Generational wealth planning: a family affair



Wealth is rarely limited to a single generation, and most of those who have accumulated wealth have a desire to ensure that their assets are transferred to the next generation as smoothly, efficiently and as fairly as possible. The increase in the number of mixed and more complex family structures, along with the fact that many families are fractured around the world, have added a layer of complexity when it comes to estate planning and developing a financial legacy for the next generation. . More complex family structures also create the potential for greater family dynamics and peculiarities that require sensitivity and a carefully thought-out approach to estate planning.

As a result of the above, we have noticed a marked increase in generational wealth planning, with more clients choosing to include their adult children in the estate planning process. Not only does this help ensure the effective transfer of wealth from one generation to the next, but it also allows the next generation to better understand how wealth was created, the sacrifices that were made in the process, the intentions behind building wealth, and the purpose for which the estate planner would like the wealth to be used.

Ensuring that the next generation understands how the legacy has been structured is as important as ensuring that the next generation is equipped to receive wealth and protect it in the future.

The success of generational wealth planning depends on honest and transparent communication between the generations, while ensuring that family relationships are protected, respected and nurtured. Such communication can be difficult, especially when families are separated in the world. In addition, having members of the same family living in different parts of the world can give rise to jurisdictional issues which, if not addressed by an expert in the field, can lead to delays in the process. liquidation of an estate, unintended tax consequences, and unforeseen costs.

Many civil law jurisdictions, such as France, the Netherlands, Germany, Portugal, Spain, as well as Mauritius, have compulsory inheritance, or “forced inheritance,” laws which impose restrictions on how your assets can be bequeathed, and if your estate is not structured appropriately given the laws of the jurisdiction in which your assets are located, your estate planning intentions may be inadvertently hijacked.

Naturally, a valid and well-written will is essential to ensure that your intended inheritance has a voice, although this is often more complicated than it looks. Complex family dynamics and multiple heirs can make it difficult to structure a financial inheritance deemed fair for all concerned. In addition, the existence of offshore assets may not only require the drafting of a foreign will, but may also add an additional layer of costs when it comes to seeking expert legal and fiduciary advice in the country where your assets are. hosted.

Appointing an executor who has sufficient expertise to give full effect to your wishes while being sensitive to family dynamics and relationships is of the utmost importance, and in our experience it is advisable to appoint a fiduciary expert. independent to fulfill this role. Likewise, if you have provided for a testamentary trust in your will, you will need to think carefully when appointing your trustees and defining their duties and obligations. Once you are deceased, not only will the Trustees be the intermediary through which your beneficiaries liaise regarding their inheritance, but they will also be responsible for ensuring that the assets of the trust are managed in the best interest. of your beneficiaries.

Having plans in place – and communicating them to succession – for managing your financial affairs in the event of incapacity is an essential part of estate planning. As you age, the possibility that you may become mentally or physically unfit will naturally play a lot in the minds of your adult children, and it is imperative to reassure them that effective mechanisms have been put in place to cope. to such an eventuality.

In the event of physical incapacity, a general power of attorney is an effective way to ensure that your adult children can take charge of the management of your financial affairs, but keep in mind that such a mandate will expire in the event that you were becoming mentally incapable.

Living trusts are very effective estate planning tools for ensuring that your assets can be managed and protected in the event of mental incapacity, but using such a vehicle would involve careful planning and structuring to ensure that your goals are achieved. Again, appointing trustees to manage the assets of the trust is something that will require careful consideration and enormous trust. While a living will can prove very useful in a medical crisis or emergency, an advance health care directive – which includes the appointment of a medical attorney – is a great way to provide your loved ones with advice on how you like to be cared for at the end of your life and can be particularly helpful in the face of a terminal diagnosis.

Another key part of generational wealth planning is providing the next generation with confidence that your retirement funding is adequate and that you will not become a financial burden on your adult children later in life. Not having a clear idea of ​​where aging parents’ retirement funding is a source of anxiety for many adult children, and effective generational planning should take steps to provide the next generation with confidence that funding Adequate and effective retirement pensions are in place, including the costs of future medical care, assisted living, and fragile health care, if necessary.

When it comes to the asset allocation of your pension fund, it is important that your estate plan takes into account the nature of each investment and the legislation that governs the asset allocation. Remember that if your funds are housed in an approved retirement fund, the distribution of funds will be at the discretion of the fund trustees based on their determination of who qualifies as a financial dependent. This could therefore be a determining factor in choosing your retirement fund, knowing that a life annuity structure allows you to designate your beneficiaries as you see fit.

If you have a child with special needs, ensuring that the assets for them are protected and managed in their best interests even after your death is an essential part of generational wealth planning. Special trusts, whether testamentary or inter vivos, are both efficient and tax-efficient when it comes to protecting the financial future of a child with special needs. If you have other adult children, you may want to consider appointing them special trust trustees, along with an independent trustee, to ensure that your child’s assets with special needs are optimally managed.

In our experience, many clients wish to transfer some of their wealth to their adult children and / or grandchildren during their lifetime, and this is something that a generational wealth planner can help – as well as making sure that all the tax and retirement funding implications of doing so are taken into account. Choosing to give money to an adult child or to help them financially in the purchase of their first property should be part of the generational wealth planning process, not only because of the tax implications of donations, but because it can. have an impact on the attribution in your will to the extent that it has an impact on the financial assets of your other heirs.

If you have business interests, your estate plan should also include a workable succession plan for your business actions, with due regard to the shareholders’ agreement and business insurance plan. Having sufficient buy and sell insurance is not only a great way to ensure that surviving shareholders can buy your shares in the event of death, but also serves to ensure the value of your business interests for those close to you.

Another critical factor in the efficient administration of your estate is the access and availability of key estate planning documents, and in this regard, we normally recommend that you provide your adult children with copies of all documents. relevant, including a copy of your will. , property titles, birth certificate, ID, passport, marriage certificate, marriage contract, trust deeds, bank details, divorce orders, declarations of benefits, firearms licenses and other important documents.

When liquidating your affairs, the Master will require certified copies of the identity documents of your heirs, which means that, if one of your heirs resides abroad, obtaining these copies may entail unnecessary delays and we advise you to keep copies on hand. Important documents that should also be readily available include your living will, organ donation card, and medical aid details.

Generational wealth planning has proven to be a very effective way to open communication and discourse between generations and to ensure that the estate planner’s intentions regarding the transfer of wealth are respected, understood, valued and implemented.


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