Asiaciti Trust: An In-Depth Look at Double Family Succession Plans in Asia
During the 20th and 21st centuries, many Asian countries have experienced tremendous economic growth and development. Countries that, as of the year 1900, would have been considered “third-world” or developing are now world leaders in technological development, quality of life, and education.
One of the many positive effects of this rapid transformation has been the accumulation of wealth for many Asian business owners and their families.
The Challenge of Family Succession
Many Asian families are still in their first generation of wealth, meaning the family’s current leader is the one who built the family business and has yet to hand it down. This leaves Asian families dealing with the unique challenge of planning for succession without prior experience. One recent study found that many Asian businesses lose 60% of their value during the transition between the first and second generations.
Recent global experiences, says Kate Weiss, a managing director of Singapore-based fiduciary services firm Asiaciti Trust, have shown families the need to develop and implement family succession strategies as soon as possible. Planning for succession, though, brings a whole host of challenges that patriarchs, matriarchs, and their advisors must navigate.
Unique Problems: Tax Complicity and Family Dynamics
Succession planning is easy enough when the family leaders have one child who is ready to assume control of the family business. In real life, though, things are rarely this simple. When a family has multiple children, succession planning can get very complicated. No parents want to unintentionally play favorites or turn a well-earned fortune into a source of conflict and bitterness.
Further complicating matters are the extrinsic factors that affect family succession planning. If your family or business is spread across multiple municipalities or countries, tax laws and business regulations in each of these places will vary wildly.
For example, if one child from a wealthy family marries an American, a significant tax headache may result. In fact, some fiduciaries and families suggest giving serious thought to the implications of this type of international union.
The difficulties of managing competing interests, complex tax codes across multiple jurisdictions, and the emotional toll of planning for succession mean that finding the right advisor/fiduciary is a must. These professionals can be of tremendous service in helping family leaders and their eventual heirs navigate these challenges, providing objective advice and expertise in strategy and compliance.
Finding the Right Trustee
Whether you work with a private bank, a lawyer, or other asset management firm, the person (or persons) that you place in charge of your family’s wealth will play critical roles in succession planning. It’s essential that you feel secure in the firm’s ability to develop a balanced succession plan that works for all members of the family. You need to trust that they are working toward your best interest and that they will even push back against your ideas if they’re not beneficial.
Asiaciti Trust’s Weiss stresses the importance of proper communication and collaboration when devising and implementing a family succession strategy. In a recent Hubbis-led panel discussion with other fiduciary services providers, Weiss shared her experience and belief that succession planning requires the cooperation of all people involved, both inside the family and out.
Weiss also described the need for lawyers, wealth managers, and advisors to craft personalized solutions for each of their clients. No two families or businesses are the same, and a blanket approach to wealth management (such as the ones typically offered by large, global banks) simply won’t cut it.
As Asiaciti Trust’s experts explain, the most effective wealth managers are the ones that invest their time and energy into understanding their clients’ present situation, needs, and desires.
“Family values and governance are key… it is important that tax planning does not drive the family succession, but that the objectives, traditions, behavior, and values of the family drive the decisions” – Kate Weiss, Asiaciti Trust
It can be a delicate balancing act to align family values with fiscal considerations. But it’s essential for family succession planning.
Planning Within the Family
To ensure continued success across generations, patriarchs and matriarchs of wealthy Asian families must take direct and intentional steps to prepare their children to inherit the money and business. This means being invested in their education as well as bringing them into the business in some way (whether you formally hire them or simply teach them the ins and outs is up to you).
Outside of business acumen, parents must also teach their children to steward and grow the wealth that they inherit. No parent wishes for their child to slowly drain their inheritance because they aren’t equipped to use it to grow their wealth. Instilling in them values and disciplines that will guide them as they make their own financial decisions, rather than making decisions for them, is the best way to do this. Empower them to take control of the business and fortune and you’ll be able to proudly and confidently hand over the reins when the time comes.
Part of your responsibility in succession planning is to introduce your heirs to your advisors and wealth managers. When you retire or pass on, your advisors will be working directly with your children to put your succession plan into motion and enact the terms of your will.
If the heirs do not have a previously established relationship, these tasks can easily become tense due to the heightened emotional circumstances of succession. Family succession planning is, well, a family matter, which means that your entire family needs to be involved in some way, not just you as the family leader.
Asian families may not want to think about succession, but having a succession plan in place is crucial to the maintenance and growth of wealth across multiple generations.
Among the most important things to consider are tax compliance, choosing the right fiduciary, and training your children to properly steward and grow wealth in their generation.
The best thing you can do if you haven’t started this process for your family is to begin as soon as possible. That way, you have enough time to develop a thoughtful and balanced plan to take care of your family for generations to come.