The best structures for preserving wealth across generations

JUST as a house that will stand will require solid structures from the foundation to the fixtures and reinforcements, the proper structure is a non- negotiable for preserving multigenerational wealth. Structures are more than a boxticking exercise or a formality to meet regulatory requirements. They are the framework for managing assets, allocating resources, and navigating the complexities of changing market conditions. Also, the proper structure protects against costly risks that can decimate decades of hard work in one day. Structures can modify behaviour by instilling financial discipline and establishing clear governance protocols, helping to mitigate potential conflicts and challenges within the family so that the wealth continues to grow and endure across generations. A sound structure for preserving multigenerational wealth must feature three key attributes: acquisition ability, protection ability, and transfer ability. Acquisition ability refers to the structure’s capacity to support the strategic accumulation of assets in a way that is quick, simple and convenient. The structure should facilitate the acquisition of assets with straight forward processes, ensuring efficiency and ease of management. This streamlining enables the family to respond promptly to investment opportunities and adapt to changing market conditions. The structure’s protection ability can defend the integrity of the assets and prevent avoidable losses. The structure should offer comprehensive, adaptable, and enduring asset protection. It must provide a holistic approach to safeguarding assets against various legal, financial, and economic uncertainties. A versatile structure ensures that it can evolve with the family’s changing needs and the external environment, maintaining its relevance and effectiveness over time. Regarding transfer ability, the structure should facilitate frictionless asset transfer to beneficiaries across generations. Speed and efficiency in the transfer process are vital to minimise disruptions and ensure a seamless transition. Integrity in the transfer mechanism is crucial to maintaining the trust of all involved parties. Acceptability refers to the structure’s ability to be embraced by successive generations, ensuring that it aligns with their values and goals. A welldesigned structure will ensure wealth continuity with minimal complications, fostering a legacy that endures through time. In addition to the abilities described above, the following should be considered in determining the structure that is most suited for each family’s unique journey of preserving multigenerational wealth:

Goals

Where does the family stand today? Where are they trying to go, and what will they require to get there? Understanding the family’s most important priorities, the current state and the desired end state for the various forms of capital is crucial for determining the most appropriate structure to adopt. Understanding the growth areas and investment opportunities the family wishes to maximise is essential. To choose a structure that aligns with these aspirations, the family should be clear on its ultimate objectives, whether financial independence, philanthropy, or legacy- building.

Complexity

The complexity of a family’s business and investment portfolio significantly influences the choice of the most suitable wealth structure. Striking a balance between simplicity and sophistication is essential for ensuring manageability and effectiveness. Family dynamics, including the number of members, relationships, and potential conflicts, are crucial in determining a structure that fosters harmony and collaboration. Additionally, the legal and regulatory environment in the family’s operating location is a critical factor, necessitating the selection of a structure compliant with local laws and regulations for stability and legal protection.

Beneficiary behavior

Understanding the attitudes and mindsets of family members toward wealth is pivotal in designing a structure that encourages responsible stewardship rather than fostering entitlement. Sibling dynamics and potential conflicts must be considered to create a structure that promotes cooperation and minimises the risk of disputes jeopardising the family’s wealth continuity. Assessing the financial literacy and preparedness of the next generation is vital, and the chosen structure should facilitate education and mentorship to ensure responsible wealth management.

Capital erosion

The structure must account for the expanding family tree to ensure scalability, accommodating new members without compromising efficiency. Anticipating and mitigating tax implications are crucial to prevent unnecessary capital erosion, necessitating alignment with tax- efficient strategies for wealth preservation. Various costs associated with transactions, estate transfers, and legal title transfers must be factored in to ensure the financial viability of the structure, minimising capital erosion through foresight and planning. Against the backdrop of these essential considerations, individuals and families can explore the following structures to achieve their legacy planning objectives:

Wills

Wills are fundamental legal documents that outline the distribution of assets upon an individual’s demise. They appoint an executor to oversee the process and may include guardianship provisions for minor children. While relatively simple and a good starting point in preserving wealth, wills are only activated after the individual’s demise, and they are limited in their ability to address ongoing management, taxation, or asset protection during their lifetime. They also attract significant tax costs.

Trusts

Trusts offer a more sophisticated and flexible approach to wealth management. Individuals can appoint a trustee to manage and distribute assets according to specified terms by transferring assets to a trust. Trusts provide benefits such as privacy, continuity, and ease of transition that do not require the probate process. They are versatile, allowing customisation for specific family needs, and can be structured to provide for unique circumstances, like supporting a beneficiary with special needs.

Foundations

Foundations are legal entities established for charitable or philanthropic purposes. While not primarily designed for wealth preservation, they can play a role in legacy building. Foundations provide a structured way to contribute to causes important to the family, fostering a philanthropic legacy. They may offer tax benefits and allow families to engage in charitable activities with a lasting impact.

Family offices

Family Offices are comprehensive entities designed to manage various aspects of a family’s wealth. They often include financial, legal, and administrative professionals to handle investment management, tax planning, estate planning, and more. Family offices provide a centralised approach to wealth management, ensuring a coordinated strategy aligned with the family’s goals. They offer the advantage of personalised, holistic services tailored to highnet- worth families’ unique needs and aspirations. Due to wealth management’s intricate and multifaceted nature, professional advice is paramount in selecting and implementing the best structures for multigenerational wealth. Wealth structuring involves navigating complex legal, financial, and tax considerations, and professionals bring specialised knowledge and expertise to guide families through these intricacies. Professionals can assess a family’s unique circumstances, goals, and concerns to provide tailored recommendations that align with both short- term objectives and longterm legacy aspirations. Furthermore, the regulatory environment is constantly evolving, and professionals stay abreast of these changes, ensuring that the chosen wealth structure remains compliant and optimised for tax efficiency. Their insights into current market conditions and trends can influence decision- making, helping families capitalise on opportunities and mitigate risks. It should also be noted that the emotional and interpersonal aspects of multigenerational wealth management, such as family dynamics and communication challenges, require a nuanced understanding that professionals can provide. Their impartial guidance helps families make informed decisions that align with their values and objectives, fostering financial success, family cohesion, and legacy preservation.