Succession planning is not the most exciting subject in the life of a high net worth individual. While economics, investment, experiences and luxury automobiles are all more fun topics of conversation, one topic that needs more attention is how to make sure that the wealth that allowed all of that activity is there not just for the next generation, but further down the line.
"There is an old folk tale about a man who tells people that his grandfather rode a camel, his father drove a land rover, he drives a BMW, his son will drive a land rover, and his grandson will ride a camel. Wealth dissipates if you're not careful," said Robin Amlot, Chief Executive Officer of CPI Financial, laying out exactly how life without proper succession planning can go.
The issue is coming under increased focus in the GCC. "A lot of wealth that has been created in the GCC is relatively young--first or second generation. Upon succession, it's the first time that people think about family governance and also corporate governance of the companies. Many local families have gathered to set up education on these topics, and this is something that we have heard a lot about in the last four to five years," said Stijn Janssen, Head of Tax Advisory, Withers Worldwide.
But as Rajesh Malkani, Head of Wealth Management and Private Banking at Mashreq Bank said, you're lucky if you even get to that conversation. "Succession planning is a complex issue, but it's a good problem to have. It means after you there will still be some assets left over. I think the elements that make this complex are broadly, a function of your nationality and your domicile. The jurisdiction of your assets, the function of the domicile of your heirs, and in some religions, a function of the gender of the heirs, and the complexity of the nature of the asset as well. Something as simple as a liquid portfolio is easy to transfer, and it can get more complex depending on if it's property or an operating company. It's then about asking how we can unravel these complexities."
Sean Hird, Head of the DIFC Wills and Probate Registry, has been working to make sure people in Dubai of all backgrounds are able to take care of their succession. " We're here to introduce a new mechanism whereby non-Muslims can opt out of the Shari'ah distribution arrangements in governance and inheretence matters whereby they can achieve certainty with regards to the distribution of their estates."
Janssen believes the DIFC in particular has taken important steps in sorting out the legal issues that arise in these situations. "When people have assets beyond Dubai, it becomes more complex. If you own property in Dubai that isn't freehold, that must be owned by an Emirati owner--this makes foreign trusts unusable. That is why in DIFC they created a trust law. Bahrain and Qatar have since followed suit. This allows people to organise matters during life so that when they are no longer there, the family doesn't get into a fight. This allows a next generation to have prosperity."
"I think there are multiple factors that go into making sure you have a coherent succession plan in place for family businesses," said Nada Al Hashimi, Family Office Analyst, Knight Frank. "You can start with the governance structure of the business, and the governance structure of the family. A family council, for example, can mimic the structure of the business itself."
Sohail Zubairi, CEO of Dar Al Sharia, provided the Islamic perspective on succession planning. "The concept of wealth in Islam is that no one owns anything--everything is owned by Allah Almighty. We are simply trustees. If Allah has given us wealth, there is a defined guidance on how it should be treated, investment, how returns should be derived, and how that should take care of society. This is not only in Islam--it is in Christianity as well. It is not wrong to create wealth in Islam, but it should always be kept in mind that whatever you do is in the Shari'ah boundary. Wealth preservation is also taken care of in Islam via Waqf."
Inheritance, too, is part of the Muslim tradition. "In Shari'ah, the inheritance is predefined in the Qu'ran, not having changed in 14 centuries. You do not need an accountant to know who will get what. The sons will get higher than the daughters, and the wife will get lower than the daughter. It's all there. Daughter's husbands are supposed to take care of them, whereas the sons need to take care of their spouses and children. The general perception is that women do not get anything when wealth is distributed, which is incorrect," said Zubairi.
Of course, for non-Muslims, there are alternative methods of planning. "Planning has to be done in the context of the legal ownership situation that arises when someone passes away. If you are a Muslim or you do not have a will, the legal ownership is governed by a clear structure that dictates how your wealth is distributed. If you have a will that has been registered with the DIFC Wills and Probate Registry, you are able to plan differently, with the will itself dictating where the estate goes and how it is managed," said Hird.
But it is not just a matter of establishing a plan. If the next generation cannot implement it, all planning is useless.
"Education for the next generation has to be the key," said Amlot.
To do that, sometimes it's a matter of letting children go off on their own. "In preparing the next generation to take care of these roles, there is a lot of aspects that go into that. First, it's about understanding what the business is, and what the vision for it is going forward. From there, it's about giving them the knowledge that they need to take on those roles. A lot of family businesses, and those that have been success stories, have their children go and work elsewhere before they take a role in the family business so they get the right expertise," said Al Hashimi.
The GCC, however, is much better educated on these matters than ever before. "Clients are getting well-informed. They do a lot of research. No one comes to us completely ignorant--that is not the case anymore at all," said Malkani.
[c] 2017 CPI Financial. All rights reserved.[c] 2017 CPI Financial. All rights reserved. Provided by SyndiGate Media Inc. ( Syndigate.info ).