Wealth management

Asian families confront awkward trust issues when succession planning

A survey found 64pc of Asian families plan to place conditions involving age, education and jobs when preparing a wealth asset transfer plan

PUBLISHED : Wednesday, 22 November, 2017, 8:02am
UPDATED : Wednesday, 22 November, 2017, 10:34pm

Asian families making arrangements to transfer wealth to the next generation are having to confront a paradox of affluence unique to a region known for economic miracles.

In many instances, the accumulation of family wealth happened so quickly, there are few precedents to help guide the Nouveau riche when it comes to transferring wealth from one generation to the next. Another concern is the issue of jurisdiction and compliance when transferring family assets which are spread globally, as well as legal and tax issues involving potential inheritors who live outside Hong Kong.

As a result, family heads are concerned that their children, should they receive a windfall at a young age, lack the discipline necessary to properly manage the parent’s assets, said Vivian Kiang, Asia head of wealth planning at Royal Bank of Canada (RBC) Hong Kong.

In a recent RBC survey, 26 per cent of high-net-worth individuals in Asia said when preparing an wealth asset transfer plan, they worry that their children would become irresponsible upon receiving the family’s wealth, compared to only 5 per cent of their Western counterparts who were worried their children would become irresponsible.

For this reason, 64 per cent of Asian families place conditions on inheritance, such as requirements in age, education and profession. This contrasts with only 26 per cent of Western families, Kiang said.

The research, undertaken from April to August, surveyed 425 respondents across Singapore, Hong Kong, Taiwan, Indonesia, Malaysia and mainland China. Respondents had an average net worth of US$5.15 million and minimum investible wealth of US$500,000.

“They worry that with a sudden death, their children may receive a sizeable amount of wealth. The kids may be only 18, and will not want to go to school or want to work,” Kiang said.

Asia’s wealthy also differ from their Western counterparts in other key areas. Hong Kong’s millennials begin their financial education at 25 years old, two years before their Western peers, according to the survey.

In general, the heads of Chinese families in Hong Kong, Taiwan and China hope to take care of their children and grandchildren, with 51 per cent of respondents in Asia intending to gradually transfer assets to inheritors during their lifetime as part of a plan to teach their heirs to manage the wealth responsibly, higher than 29 per cent of families planning phased wealth transfers in North America and the UK.

“The Chinese think their money is for the next generation. Parents saving more means their children will have more. Whereas people in Western countries tend to want a good retirement and children being able to become independent,” Kiang said.

While aggregate wealth in Asia-Pacific increased to a record high of US$89 trillion in 2017, median wealth across the region grew by just 0.2 per cent, suggesting income inequality is growing, according to Credit Suisse.

China’s household wealth is forecast to reach US$39 trillion in 2022, reflecting an increase of about US$10 trillion from current levels. The number of millionaires in China expected to surge 41 per cent to 2.7 million in the same period, Credit Suisse said.