Planning to retire from running your multi-million dollar family business in Asia? If you have not enlisted professional help to put in place a plan for the transfer of your wealth to the next generation, you are not alone.
Family succession planning is the number one legal issue that the affluent fail to address, much to the detriment of their wealth, business, family and even health, according to global legal expert Harneys, an offshore law firm with a well-founded presence in Asia.
As Asia becomes increasingly complicated when it comes to tax and legal matters, this issue is even more pressing. If you have US$500,000 or $500 million in investable wealth, this applies to you too. Read on.
What Is Family Succession Planning?
Family succession planning involves identifying and developing of potential individuals within your family to fill key positions in a company, as well as the systemic transfer of wealth to the next generation.
Think about what will happen to your wealth when you have passed on or lost your capacity to manage it. Granted, many balk at the prospect of having to plan for the unthinkable but avoiding it has serious repercussions.
For a start, family succession planning will be able to help you answer these critical questions:
1. Do you own a business?
What is your plan on who owns and controls it when you are no longer around?
2. Do you have a family?
Who and what are they inheriting from your wealth?
3. Do you have concerns about control?
Who will take control when you are no longer in charge of your wealth and business?
4. Have you embarked on steps to minimise unnecessary tax burdens that will be levied on the inheritance?
Inheritance and capital gain taxes can be unnecessarily brutal if the right steps have not been taken well in advance to mitigate them.
Key Areas of Concern
Asian enterprises, for example, are often started by one family member and the founding figure will be intent on keeping the business and assets within the family for the long term. Legal planning is required for this purpose. A will can ensure the systematic transfer of wealth to the next generation, while trust structures are useful tools for planning the transfer to subsequent generations.
You should also watch out for the following key areas of concern:
1. Is your will valid?
If you have a will in Singapore but assets held in a British Virgin Islands-registered (BVI) company, involved parties have to go through a court procedure in the BVI to transfer the shares in the company. When a shareholder of a BVI company dies, shares cannot be transmitted to the heirs until a grant of probate or letters of administration has been obtained from the BVI court or, alternatively, the foreign grant of probate or letters of administration has been re-sealed by the BVI court. Some jurisdictions, for example Indian probate law, can take many months.
2. Do you have a trust?
By setting up a trust, you are able to transfer your business assets to your children and retain a source of income for yourself. If the assets grow over the terms of the trust, the appreciation will not be subject to estate taxes, so trusts can be effective tools for passing on a growing business.
Additionally, you will also need to make sure that all your documents are legally binding across different countries and jurisdictions, and understand what you need to do in case they are not.