Wealth and assets can be generated in a lifetime, so it is important to ensure that we pass wealth on to the next generation and beyond. The passing of wealth from one family generation to the next is known as Intergenerational Wealth Transfer.
Here in the Middle East, considering succession and legacy planning as part of your financial planning strategy is becoming more important than ever. The majority of wealth created here in Dubai has been generated over the past 40-50 years in its masses. With the Islamic Waqf System in place, and generally, most people in the UAE are not making a will because of the principles of Sharia, it is important to be specific with where your wealth will go after your death.
It’s becoming increasingly important for more people to consider intergenerational wealth transfer as part of their financial planning strategy. Talking about death is a taboo subject among many families here in the Middle East. Below we explore some of your options.
Intergenerational wealth transfer can be a huge issue for all family members concerned. If done well and executed properly, it can make a real difference to the financial position of the recipients. If misjudged or poorly handled, it can cause enormous issues, conflicts and resentments never forgotten nor forgiven.
Financial implications of Intergenerational Wealth Transfers
One aspect that should be thoroughly considered is the impact on family members, particularly the next generation, as parents think about selling up or passing down a business and entering retirement.
It is important that children are prepared to deal with this process, not least, so they know how they may be affected and what they may expect. For instance, children may expect to receive a certain amount of money from their parents – particularly those selling a business – and end up disappointed or may not feel responsible enough to take over a business.
Conversely, they may not expect anything and therefore are not equipped to deal with a substantial windfall. Transparency is the key to generational wealth.
Contributory factors of intergenerational wealth transfer management
For those approaching retirement, it’s important to have frank and open conversations about expectations, whether children have the knowledge and understanding to manage financial matters, and how they feel about inheriting a business and/or wealth.
How to deal with approaching retirement
Many families experience a jaw-drop moment when their children are exposed to what their parents have achieved financially. Many want to learn from their parents to be in the same position as them in the future. Although, it is important to remember that we work our whole lives to provide the best for our family and leave behind our legacy.
Although you should not feel your family is solely dependent on you for their financial situation. It is important to teach your children a good work ethic and not simply let them believe they can fall back on the bank of mum and dad. After all, it’s called legacy planning, with the idea of leaving behind a long-lasting legacy of wealth to last your family generations to come.
Expressing financial wishes
The best approach to help your children establish a strong financial foundation to prepare them for intergenerational wealth transfer is to introduce them to your professional advisers as soon as they reach early adulthood. This can give them comfort knowing that they have someone to turn to for financial advice and peace of mind; someone is there to support their finances with their best interest at heart, should you no longer be around. Open communication and expressing your goals will also ensure your family is on the same path to success. This can also squash the possibilities of conflict when managing intergenerational wealth after your passing.
So here are some helpful questions to ask yourself before starting the intergenerational wealth transfer planning process include:
- When did wealth enter your life, and how do you imagine this timing influences your values and family relationships?
- What impact does affluence have on your life and the lives of your next generation?
- What was the key to success in creating wealth, and how might telling this story to your future generation be helpful?
- What is your biggest concern in raising your children or grandchildren with affluence?
- What conversations (if any) did you have with your parents about money and wealth growing up?
- How did your parents prepare you to receive wealth, if you did?
- What lessons did you learn from your parents about money and finances you would like to pass on to your heirs?
- What family values would you like to pass down to the next generation, and how do you plan to communicate this family legacy?
- What concerns do you have about your adult children regarding inheriting and managing family wealth?
- How can you help prepare your beneficiaries to receive wealth and carry on your family legacy?
The passing of wealth between generations
Many children set for vast sums of inheritance can become over-reliant on their expected windfall. Getting the younger generations involved in your business and finances is important. Teach them how to handle the wealth and responsibilities they will inherit, and equip them with advice and professionals who can help them make wise decisions about the wealth they generate themselves when you’re no longer here.
Help is always at hand
GSB are a multi-family office whose role is to meet the investment, estate planning and lifestyle service needs of high-net-worth individuals and their entire family. We offer comprehensive global wealth management and financial guardianship tailored to each individual client’s needs.
At the heart of our private client offering is the understanding that our high-net-worth clients each have a unique set of motivations and objectives. For this reason, we ensure that advice is tailored to your specific needs. We offer bespoke solutions that fit your lifestyle, family, business and personal interests. This approach allows us to shape your plans and protect your wealth for generations to come.
Ross Whatnall is CEO and co-founder of GSB and a highly experienced private client director. Ross holds many insurance and investment management qualifications, including CISI, CII, LIBF and CFA. He started his career in private banking with HSBC in the UK before moving to the UAE in 2013 to focus on serving his private clients.