What measures can Asia's global families take to ensure their legacy smoothly reaches their beneficiaries?
Planning a smooth transfer of wealth can be a delicate matter at the best of times, but the task becomes trickier when heirs are living in another country. This is the challenge facing many of Asia’s global families, as the next generation seeks education and opportunity abroad.
“As soon as you cross a border and you’ve got someone on either side, all of a sudden your life becomes very complex and you need advice,” says Iggy Chong, head of enterprise private clients at RBC Wealth Management in Asia. Adding new jurisdictions to a transaction means dealing with multiple sets of laws.
But it is something that high-net-worth individuals (HNWIs) in Asia are increasingly dealing with. A 2021 report by the consultancy Capgemini found the number of people in the Asia-Pacific region with more than US$1 million in assets has increased to 6.9 million. That means there’s lots of wealth to be passed down, with much of it destined to cross borders.
As an increasing number of Asia’s families become global, they need sound advice on navigating international borders to ensure their legacy smoothly reaches their beneficiaries. “There’s so much regulation, there are so many nuances, you’ve got different currencies and you’ve got different rules,” says Chong.
The Will is perhaps the most common estate planning tool, and one that will make the probate process – the distribution of assets after death – considerably easier. However, many individuals don’t have one in place, says Vivian Kiang, RBC Wealth Management’s managing director, head of Wealth Planning and Fiduciary Services for Asia, based in Hong Kong.
“If assets are not properly indicated in the Will and the parents pass away, then that’s going to lengthen the whole probate process,” she says.
But a single Will may not be enough if there are assets in multiple jurisdictions. International real estate holdings, for instance, are popular among Asian HNWIs, she says. Having different Wills for each jurisdiction where property or other assets are held – prepared in the local language – can speed up the probate process significantly.
“It’s a lot easier because the government doesn’t have to identify who should receive it and how much,” she says. “Otherwise, if you only have one Will, then that Will with the probate will have to go around the world to unfreeze the assets one by one.”
Using a trust structure can often bypass the probate process, or at least greatly simplify it. It should also make things easier from a tax point of view, says Kiang.
RBC works in conjunction with tax advisors to create solutions that meet the needs of clients.
Trusts also allow the older generation some control of how and when their assets will be distributed to the next generation, which Chong says is important to many clients. With much of Asia’s new wealth in the hands of first-generation millionaires, many parents worry their children may not appreciate the full value of their money if it’s just handed down to them.
“Because it’s new money, we’re finding that the patriarchs and matriarchs are more concerned about the kids getting ‘affluenza’, so they put a lot of conditions on passing the wealth on,” he says.
Specific conditions could stipulate a certain level of education achieved, or be tied to age so as to allow the recipients to fully mature before they inherit.
Many time-consuming, after-death issues can be avoided by planning ahead, and by starting the wealth transfer process while the older generation is still alive.
An early transfer could involve trusts and other tools that allow the older generation control over how assets are distributed. Handing down assets early has other implications as well, as estate tax often is applied when assets are distributed after death.
Doing so also allows the generations to communicate their wishes to each other and avoid potentially awkward and costly situations that could harm the family legacy. Real estate assets need to be managed and maintained, for instance, and children may not be interested in traveling extensively to deal with them.
Liquidating assets while the older generation is still alive may reduce transaction-related costs that could be incurred later, says Kiang. “There is a point where they will need to sit down and think of what will be the best way to give the real estate property to the next generation,” she says. “Sometimes it will be good for the property to be transferred to individuals. Sometimes it will probably be better off if it is sold, so it can be transferred in cash.”
If there’s a family business, perhaps the younger generation does not want to return home to run it, and selling it – or even launching a public offering – may be the best option.
Life insurance can be a key element of estate planning, particularly an overseas transfer where international fees and taxes may need to be paid during the probate process. In some countries, insurance is paid directly to beneficiaries and is not considered part of the estate, which could mean it’s not taxed. It also has the benefit of providing immediate liquidity at a moment the beneficiary may need it.
“This liquidity, it’s important to a lot of families,” says Kiang. “Even though they have the wealth and a lot of assets, they may not be liquid. Also, after death, assets might be frozen, but some of the liability will still continue. Insurance can be used to pay off the loans or taxes.”
Insurance can also even out an estate among heirs. If there is a central asset to be passed down, such as a business or property, which is being taken on by one heir, life insurance can provide funds to other family members to even out the inheritance.
According to Chong, the key to successful cross-border estate planning is remaining flexible. Changing countries means complying with different laws, and taking into account a globe-trotting younger generation may have different ideas of how to manage their wealth than their parents.
Working with a global bank and advisors who understand the nuances of the international nature of your family can smooth out the process, says Chong. “You also have to make sure there’s flexibility so that if something changes, it’s not locked in and you can adapt to a change.”
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