Entrepreneurs and high-net-worth investors, like everyone else, must at some point face up to one of life's immutable rules: you can't take it with you.
They can, though, by putting in place the right structures and proper controls, ensure a smooth transfer of material assets and investment philosophies to the next generation and make things much easier for their heirs and business successors.
'There are three simple steps - plan early, plan comprehensively and review regularly,' said Geneva-based Rodney Allen, head of wealth structuring, international, for Barclays Wealth. 'The primary factor is to make sure the family is taken care of and to get an efficient structure organised early on in order to minimise taxation.'
He noted that in common situations, such as when a patriarch or matriarch held a significant stake in a family-run business, certain decisions were bound to arise. Typically, these concern the extent of the settlor's continuing involvement, the aspirations and competencies of family members in terms of managing assets, tax regulations in different jurisdictions, and the need to maintain flexibility.
'In simplest form, there are two building blocks when planning for families - the trust structure and companies - and we normally use a combination,' Mr Allen said. 'Every trust is different. It is a flexible instrument which can be modified to suit the family and beneficiaries' needs, and structured to give anywhere from 0.5 per cent to 100 per cent control.'
When advising clients, he said, it was often necessary to point out that allowing the trustee more control made it easier to protect assets from possible legal challenges while accomplishing longer-term goals. Depending on their priorities and relevant tax considerations, settlors can use options like a 'STAR' trust under Cayman Islands rules or a closely held private trust company.
The former structure let them retain maximum control of continuing business decisions. It also gives the beneficiary no enforceable rights against the trustee or trust property. With the latter, instead of appointing an institution as trustee, the family forms its own company to fulfil that function. The settlor, family members and selected advisers can be on the board of directors and directly influence day-to-day administration of the trust.
It is also possible to change the composition of the board to bring the younger generation into the management of family affairs and any investment decisions.
'If the business is growing and the family still heavily involved, then the estate planning needs to be thought out very carefully, otherwise a great deal of value can be lost,' Mr Allen said. 'We have a group of people specially trained in these issues. They will also work with expert advisers if tax and jurisdictional issues have to be gone through, not just in Hong Kong but in other countries.'
Besides advising on financial and administrative aspects or acting as a trustee, he felt Barclays added value to the estate planning process by getting clients to think realistically about 'unpleasant' things. This requires a deft touch to ensure people consider what should and could happen once they are gone and, where necessary, that other family members are sufficiently involved.
Henry Hirzel, managing director and head of the key client segment for UBS Wealth Management, said: 'Succession planning is not just about the tax and regulations. Family members need to work together, so communication is very important. Clients basically are looking for a sparring partner who has seen other situations and examples of how other successful families do things.'
Mr Hirzel noted that 'typical' Hong Kong investors or entrepreneurs were already familiar with tax issues in various jurisdictions, tracked international markets, and kept a close eye on cultural trends. However, they could often benefit from independent, specialist advice on matters of family governance and on taking decisions relating to inheritance.
'So, we develop something like a family constitution, with roles and responsibilities and saying who will do what, very often with help of the family's trusted lawyer or business adviser,' he said. 'It is a process that takes time; a lot of thought goes into it.' This approach obliges clients to address fundamental issues. These have to include the strengths and weaknesses of family members, the ambitions and outlooks of a younger generation, any conditions or restrictions it is sensible to impose, and the decision-making process.
'We encourage clients to look at what they want to achieve in terms of building something and passing on a legacy,' Mr Hirzel said. 'That's why we look on philanthropy as an integral part of the family advisory services.'
Henry Lam, executive director and head of family advisory services for UBS Wealth Management Hong Kong, noted that discussions about succession planning tended to focus on the transfer of physical assets. It was, though, also important to consider how best to pass on values, experience and intellectual capital.
'Our job is to give ideas and identify the particular issues,' he said. 'As an adviser, how far you can go depends on how trusted you are, but you have to remember it is the client's money and decision.' Any succession plan has to be flexible enough to change in response to changes in the family environment.