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Family wealth is a resource requiring active management and planning throughout each phase of life. For many families, the goal of strategic financial planning is not simply to manage, multiply and protect their wealth, but to leave a financial legacy for the next generation based on a shared understanding and common set of values.
The largest intergenerational transfer of wealth is taking place among the world’s wealthiest families. Between now and 2029, USD 8.6 trillion of global high net-worth wealth will be transferred from one generation to another.1 Yet while every family inevitably faces succession, research shows that not all are prepared for a smooth hand-off: 70% of families report failure in intergenerational wealth transfers and 67% cite succession planning and inheritance as among their biggest concerns.2 We share with you the secret of a lasting legacy through succession planning.
Common questions when deciding on your succession planning strategy should include:
Research reveals that intergenerational family disputes over finances often stem from poor communication at a young age: 72% of failed wealth transfers are attributed to a breakdown in communication.2 Start the conversation with the next generation early by keeping it casual and conversational. Once a baseline financial literacy and an understanding of the family’s situation have been established, inheritors can become involved in more strategic discussions like investment management and succession planning meetings.
Strategic wealth planning has challenges of which all families should be aware. Chief among them are legal and tax considerations that differ based on countries and jurisdictions.
Different countries have different rules. Special care should be taken to understand the rules specific to your personal situation—not just in your home country but also the countries where your assets are situated and those in which your beneficiaries reside. For example, in certain countries it is imperative to have a valid will—a legal document dictating whom your assets pass on to after your death. Or in some countries, taxes can considerably impact the value of assets as they are passed from one generation to the next. These types of implications should be examined and reflected in your strategy.
Understanding the interests, perspectives and motivations of the next generation can bolster your wealth planning strategy. By incorporating your successors’ thinking and long-term goals into the plan, future generations may be more incentivized to nurture and expand the family’s wealth as assets are passed down.
Today’s affluent youth are focused on investment solutions that support the 17 UN Sustainable Development Goals, investments that meet ESG criteria (Environmental, Social and Governance) and climate- and sustainability-focused initiatives like low-carbon investments.
In terms of the latest trends, among women with inherited wealth, philanthropy is their most popular interest, while a fifth of all wealthy individuals with an inheritance show an interest in both art and the outdoors.3
Based on your wealth planning goals, there may be a number of ways assets could be passed to the next generation. Two common ways to guard the family's wealth for the next generation are trusts and life insurance, and each comes with its own set of benefits and drawbacks.
Family assets can be placed into trust and held by trustees for the benefit of your chosen beneficiaries. Trusts provide for asset protection as well as the ability for trustees to have control over when and how funds are distributed to the beneficiaries.
Life insurance is one of the simplest and most inexpensive solutions to pass on wealth, and it can be a good way to provide a single pot of liquidity to your beneficiaries after your death. ‘Whole of life’ insurance policies are an emerging asset class in which you pay premiums and the policy pays out a defined sum assured on your death.
Ultimately, the ideal succession plan should be tailored to you based on a combination of your personal circumstances as well as your wishes and those of future generations—it’s never as simple as a one-size-fits-all approach. Once a plan is in place, it is critical to review it regularly and make changes as needed.
Sources
1 Global Data (2019). “Intergenerational Wealth Transfer: Seizing the HNW Opportunity.”
2 Castoro, A. & Williams, R. (2017). “Bridging Generations: Transitioning Family Wealth and Values for a Sustainable Legacy.”
3 Wealth-X (2021). “World Ultra Wealth Report.”
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