Mark Smallwood of Deutsche Bank Private Wealth Management explains some of the main tools available to relationship managers and advisers when creating a succession plan for their clients.
Date: May 2010
Tags: Wealth transfer, Trusts, Succession planning, Wills, Tax
Basic wealth transfer tools
According to Mark Smallwood in an interview, private clients in Asia tend to be less sophisticated in terms of wealth planning solutions than in other parts of the world – and the banks generally overcomplicate their offerings.
For example, he said, most Asian clients don’t even have the most basic wealth transfer solution in place – the last testament and will. The first part of the process with any client, therefore, is to assess whether they have a will in place, said Smallwood.
With the problems of intestacy and the challenge of assets being in multiple jurisdictions, the first problem clients have is ensuring that, at the minimum, they can go through a probate exercise rather than intestacy.
Smallwood said it is important to look at their account-holding relationship, particularly in terms of their liquid assets, to put in place a simple trust structure to cater with a basic transmission mechanism to their spouses and children.
Using trusts in Asia
Since Asian clients tend to prefer being hands on, and in control, discretionary trusts seldom fit their needs, said Smallwood.
More appropriate and relevant, he explained, is a trust which gives clients various powers, including the ability to pull money out and to change beneficiaries.
He said this helps them feel like it is almost structured like an account.
More complex wealth planning needs
For Asian clients with more complex needs, Smallwood said they can use more complex letters of wishes and structures in the form of real estate holding companies for assets with various banks.
For very large clients, who might own or control a lot of assets which are not suited to a bank trustee, and for which the clients want full control, private trustee company services are likely to be more suitable, he explained.
Private banks can in these cases provide the administrative platform, and expertise and input, to the clients’ own trust structures – which they ultimately control themselves.
Tax planning requirements in Asia
According to Smallwood, the most obvious tax planning requirement in Asia, and one which applies to Indian and Chinese clients in particular, relates to exposures to US beneficiaries.
This is linked to the cultural trends within the market in the form of the patriarch or matriarch, who are the original entrepreneurs, he explained. As they have made the wealth in the last 30 years or so, they have used it to provide their families with the benefit of a high level of education, resulting in many of their children being educated in the US.
This has led to problems in cases where children have stayed in the US and obtained green cards – in turn exposing them to potentially long-term US tax liabilities.
As a result, with respect to the transmission mechanisms of the parents, Smallwood said careful planning has to be undertaken to ensure tax-efficient transfers of assets to those children who are still US persons for tax purposes.
