Series on Business Succession 3 A Family Wealth Management Story


Complication of family business succession and wealth planning
Without a structured family succession plan, wealth distribution issues become complex and may lead to conflict and ill-feelings among the surviving family members. Therefore, addressing all aspects of family wealth planning is essential to maintain family harmony.

What does wealth planning include?
Wealth planning encompasses the activities necessary for wealthy individuals to ensure that their financial affairs are in order and that their assets will be well managed and directed as intended. Whether an estate or wealth plan is effective or not will depend on many factors such as an individual’s willingness to consider his or her mortality, the family’s willingness to discuss sensitive matters pertaining to succession and the professionalism of advisors to act as both counsellors and technicians, notwithstanding the intricacies of law and taxes.

Insufficient planning may lead to significant financial and non-financial consequences – potentially leading

to family dispute, erosion of the family wealth for multi-generation and unnecessary tax bills.

Failure to keep documents up-to-date

with changes in the family relation- ships or the family’s wealth is commonly overlooked. For example, changes due to divorce, prede- ceased child or additional grandchil- dren. Any changes to the family wealth due to market volatility, disposal of assets, expansions,

mergers and acquisitions will impact wealth and will need to be updated.

Therefore, the decision on where and how the wealth should be distributed upon death when these changes arise will need periodical review and updates. In order for wealth planning to be more efficient, some level of flexibility is encouraged to be incorporated into their plans to provide guidelines and options to modify certain arrangements as unforeseen circumstances occur.

Estate liquidity

For wealthy individuals who own international assets, inheritance or estate taxes to be paid by their heirs are inevitable. The estate document must specify mechanisms for creating liquidity for the estate to enable the beneficiaries to pay the estate duties, otherwise the benefi- ciaries may be forced to sell off the property to pay taxes.

Set a family strategy

Some founders and business owners may have plans on how to distribute the family business to the children and may have spoken to the children on how they should share the family wealth. However, problems will arise when all these thoughts are just being communicated orally and not documented in writing.

A defined and well documented, integrated family strategy with a multi-generation forward perspective has the greatest probability of long term wealth preservation. As family wealth strategy is a unique strategy that is designed to resolve problems of wealth dissipation by future generations, therefore, it is better to address the full set of challenges now before problems arise.

Remember, true family wealth encompasses more than just money. A family with a strong set of values and a shared sense of family unity and purpose is more likely to retain its financial wealth than a divided and disorganised family lacking in fundamental insights, wisdom and discipline.

Some business owners also feel that things in the future cannot be controlled and planned for. There- fore, it is not necessary to plan diligently for wealth succession. However as Napoleon Hill, the author of “Think and Grow Rich” said,“Whatever the mind of man can conceive and believe, it can achieve. Thoughts are things!”

Hence, the question for business owners to consider is, “What is most important to you?” If maintaining family harmony and preservation of the family wealth are of paramount importance to you, then a family wealth strategy must be set up to fulfill your objectives.

Family organisation

In Asia, many high net worth businessmen have overlooked the fact that managing a family is not just about asset allocation and invest- ment policy. The real concerns regarding a family legacy are its organisation, governance and human interactions of the family members, which will become more complex and complicated as the family grows bigger with each successive generation.

In order to resolve these challenging elements of family leadership, consensus must be reached on the following while the founder is still around:

– Defining the family identity, vision, values and goals.
– Setting a framework to clarify the rights and responsibilities of family members, that is, to draw up a family constitution for family governance.

– Preparing the next generation: managing, teaching and learning to preserve family wealth within and across generations.

– Engaging and managing a network of advisors and professionals to support the family.
– Setting up a family office to organise and support the smooth functioning of all family activities.

– Creating a family leadership model to promote strong leadership that can contribute more to the long term success of the family wealth as leaders are made, not born.

Family wealth preservation structure
Some families have yet to set up a wealth preservation structure that is able to manage risk, structure asset ownership and control across generations and establish an asset protection system which is able to withstand external events that may cause fortunes to be erased or destroyed.

Family wealth management

While organising the family and setting up the structures and practices to preserve wealth are important, these are inadequate to preserve wealth across generations. A successful approach to financial investment is a prime requisite.

Most family businesses are depen- dent on a single asset class which by its very nature, lacks diversification to reduce its systemic risks. A system- atic, disciplined and defined family wealth management model must be in place to diversify assets and to reduce risks.

A work flow chart of a typical family wealth management scheme is shown above.

Integrate family business with long term family wealth planning
A family business, which generates most of a family’s income, plays a central role in the family’s life and family’s wealth management. Therefore, it is important to align the strategic orientation of a business with the directions to long-term success of a family wealth.

The family, family business and family wealth management are three main interrelated elements of a family wealth strategy that needs to be addressed simultaneously with a shared family vision and a set of family values in mind.


In more generous families, philan- thropy is an area that must not be overlooked. The founders need to consider whom, what, where, why, when and how to give. The virtues of giving create a sense of common purpose, unity and well being.

Philanthropy is, therefore, an essential part of a comprehensive strategy for wealthy families. Hence, setting up a guideline to specify the vision, mission, values, governance and management to the acts of generosity will make philanthropy more effective and most importantly to engage all family members in a meaningful pursuit and unite them across many generations.

Addressing the individual challenges of family wealth This is perhaps the most important part of any family strategy. While

substantial thoughts and efforts have been made to preserve the family as a collective unit, any forward plan will also need to recognise the needs of the individual family members.

A family is a collection of individuals whose beliefs, attitudes and behav- iours will determine the family’s future – either make or break a family’s legacy. Therefore, extra care must be taken to ensure that each family member is committed to the collec- tive family strategy and that each feels comfortable that his or her individual priorities have been well considered in the context of that strategy.

Despite the benefits, some wealthy individuals still procrastinate to plan for succession due to the fear of loss of control which might arise from implementation. In the next issue, we will allay such fears and explore the solutions to transfer assets and still allow the founder to retain some control.