Planning for the future: key considerations for growing HNW families
26 January 2024 - Global high-net-worth (HNW) families are expanding at speed and so are their concerns about preserving wealth for future generations. Compounded by the evolution of non-traditional family units, the question of how best to tackle wealth preservation in this modern global landscape can be a hard one to contend with, especially when there is a vast array of solutions available.
So, what are the key considerations for HNW families who are thinking about their options?
Common drivers
While the motivation for seeking estate planning structures may vary from family to family, there are six common reasons often at the fore:
1. Fortune conservation: HNW individuals have significant assets that they want to protect and preserve for their children and family over generations. Estate planning structures, such as foundations and trusts, provide a means to safeguard and manage assets whilst mitigating potential risks such as legal disputes, mismanagement and fragmentation.
2. Asset protection: In an increasingly litigious world, individuals and families are facing higher levels of exposure to a range of risks, from legal claims and divorce settlements, to creditors chasing debt. These are real-life examples that may motivate HNWs to adopt best practices in anticipation for the future. By utilizing estate planning structures, they can place their assets under legally viable arrangements that can support their needs by ring-fencing personal liabilities and potential threats.
3. Privacy and confidentiality: Wealthy individuals and families value their privacy and prefer to keep their financial affairs confidential. Estate planning structures established in certain jurisdictions can offer enhanced privacy, as they may have different disclosure requirements in place.
4. Tax efficiency: Estate planning structures can be designed to optimize potential tax consequences and provide solutions to better align estate and gift tax, as well as taxes on capital gains.
5. Succession planning: Complex family dynamics and multiple generations are usually involved in wealth transfer plans; therefore, the intention of key family stakeholders should be clearly articulated. Estate planning structures can facilitate the smooth transition of assets from one generation to the next, ensuring that the intended beneficiaries receive the assets according to the wishes of preceding generations.
6. Philanthropy: For some families, there may also be a desire to give back to society through philanthropic activities. Estate planning structures, such as charitable foundations and trusts, can provide a framework for ordered charitable giving, supporting the causes that HNW individuals and families care deeply about.
Widely used estate planning structures
It is important to point out the key differences between the most widely used structures in estate planning, which are private foundations and trusts. There are a number of useful factors for families to consider in order to better understand how they work and what is better suited for them.
Using Curaçao and the Cayman Islands as chosen jurisdictions to exemplify these legal structures is useful due to their longstanding existence and experience. Here are some of their distinctive characteristics:
- Founder
- Supervisory Board
- Beneficiaries
- Settlor
- Trustee, Protector (if applicable)
- Beneficiaries
- Founder
- Supervisory Board
- Beneficiaries
- Settlor
- Trustee, Protector (if applicable)
- Beneficiaries
It is important to note that the specific features and advantages of each estate planning structure in different jurisdictions can vary depending on individual circumstances, so before taking a decision on which structure to set up, families should always seek expert guidance from experienced professionals – including lawyers, tax advisors, and financial planners. Wealth advisors will be well placed to help navigate the complexities of each jurisdiction and the estate planning structures available, to find the most suitable option specific to a family’s situation, whilst ensuring compliance with applicable laws and regulations.
For more than 75 years, families have put their trust in Citco Corporate Solution companies to preserve their assets for future generations. Working with clients and their trusted advisors to implement bespoke structures, our dedicated team of private wealth practitioners provides peace of mind in a complex world with a range of tailored solutions to meet their specific needs.