Succession Planning: Protecting Your Family and Your Wealth

Putting in place the right succession plan is key to protecting your family and your assets over the long term. Legal arrangements such as trusts have numerous benefits that can shield assets from creditors, insolvency, and divorce. They can be tax efficient, helpful for confidentiality, and useful mechanisms to responsibly steward income and capital across current and future generations. This can help minimize disputes or conflict and mitigate against the destructive influence of vast cash inheritance without the protection of guardianship. Your wishes, legacy, and charitable aims can also be achieved through dynamic arrangements that preserve and enhance your wealth.

Abundant wealth can trigger unique concerns  

If you ask a child what it means to be poor, they might answer, “it’s when you do not have anything”. However, if you ask them what it means to be rich, their answer is often, “it’s when you’re happy”. This response fascinates because it does not mention money, assets, or possessions. Instead, it makes the leap to the emotional state that many assume accompanies great wealth: happiness. Of course, it is not a given that very wealthy individuals are innately happy all the time (and sometimes quite the contrary is true).

Being exceptionally wealthy can cause new worries, such as feeling the burden of preserving and growing wealth through investment and asset management, or wishing to protect assets from claims or attacks — such as those from creditors, lenders, or divorcing spouses. Other concerns include avoiding public probate processes (for confidentiality and efficiency), reducing estate taxes (since many globally mobile wealthy assume they will not be liable to local death taxes if they do not live in the country where they have property or other assets — but they usually are liable), and being tax efficient. In the age of transparency and data sharing, privacy (in so far as that is possible within international laws and regulations) is also a concern. However, for many, the greatest obligation is ensuring that wealth is passed on to loved ones and relations.

Prioritizing succession planning

There is a simple and important truth: with great wealth comes a great responsibility to plan for succession. The prime objective is to make a safe and stable arrangement to pass income and capital on responsibly through stewardship and in accordance with your wishes, without harming your family members by flooding them with cash or causing disputes between them as to who gets what.

Robust legal arrangements such as trusts, foundations, or family investment companies can be used to alleviate concerns in different ways — while also providing other benefits over the long term. The main purposes of trusts are asset protection and succession planning, but they are also beneficial for shielding your assets from creditors, or in the event of the insolvency of a family member or divorce. Trusts can also offer tax efficiency, privacy, and fair apportionment of entitlements to assets among loved ones.

Trusts: Multi-functional legacy planning tools

Put very simply, a trust arrangement is when an individual transfers a portion of their property to a separate and responsible person (the trustee) who holds it on their behalf. The trustee therefore owns the property, holding it not for themselves, but for the benefit of the individual’s chosen beneficiaries. The relationship between the individual and the trustee is a profound one, characterized by integrity, accountability, responsibility, and duty.

The trust arrangement fulfils the individual’s objectives of planning to protect their property and their family, since — if they die — their wishes have been communicated and the property will be preserved (it does not change hands to new owners). The property (which could be real estate, company shares, investments, art, cash, or other assets) is in the meantime managed prudently on their behalf by asset managers under authority from the trustee and often on the basis of externally engaged investment advice.

Empowering and protecting family members

Trusts empower families to exercise their legitimate right to privacy in respect of certain aspects of their private assets and family arrangements. Since they are informed by the written wishes of the individual, they are useful for legacy planning. In the event of a death, trusts may help to avoid negative financial impacts on family members and their businesses and property, and on the many stakeholders dependent upon them. Trusts can be used to implement succession planning and avoid public probate and division of assets (especially when forced heirship or public policy rules interfere with wills), which might otherwise break up portfolios, companies and the life’s work of individuals through allocation of portions.

Alongside mitigation of taxes, trusts protect assets and people from spendthrift inheritors, and they can be arranged to empower spouses to enjoy property independently of their partners. Trusts can help to preserve family unity, especially when a family constitution is put in place, and to provide for future generations. In addition, they can be used as a meaningful source of funding for endowments and charity over the long term. Trusts are highly versatile and since professional trustees are subject to regulation, compliance, and scrutiny, confidence in having appointed the right trustee is highly reassuring to the individual and their family.

Alternatives to trusts

Some affluent individuals prefer to have more hands-on control of their portfolios and business ownership structures. For them, family investment companies or foundation structures that have governance arrangements more akin to a board of directors (rather than trustees) could be more suitable options. Company structures and roles such as shareholders, directors, and administrators can feel more familiar than trusts. However, it is worth noting that company shares remain assets within your estate and so may still be subject to probate, claims, and forced heirship rules.

Putting a succession plan in place

The starting point is to compile a list of all your assets, noting how each is owned and indicating any co-owners, and consider how your businesses and assets should be transitioned and then controlled over the long term. A specialist can help you review this and, at the same time, establish your family values, relationship dynamics, and lifestyle needs, since these will also inform the appropriate planning of your arrangements. Thereafter, it is important to take tax and legal advice. Lastly, select an independent and dynamic trustee with whom you have a productive rapport. An enduring relationship with your trustee is essential for your long-term goals to be successfully fulfilled — ensuring that you feel happy that you have planned well for your family’s future.