The Great Wealth Transfer: Asian dynasties are under threat and must prepare now
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Over the next two decades, the world will undergo a titanic shift of wealth between generations. This ‘Great Wealth Transfer’ has already begun and will have far reaching implications for many families, businesses and individuals as up to USD68 trillion changes hands. Asia’s affluent, however, are chronically underprepared for this transition, with more than half of the region’s high net worth individuals having no succession plans in place.
This lack of preparedness places the intergenerational wealth of thousands of Asian families and businesses under serious threat, not to mention the stability of thousands of employees who rely on these businesses for their livelihoods. Unless addressed, the financial consequences will be devastating. But how best to build a plan that ensures you pass on the family torch with the flame still blazing? Like building anything, you begin with a solid foundation. And when it comes to preserving wealth and protecting legacy, there is no stronger foundation than life insurance.
Leave no detail to chance
With its focus on individuals, the nature of wealth planning is sensitive. It’s always easier to put off tough discussions to avoid potential conflict. But failing to plan now is likely to intensify these conflicts when decisions become more pressing.
Family businesses across Asia know this all too well. Over the last decade, there have been many high-profile cases of relatives locked in bitter court battles over family fortunes, most of which could have been avoided had they prepared properly.
Consider this recipe for family feud: three members inherit an equal share of a business, but one wants to sell and the other two wish to retain ownership. Life insurance allows the two family members with an interest in maintaining the business to inherit the asset and ensure its continuity, while the other member is provided with an equivalent cash value from the life insurance policy.
Another benefit of life insurance is the tax-advantage it can provide in many international jurisdictions. For HNWIs who often own assets across the globe, this can be substantial and mean the difference between family income continuity, and long-term regulatory headaches.
A failure to plan can also lead to significant cash-flow dilemmas. Life insurance policies can be very flexible in allowing either income or lump sums to be drawn, both during your lifetime and after you pass on. During times of distress and sudden shocks, you, your family members or your business may require significant cash to cover outgoings. But if your wealth is tied up in illiquid assets such as property or infrastructure, it can be difficult to sell them, and even lead to major losses if the value of those assets is depressed due to a market downturn.
Life insurance solves this problem by providing a versatile source of funds, helping to buffer against economic headwinds, create cash flow continuity, and avoid fire sale asset disposals.
Placing assets in life insurance should be second nature for every HNW individual. It provides flexibility, liquidity, and most importantly, security – ensuring no detail is left to chance.
Trusted advisors are key
Many UHNWIs and HNWIs who have successfully implemented succession planning worked closely with experienced and trusted insurance brokers. These advisers understand the increasingly intricate wealth landscape and can navigate the complex maze of compliance, tax law and risk.
These highly qualified consultants also provide a valuable perspective on an individual’s overall portfolio and family circumstances. They identify policies that satisfy current and future needs, working harmoniously alongside other assets for maximum return. When it comes to the future of a family business, advisors are well-trained to assist with transitions of power to safeguard its future and the livelihood of its employees.
In our industry, there is a saying: the first generation makes it, the second generation spends it, and the third generation blows it. Without calculated, precise and strategic planning, however, the second generation may never even get the opportunity to see it.
This article is contributed by Yves Guélat, Group Chief Executive Officer, Charles Monat Associates.
