A modern inheritance can be an intricate puzzle involving assets and family members that will likely move from one country to another during or after an individual's lifetime. In a world where multi-national families are increasingly the norm, passing on a legacy requires careful planning.
A billionaire residing in Singapore, for example, may be dealing with a simpler tax structure locally, but if one child resides in the United States how are estate taxes addressed? Will the beneficiary take on the tax responsibilities? What if a prior trust was established that did not account for a child eventually settling abroad? What if the inheritance is no longer an equal share among the children because one is Canadian (not subject to an inheritance tax) and one is American (subject to a gift tax)? Should two trust structures be established, customized for each beneficiary and their respective country's tax laws? And if all the children sit on the company's board, but inherited unequal amounts, do they still have an equal voice?
These are just a few of the many questions that may need to be asked when families, and businesses, transcend borders.
“It's a very international mindset now. High-net-worth individuals (HNWIs) have the opportunity to invest everywhere as well as send their kids to other places for study," says Hong Kong-based Vivian Kiang, head of Wealth Planning in Asia at RBC Wealth Management. “The kids stay there most of the time, they get married, and the grandkids are born there."
It's a trend Kiang has witnessed in Asia over the last decade or so, which has made wealth planning extremely complicated.
Commissioned by RBC Wealth Management, The Economist Intelligence Unit (EIU) undertook a study of high-net-worth individuals (HNWIs) from March to May, 2018. The new face of wealth and legacy survey covered 1,051 individuals (502 women and 549 men) in Canada, the United States, United Kingdom and parts of Asia (mainland China, Hong Kong and Singapore). The survey explores how the meanings of legacy and wealth are being redefined across regions, genders and generations.
The next generation
Sarah Tang, vice chair of the Enterprise Strategic Client group at RBC, focuses on four key areas of “capital": financial (addressing investment, banking, credit, insurance needs, etc.), business (such as succession planning), human (dealing with families and intergenerational issues), and social (what are the family's philanthropic goals? How do you reconcile differences?).
“People not only need to think about tax efficiencies, legal structures, but also really train the next generation on how to handle it all," says Tang, who looks at legacy planning from a multi-generational perspective. Her group helps RBC's top global clients navigate some of these complex issues.
For older, wealthy families, the groundwork may have been laid generations earlier and an established support network already exists to help guide the ongoing inheritance conversation.
According to The EIU research, 66 percent of older generations in Asia say they plan to distribute most of their wealth while they're alive. That figure compares to 27 percent of those surveyed in the West.
For others new to the process, estate and succession planning can be daunting, and typically triggered by milestones like an illness or death of a family member, the birth of a grandchild, or when the individual reaches a certain age.
But wealth management professionals advise at least starting the conversation early.
“Some wealth creators don't want to deal with their mortality," Alan Binnington, a director and fiduciary specialist with RBC Wealth Management in the British Isles concedes, noting cultural taboos may come into play.
In countries like China, where an explosion of self-made billionaires is shaping a new generation, the rich are often too busy running their young companies to think about how they plan to pass on their wealth. Even so, Confucian ideals of respecting one's elders can foster a mistaken expectation their children will return home and step into the family business.
Eighty-three percent of younger generations surveyed in Asia say they're expected to take over the family business, compared to 56 percent in the West.
“The increasing difficulty among the Asian ultra-high net worth is the fact that in addition to the intergenerational gap, there is also a cultural gap," says Toronto-based Tang.
“Many of these kids have been sent abroad since they were teenagers … so their value system and what they think they should do with their lives might be very different from their parents. So there's that additional gap to jump across to bridge the wealth transfer."
'Fuerdai' (富二代) - an often uncomplimentary Chinese term referring to “rich, second generation" children - have garnered much media attention in China and abroad for their flashy cars and expensive clothes. But the reality, says Tang, is for every spendthrift second generation child, there are probably 100 “fuerdai" who are humble and under enormous pressure to work hard and not disappoint their parents back home.
Specifically, The EIU data shows 75 percent of respondents globally agree they have an obligation to transfer values to the next generation.
Laying the groundwork
In some cultures, a reticence to talk openly about money can add to the challenge, although this has started to change, wealth management professionals say.
Binnington, who is based in Jersey, stresses the importance of bringing the next generation into the wealth planning conversation, building a relationship with the trustees, as well as the importance of providing a complete financial picture to advisers.
Engaging professionals to look at both ends - where the money is going and where it is coming from - is essential to understanding how the different tax jurisdictions interact and how to best protect and transfer assets.
Difficult conversations about sensitive topics like pre-nuptial agreements, for example, should also begin early to help mitigate conflict down the road. Ironing out this kind of agreement is much easier when the future son- or daughter-in-law is still just an abstract idea.