: What are the major challenges or misconceptions in succession/legacy planning that you think should be addressed by families

Lee Woon Shiu: Leo Tolstoy once said: "Happy families are alike; every unhappy family is unhappy in its own way." Indeed, many Asian high net worth (HNW) families take for granted the harmony they enjoy in their businesses and families, lulled by a false sense of security amid a booming macro-economic environment and a generation of family members who subscribe to traditional values of prioritising family interests over self. However, the rapidly evolving geopolitical and social landscape, the ageing profile of the typical Asian HNW patriarchs/matriarchs and the increasing globalisation of families and businesses have highlighted some crucial challenges that should be prioritised:

  • Broaching the issue of the patriarch/matriarch's mortality

Most Asian family businesses still shy away from implementing a proper business or even personal wealth succession plan, partly because such discussions are closely associated with the eventual demise of the founder, which is a taboo subject in Asian culture. This lack of engagement has to a large extent encouraged the patriarch/matriarch to also hang on to the family business as they are focused on finishing their own race well, and fail to see the family business enterprise as a continuum.

This preference to have direct control and ownership till the very last minute often has repercussions. By then, either the patriarch has become physically or mentally weak or conflicts would have arisen, with various family members bickering or having devised ways to get a share of the family wealth.

  • Cross jurisdictional tax, legal and regulatory exposures

The changing demographics of the typical Asian HNW family is also a key challenge impacting the tax, legal and regulatory issues confronting each generation of the family. A scion of the family taking up permanent residence in the US and a portfolio of property investments in the UK for instance, would by themselves present tough legal and tax pitfalls which a monolithic family profile did not face in the past.

The tax man in global high tax jurisdictions, the lurking hostile takeover predators, the scheming sons and daughters-in-laws and the big-spending grandchild living the high life and resting on the laurels of past glory are but just a few of the vast array of parties who may claw into the family wealth, resulting in a dissipation of financial capital and eroding the values that propelled the HNW family into great wealth and prominence in the first place.

  • Introspective and inward perceptions of wealth

Successful patriarchs/matriarchs are often focused solely on their main core business of driving the family's corporate wealth. Accordingly, they often unknowingly ignore the "soft" factors or concerns in wealth succession and family governance. They fail to recognise that their wealth is by no means limited to what they see in the financial balance sheets, but extends to human, social and intellectual capital as well. This often results in a loss of talented family members who may otherwise perhaps be able to contribute to the business' philanthropic and strategic long-term community development efforts.

Michael Troth: One major misconception is the belief that plans have to be complicated. They don't have to be. However, the solution being considered should be absolutely appropriate to meet the objectives of the family, and the complexity - or lack of - will be driven by the objectives and needs of each individual family.

Another challenge is getting families to agree that NOW is the time to plan. Planning during the lifetime of the wealth creator is significantly easier and arguably a lot cheaper than trying to do this once the wealth creator has passed away.

Eric Landolt: As the world's largest wealth manager, we've been collaborating with the world's wealthiest families in Asia for over 50 years. For Asia's billionaires, most of whom are first-generation, the imminent large-scale transfer of wealth is important. Many of them understand the significance of planning to create legacies that endure for generations, in particular longevity in family harmony and family business. We see challenges and misconceptions in three broad categories.

  • When to plan: In the Asia-Pacific region, where many of the billionaires and the wealthiest families are in their first generation, there might be a misconception that planning is only required for complicated business families across multiple generations, branches and diverse holdings. There might be a misconception that a young, single-branch family with one main family business does not need to plan.

Based on our experience, successful transitions happen through design, and not by chance. The most successful family legacy planning occurs when the family is able to come to the table together, when the business is doing well and relationships are still strong.

  • What to plan for: What and whom should a family succession plan include are the most commonly asked questions critical for families to address. In practice, our dedicated family advisory team will sit down with the families first to clarify their core values and vision. Thereafter, we collaborate with them to explore their definitions of family, whom do they wish to take care of, what are the core legacy assets, what is the best way to deploy assets, whom should be involved, and how.
  • How and whom to involve: Effective family planning requires both the softer aspects of clear family guidelines and a structured approach towards the assets. A family legacy plan is incomplete without one or the other. It is imperative that the thinking and strategy are clear before starting on the structures. Who should be involved should also be made clear from the outset.

The role of neutral external wealth managers whom the family members can trust is important, as they can lend objectivity, experience and independence to what might sometimes be a highly emotional negotiation.

Genevieve: What are some principles of good practice in the planning process that will stand clients in good stead in terms of a multi-generational succession plan?

Woon Shiu: On a macro level, the Asian HNW family must first identify the capital that it has amassed, not only financial, but also the human and intellectual capital. This will empower the family to deploy the resources optimally to ensure that as many members as possible continue to partake in the cross generational enjoyment of the family's legacy.

Equally important is the identification of the core values that ignited capital creation in the first place. This process will invariably require current and future owners to voice their aspirations and negotiate a common vision that would endure across multiple generations. Once the soul and ethos behind the successful business enterprise have been singled out, the family may then distill the key guiding principles and rules of engagement and a system of family governance that will drive successive generations towards greater success.

On a micro level, the Asian HNW family must map out an inventory list of all aspects of its capital, and all associated connecting factors and exposures must be evaluated. This would include the nationality/ residency/domicile status of the family members, the jurisdiction of the locality and nature of the family assets, the profile and existing/ projected needs of the family members as well as their longerterm aspirations and needs.

The nationality/residency/domicile status of the family members would have a direct impact on the tax efficacy of the current manner of asset holding as well as the subsequent transfer through generations. Given that US estate duty taxes and UK inheritance taxes will shave off up to 40 per cent from the family wealth, and Australian and Canadian federal/ provincial income tax rates are at a hefty 45 per cent and up to 50 per cent respectively, any factors linking family members to these high tax jurisdictions will have to be carefully evaluated and the appropriate action plan implemented.

The qualitative analysis of the long-term aspirations of the family members is no less important. Families which recognise that their wealth lies in their human and intellectual capital, and promote the culture of allowing family members to pursue their individual happiness, often reap more rewarding and sustainable longer-term contributions ultimately to the family legacy. Appropriate trust as well as life insurance strategies at each generation may then be employed to ensure wealth equalisation among the various family members as well as to act as ''seed'' money to inspire successive generations to be as or more creative than the first biological generation, and not to degenerate into a stagnant state of many second-generation families or a state of decay that manifests itself in third or fourth generations.

Michael: The starting point is to clearly define what the objectives are. Clarity on who should receive what, when and how is important. The decisions which are ultimately made may well be influenced by factors such as where the next generation will live; tax considerations; is there a family business; and is there an expectation that the next generation will play a role in that business.

It is not always easy to have the answers to these questions or future scenarios so readily available. So it becomes especially important that whatever plan is put in place, flexibility is built into the plans to allow for changes as family circumstances change.

Eric: Until recently, succession planning was often focused on putting in place a structure such as a trust to achieve asset protection and pass on wealth to the next generation.

At UBS, we witnessed a mindset shift over the last years. We understand that for our clients succession is more than passing on wealth. Bringing up the next generations with a deep understanding and pride in their family heritage and family values; harmony between family members; motivating the next generations to build on the success of the pioneer generations are even more crucial.

For an effective multi-generational succession plan, it is important to define clear legacy strategies for successful transitions across the family, business and wealth, of which the family office setup and philanthropy often play an important role.

These strategies could involve developing a family governance and decision-making framework, putting in place ownership principles, business engagement rules, and designing impactful philanthropic arrangements, besides a family-office setup.

Hence, wealth managers need to shift from a pure asset-succession mindset to legacy creation. They need to be able to understand these families, their businesses, what drives them and work closely with them and across generations to create unique and bespoke legacy solutions.

Genevieve: How important is it to develop a family charter or a framework that family members subscribe to?

Woon Shiu: It is key for the patriarch/matriarch to formalise a family charter or framework for the longevity of the family business enterprise. Doing this while the founder is alive is the best time to harness his or her power and implement an effective family governance structure. There are fewer control and governance pitfalls to consider when the founder is still clearly in charge. He or she should establish a family constitution to clearly define the family DNA and values, and obtain the commitment of family members to adhere to the long-term family vision.

The establishment of a family council and assembly and a shareholders' assembly and council would also be useful to formalise the family and ownership governance of the family and its business, respectively, to guide the family in making decisions which would impact the collective well-being of both the family and its business.

What is even more crucial thereafter is the transition from the consensus on shared values and informal rules of engagement to a legally binding agreement that will add permanence to the vision, and also effectively implement the framework that has been agreed. The use of trusts, shareholders' agreement and associated by-laws are common tools that may be used in this regard. In the same way that the best-run companies have a precise set of corporate governance rules, the most enduring family businesses will also require clear binding agreements on rules of engagement that will incorporate checks and balances at every level of control.

Michael: This could depend on each family's circumstances. However, a family charter is a very good way of laying out the ''terms and conditions'' or the ''rules of the road'' of how the family will act. It normally embodies the values that are important to the family and all who are deemed part of the family. It is what binds everyone and makes that family unique unto themselves, not unlike a club membership.

The charter can also include aspects relating to business interests and how to ensure a smooth transition across successive generations. This can include guidelines or rules pertaining to the management of the business and even how economic value is to be held.

Where the wealth is less significant or the asset base is relatively straightforward, families may decide that they do not need a charter and that the patriarch/matriarch is very comfortable with the current family dynamics and happy for the next generation to make their own decisions.

Eric: Our family advisory team has been collaborating with ultra-wealthy families across the globe to design and implement a consistent strategy and framework for the management and protection of their family assets over multiple generations.

What we have found is that it is the process of reaching a common agreement that is of the greatest importance to the family, as opposed to the actual family charter itself.

As we collaborate with Asian multi-generation families across different workshops to develop their family constitution, we have seen how interactions among the family members evolve over time. There are numerous in-depth discussions on their personal values and beliefs, as they gain a greater understanding and appreciation of one another, before distilling it down to the key values or vision of the family.

Genevieve: What role does philanthropy play in the process?

Woon Shiu: Philanthropy in the Asian HNW context has become an increasingly powerful ideal which the most successful HNW families aspire to achieve and to emulate, as they are embodied by real life examples such as Li Ka-shing, the Tata family and Jet Li's One Foundation. For many families, philanthropy is often invariably an expression of part of the soul or key values of the family business where families will want to contribute and give back to the society in which they have thrived.

It thus follows that in the course of formulating their family charter or framework, Asian HNW families are increasingly willing to explore options for sustainable philanthropic involvement beyond one-time direct giving, and indeed some retiring business founders see their philanthropic vehicles as their next business venture, and exhort each generation of their family to be involved in the gifting process as a way to demonstrate the strength of their core family values.

We also see emerging trends of younger generations of UHNW families who are attracted to social entrepreneurship and who are willing to apply the energy and dedication of the business entrepreneur towards developing concrete solutions to social problems.

Michael: Philanthropy is starting to play an important part for certain families as they look to distribute wealth. Often, it is the glue that keeps the wider family engaged, especially when not all members of the family work in the business/ operating companies.

Certain causes in Asia such as education, health and the care of underprivileged children have been the major beneficiaries of philanthropic giving. For those families that have philanthropic interests, putting a proper plan and structure around those interests becomes very important particularly where the families' involvement and financial contribution to certain causes are significant.

The degree to which the families' charitable goals can be met in successive generations or in perpetuity is really dependent on how much work the family does in planning, discussing and implementing the measures needed for the efforts to be sustainable. That means doing much of the work now rather than later and building in the capability to anticipate and adapt as changes and circumstances warrant.

Eric: Philanthropy is valuable as it affords a neutral platform to engage all family members, over and above business; it provides a means for next generations to get together with senior generations and across branches.

For the families who wish to build an understanding that with privilege comes responsibility, philanthropy is a means for the next generation to develop a sense of stewardship. It can also be an important way to pass on family values such as compassion, humility, a service-orientation and giving back.

With some families that we work with that have exited their family business, it is also a cornerstone of their legacy, where the family name, vision and values are carried on through the works of the family foundation. W