High-net-worth individuals leave their wealth at risk without succession planning

AS HIGH-NET-WORTH (HNW) individuals and families around the globe build their fortunes, they are increasingly understanding the critical importance of protecting their wealth for future generations. This is where succession and estate planning come into play.

Research indicates that some of the challenges affluent individuals encounter in achieving their inheritance goals include navigating the complex and varied structures for their wealth and assets around the world, while taking into account family developments, legal hindrances, tax and regulatory changes and even uncertain or volatile world events.

In Asia-Pacific, working with experts for legacy planning is all the more relevant. This is primarily because family-owned firms, comprising 80 per cent of businesses across Asia-Pacific, wield substantial influence over regional economies.

For many of these families, this is the first time family wealth and legacy is passing from one generation to the next. Realising the importance of solidifying a legacy plan in a timely manner, Asian HNW and ultra-high-net-worth families increasingly demand expert assistance for holistic wealth succession plans, detailed wills and structures, family governance solutions and even life insurance policies.

This proactive approach aims to pre-empt future disputes or succession setbacks. Essentially, with the right professional guidance, resources and financial structures in place early on, affluent individuals can be better positioned to achieve their legacy goals.

Risks of unformalised succession plans

Notably, according to Campden Wealth’s Asia Pacific Family Office Report 2022, 70 per cent of families in the region have some form of a succession plan. However, a substantial majority of these succession plans have remained informally agreed upon, unwritten, or in the process of creation.

Additionally, in some parts of Asia, legacy planning may still be regarded as a cultural taboo due to its association with the subject of passing on. All these result in delay and hesitance towards discussing financial matters.

However, global events like the Covid-19 pandemic, geopolitical tensions and recent regional conflicts have increased awareness on the importance of being ready for unexpected and unforeseen circumstances, and transition events that may affect these families and the environment in which they do business.

Many families have adopted this shift of being more proactive in planning and implementing possible solutions for their succession, which not only safeguards their assets, but also ensures the financial well-being of their families in the long run.

Furthermore, a good legacy plan is more than just passing wealth on to their families and the next generation. Individuals benefit from it not only by ensuring security for future generations, but also by creating an opportunity to pass on their family values, traditions and aspirations according to their wishes.

In essence, it becomes a deliberate and thoughtful means through which individuals can build a legacy that extends far beyond monetary considerations.

Protecting wealth and securing heirs

Wealth transfer can be tricky because each person has a unique portfolio of assets. Families also have to work with their group’s dynamics. This is where advisers can help – by facilitating communication and providing an objective view on asset distribution; helping individuals prepare and protect their assets from falling into state administration; and minimising conflict among family members during wealth transfer.

Planning ahead also allows individuals time to explore their options for dividing and diversifying their assets. In this process, a goal to keep in mind is to ensure that beneficiaries and successors feel that their expectations and needs are addressed in the succession plans.

Legacy planning extends beyond asset preservation for successors. It also encompasses emotional and societal elements, such as the preservation of family values, philanthropic priorities and objectives, reputation, and more.

Thoughtful legacy planning helps to ensure legacy goals reflect the individual’s values and aspirations. It also brings assurance and meaning to the wealth and assets individuals intend to pass on to their family and future generations. By proactively engaging in the succession planning process, individuals are empowered to shape their financial legacy, protect their assets and retain control over how their wealth is distributed upon their passing.

The time invested in evaluating advice and making informed decisions also minimises hasty choices that might result in oversights, disputes and unintended consequences. Crafted with foresight and care, a legacy plan can become a memory of an individual’s values, with the hope that it is a meaningful and impactful one for generations to come.

Beyond embracing succession planning as essential, individuals need to act early and formalise it where possible. The risks of leaving wealth at risk without a succession plan are real and possibly dire.

The writer is global head of wealth planning and family advisory at Standard Chartered