Marcus Leese of Ogier explains how estate and succession planning can help families tackle potential conflict over wealth, and looks at key considerations in the process.
Date: Dec 2011
First, he explained, is the common human approach of not wanting to think about mortality. Secondly, and something which is unique in Asia, is that the tax rate tends to be relatively low, so this removes a major catalyst for estate planning which exists in the developed world.
Thirdly, individuals might believe that discussing wealth or estate planning will lead to greater discord within the family.
Planning to overcome family conflict
The reality of many experiences, said Leese, is that a well-implemented estate plan actually reduces, or entirely avoids, family discord.
So by establishing a well-thought-out estate plan, a family can prevent or avoid disagreement by setting out a very clear and well-considered strategy for what will happen to wealth during certain events in the future.
Planning to deal with divorce
Leese said that one of the most important elements of any well-designed estate plan is flexibility, enabling implementation of the plan to change as family circumstances evolve over time – with divorce being a good example.
In such cases, he said a well-designed estate plan for a couple will take account of the fact that while the married couple has shared interests and assets, they may divorce at some stage in the future and then re-marry, creating separate families.
A plan shouldn’t have to be revisited and drawn up again if a divorce happens, said Leese, especially because the parties are far less likely at that stage to be able to agree a suitable structure for the future.
Putting together an effective plan
According to Leese, it is important with any succession or estate plan not to start with the details, but rather to look at the goals and the fundamental outcome that the family wants to achieve. Then the plan is about simply how to achieve that via a suitable structure.
Then people should start to think about how to implement the plan. This is not simply about drafting a will, noted Leese, as there exist, for example, many family trusts for holding assets, foundations or other vehicles.
Misunderstanding wealth planning
A common misunderstanding in relation to wealth planning is the view that it’s inevitably a complicated process, yet Leese said it doesn’t have to be.
The plan is no more than a tool by which individuals can achieve certain outcomes. And the complexity is really a function of the goals and particular assets that that individuals have, as well as the nature of the family, he explained.
Another key misconception, said Leese, is that this is something which can wait until a later date – however, the reality is that it generally can’t. Normally, the earlier a plan is made, and the more time given to thinking it through, the greater a success a plan is likely to be.
A further misconception is that an individual’s succession or estate plan is entirely separate from the rest of their lives, including their business, investments and other assets. Yet Leese said the reality is that it is an integral part of all of those things.
Estate planning is not simply about any one thing, said Leese, and certainly not solely about tax mitigation.
While tax reduction might be a helpful aspect of estate planning, it’s not the sole reason for doing it, nor the most important reason for doing it.