Careful planning can preserve wealth and provide for welfare

PUBLISHED : Monday, 13 December, 2010, 12:00am
UPDATED : Monday, 13 December, 2010, 12:00am

Wealthy individuals may not have to rely on their Mandatory Provident Fund contributions for financial security during their golden years, but they still need to pay attention to other issues such as tax exposure and succession planning.

Michael Low, head of Trust and Fiduciary Services at Bank Sarasin believes the key concern for high net worth individuals, or anyone for that matter, is that they will be able to enjoy their retirement, without the stress of financial concerns.

'People talk about retiring in style, but you really want to be able to retire with a smile because you have peace of mind,' he said.

'For the very wealthy, this involves specific concerns that can be neatly and effectively addressed by something like a trust structure. A trust can really give these people, who often have very complex asset portfolios, obligations and wishes, great peace of mind.'

Low said good retirement and estate succession planning should take into consideration the retiree's liquidity needs, investment return expectations and medical and healthcare requirements.

It was now very common for such plans to be held under a trust arrangement so that the retired individual continued to benefit from the trust assets for as long as they lived, regardless of their state of health.

At the same time, provisions could also be made for assets to be distributed to family members or charities in accordance with the structure of the trust.

Low said the issue for many wealthy individuals was not that they had insufficient funds for retirement, but how their funds might be used for their welfare, living and medical expenses in the event of their mental or physical incapacitation.

'Of course, people don't want to consider these eventualities, but it is part of a trust professional's responsibility to ensure clients are cared for, no matter the circumstances,' he said.

'Clients need to ensure that they are getting expert advice so that every eventuality is considered.'

Another matter to consider was where a retiree spent most of their time. If too much time was spent in one location, they could be deemed to be a tax resident.

Consequently it was critical this was reviewed in the planning process in order to manage inheritance, income or capital gains taxes.

'It would be a great pity for someone to have spent a lifetime amassing assets only to have them eroded by failing to plan properly for potential taxation during retirement,' Low said.

For example, in Britain and the US, real estate held under an individual's name would be subjected to state and inheritance taxes, while in Hong Kong, this was less of an issue.

To mitigate tax exposure, individuals could seek advice from a tax adviser and opt to hold real estate assets using an offshore trust and company structure in order to manage taxes and allow assets to be transferred easily to family members in the future.

'A good plan provides the retired individual with a structure and framework which, once put in place with periodic reviews, allows them to focus on enjoying what should be the best years of their life,' Low said.

Denise Kenyon-Rouvinez, head of International Family Business and Philanthropy at RBS Coutts also believes planning is the key to a comfortable and rewarding retirement.

'It is not that wealthy entrepreneurs and their families don't have problems the same as anyone else, but those families that manage smooth transition of their businesses and succession planning tend to be those who have planned ahead,' she said. 'It takes courage and involves dealing with a lot of emotion to hand over a business or implement succession planning.'

Ideally, the head of a family business should start succession planning process at least 10 years before they retired as it took time for employees, clients, stakeholders and family members to adjust to change.

'After all, we are talking about human emotions involved in dealing with change,' Kenyon-Rouvinez said.

Philanthropy was another area where wealthy retirees could enjoy their retirement, while offering the benefit of their knowledge and experience to society. However, Kenyon-Rouvinez said this could be a complicated process and it was a good idea to seek expert advice before embarking on any ventures.

'Being involved in philanthropy can be extremely rewarding for successful business people who are used to living a busy life,' she said.

'Very often, philanthropy can open many doors of possibility, such as where money can be spent most effectively, or who should be sought out as partners for special projects. These are areas where professional advice can be a great help.'

Ning Cheong, head of Wealth Management Solutions at Clariden Leu says for most wealthy people, the main focus is on wealth preservation and growth that will automatically contribute to the creation of a nest egg for use after retirement.

'The objective is to ensure a portfolio of assets can generate a regular income flow to maintain the lifestyle to which one has become accustomed,' Cheong said. 'Secondary to this is the underlying need to preserve wealth for succession planning.'

Cheong said a major focus for many individuals was the need to have enough saved for potential health care needs in order to avoid over-dependence on children.

In another scenario, many clients were not leaving all their wealth to the family, but increasingly choosing to contribute to charitable causes or build upon philanthropic activities.